Private equity positioning itself for longer-term investments in healthcare
Private equity is looking beyond the usual three to five-year window of investment in healthcare, as the market creates longer-term opportunities.
“You can see a shift in the organisation of capital at the moment”, says Marc Kitten, partner at consultants Candesic. He explains: “The traditional model of private equity is very biased towards LBO (leveraged buyout) – investment done over five years, possibly over three.
But now we’re seeing a large number of longer-term funds which are LBO funds, but which will accept a lower IRR (internal rate of return) and will accept that an investment will be over seven to ten years rather than over three to five.
Kitten says this is a reflection of the reality of the increasing size and value of markets like long-term care market – people are living longer and conditions that once proved fatal are now controllable – where investors need to be realistic about the length of their investment.
He adds: “There’s also the development of infrastructure funds like Macquarie to consider. It was the leader but now there are plenty of them. Those funds are not real estate funds but those funds are in between real estate and operations. They want businesses with a long-term and heavy infrastructure, as opposed to capex.
“Investors are realising they need to position themselves for the longer term and that goes hand in hand with very low interest rates in the Western world – in spite of all the fears we’re unlikely to go back to the kinds of inflation rates we have had in the past. Capital is becoming cheap and will probably remain cheap. And you have to look at the long-term to mobilise funds to get a little bit of liquidity premium.
“This emergence of longer investors in the healthcare private equity world, which is one of the most flexible and fast reacting parts of the capitalist world, is an indication there’s a recognition of the need to go longer-term.
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