A chance for public investors to align health and wealth

WHILE the Covid-19 pandemic has been a turning point for many sectors and industries, nowhere has this been more acute than in health systems, proving that under-investment has fatal outcomes. According to the World Health Organization, the public sector funds 60 per cent of global expenditure on health.

Many governments are already feeling the strain as they scramble to procure medical supplies and keep their hospitals running. Institutional investors have a role to play, as strengthening any country's health infrastructure must be a long-term endeavour.

Even before the novel coronavirus outbreak in Italy, asset manager Azimut announced that it was launching an infrastructure fund to invest in educational, medical and retirement facilities in the country. It hopes to attract investors keen to include sustainable infrastructure in their portfolios without being limited to climate-related projects.

Investing in medical facilities is not new to public investors that have long been active in the infrastructure space, as well as those that are growing healthcare portfolios. Singapore's GIC counts private facilities in Brazil, the Philippines and Australia among its hospital investments. Another Singaporean fund, Temasek, has shares in hospital chains in China and India. In 2019, the Abu Dhabi Investment Authority acquired a stake in Apollo, a leading Indian hospital group.

Private hospitals have an incentive to deliver returns, but publicly-funded facilities also offer investment opportunities. Under a public-private partnership (PPP) model, revenue would typically come from availability payments paid by governments, guaranteeing a steady stream of income regardless of demand. The return on investment from a public hospital would not be linked to the number of patients, or any margin of profit from treatments.

PKA, which manages Danish pension funds for healthcare and social workers, has invested in several hospital projects through PPP in conjunction with other funds in the country, including PensionDanmark. Oman's health ministry hopes to develop new hospitals under the PPP model - among them, a US$1.25 million Medical City project that the Oman Investment Fund is invested in.

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The PPP model is becoming more widely used, especially in emerging economies where demand for public infrastructure is evident but governments may not have the fiscal space to cover upfront costs. Spreading the cost over a decade or longer through annual availability payments made to the private partner eases the burden. However, because of the length of concession agreements, investors may be reluctant to enter contracts in countries with high levels of political risk.

INVESTING WITH PURPOSE

Aside from hospitals and conventional medical facilities, public investors have tapped opportunities in telemedicine platforms. While these have been quietly growing in recent years, the global health crisis has made them vital tools rather than just means of convenience. Video consultation software enables patients to access legitimate medical advice without leaving their homes. After a remote consultation, patients can be advised on whether they need to proceed to hospital or remain at home.

In January, the Ontario Teachers' Pension Plan led a US$155 million fundraising round for Kry, a digital healthcare software application available in several European countries. The Swedish telemedicine company says that use of its platform has more than doubled since February, just before coronavirus cases spiked in Europe.

Home confinement has also increased reliance on fitness applications for people exercising indoors. ClassPass, which normally gives subscribers access to multiple exercise gyms and studios, has switched to streaming of classes and workout videos. The company, which counts Temasek among its investors, reached unicorn status early this year.

As with hospitals, telemedicine and telehealth ventures fall under the broad category of alternative investments where there is plenty of room for environmental, social, and governance (ESG) alignment. The shift to online platforms is an opportunity for public investors to modernise their portfolios with innovative investments while achieving responsible investment goals. OMFIF