Europe primary focus for €200bn of healthcare infrastructure investment

Global institutional investors are forecast to increase their investment in healthcare infrastructure by $200 billion (€175bn) over the next five years, according to a new report by healthcare fund investor Octopus Healthcare. Current spending is about $270bn (€236.6bn).

For its report, the Octopus Group surveyed more than 100 global institutional investors with a total of $6.8 trillion in assets under management. For the survey purposes, the definition of healthcare included retirement housing, care homes and doctors’ surgeries.

The survey’s headline $200bn number is based on the desire of investors who already have capital deployed in the sector to increase their current average portfolio allocation from 6.1% to 9.5% over the next five years. Octopus Healthcare is a subsidiary of UK private venture capital firm the Octopus Group.

Around 37% of respondents expect to boost allocations to healthcare infrastructure investment by up to 10% over that same time period. Insurance companies will increase their allocations more than any other type of investor. Insurers currently allocate 7.1% and said they would like to increase that by 4.4%, to 11.5%.

“The investment opportunity is driven by the current shortage of good quality housing to suit later life which is urgently needed to accommodate the growing numbers of retirees and elderly,” the report stated. “The investment case for healthcare infrastructure is already resonating with institutional investors. Across region and investor type there is demand for opportunities to allocate funds to the sector.”

More than half of respondents said that demographics is the key driver for investing in healthcare infrastructure.

Around 71% of global institutional investors said their healthcare infrastructure investments are performing as expected or better than expected.

For UK institutional investors, 22% said their healthcare infrastructure investments are overperforming. Close to one-quarter of UK respondents said they plan to increase allocations, and one-quarter plan to do so by more than 10%.

Asian respondents had the highest level of current allocations to healthcare infrastructure, at 10.6%, and will invest the most into the sector of any other region in the coming years. They said they expect 12.1% of their portfolio to be allocated to healthcare infrastructure in the next five years.

The UK, Germany and France were the three countries where investors already have the biggest allocations, followed by Japan. The Nordics is the European market targeted for consideration by the highest percentage of investors, 40%, followed by France with 32%. ‘The research also reveals a degree of bias. Investors prefer to invest in their home market,’ Octopus Healthcare says.

Diversification, the demographic trend of increasing life expectancy and long-term income and attractive risk-adjusted returns were cited as reasons to invest.

Benjamin Davis, the CEO of Octopus Healthcare, said: “Not only is the ageing population growing, but the make-up of this group is changing beyond recognition. Improved quality of life in later years is transforming the way the over 60s live."

”This group is more active than ever before and have higher expectations than previous generations. Globally there is a significant lack of accommodation to cater to this varied group’s needs. This demographic shift is creating a strong investment opportunity for institutional investors.”

Hiti Singh, the head of institutional funds at Octopus, said: “The expected end of the market bull run, coupled with heightened political risk across the globe, is driving institutions to alternatives in a hunt for returns. Alternatives and within this, real assets, meet institutional investors’ requirements for long-term, tangible investments.”

Octopus Healthcare manages a UK healthcare property fund which converted to an open-ended structure last year. Last month the fund raised £187m (€210m) of fresh equity.