- Global institutional investors are forecast to increase their investment in healthcare infrastructure by $200 billion over the next five years.
For its report, the Octopus Group surveyed more than 100 global institutional investors with a total of $6.8 trillion in assets under management.
The institutions said they currently allocated 6.1 percent of their investment portfolio to healthcare infrastructure but expect that allocation to rise to 9.5 percent over the next five years.
Around 37 percent of respondents expect to boost allocations to healthcare infrastructure investment by up to 10 percent over that same time period. Insurance companies will increase their allocations more than any other type of investor.
“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,” the report observed.
More than half of respondents said that demographics is the key driver for investing in healthcare infrastructure.
Around 71 percent of global institutional investors said their healthcare infrastructure investments are performing as expected or better than expected.
For UK institutional investors, 22 percent 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 percent.
Asian respondents had the highest level of current allocations to healthcare infrastructure, 10.6 percent, and will invest the most into the sector of any other region in the coming years. They said they expect 12.1 percent of their portfolio to be allocated to healthcare infrastructure in the next five years.
Australian investors plan to increase investment by the largest margin. Although Australian investors have a relatively low current investment allocation to healthcare infrastructure at 4.1 percent, this is expected to increase by 5.3 percent over the next five years to 9.4 percent.
Global institutional investors in healthcare infrastructure report high satisfaction with investment
performance. More than one-third reported an annualized net internal rate of return on healthcare infrastructure investments over the past five years of between 10 percent and 15 percent. Another 5% said their returns over the period were between 15 percent and 20 percent. This equates to a global average of 8 percent.
Seven in ten global institutional investors say their healthcare infrastructure investments are either performing as expected or overperforming.
Investors surveyed are bullish and expect higher returns. Four in ten said they expected net returns over the next five years to be in the range of 10 percent and 15 percent. And 12 percent expect future returns of between 15 percent and 20 percent.
Globally, institutional investors said they expect 10 percent returns on average. Asian investors are the most optimistic about future returns, expecting 13 percent returns on average.
Institutional investor attraction to investing in healthcare infrastructure is increasing. This is being fueled by opportunities from the ageing population and the long-term nature of the investments.
“Despite this growing interest and high allocations among current investors in the sector, respondents identify a number of perceived barriers to unlocking further potential in the sector. Barriers include regulation, a lack of projects and relationships with operators,” the report noted.
Healthcare infrastructure market dynamics and demographic fundamentals have attracted the attention of global institutional investors. Octopus Group research found that healthcare infrastructure is an attractive alternative investment for many institutional investors seeking opportunities in real assets. Among those that are invested in the sector, portfolio allocations to healthcare infrastructure are significant.
“Barriers to investing such as lack of resource and regulation remain. Yet it is clear that investment in doctors’ surgeries, retirement housing and care homes is set to increase considerably over the next five to ten years. This investment will be crucial to ensuring the ageing population receives the quality housing and care they will need – from retirees to the elderly,” the report concluded.