The anticipation around the float of Australia's biggest health fund, Medibank Private, is a clear sign of the belief among big investors that there is serious money to be made in healthcare.

Government-owned Medibank Private is expected to be floated as early as this year, according to varying reports, but the insurer is just one of the opportunities portfolio managers and investment banks are eyeing off.

As wealthy western populations age and obesity and diabetes skyrocket in the emerging economies of China and India, analysts have forecast enormous future demand for healthcare services and huge opportunities for private providers.

Australian Unity chief executive officer Rohan Mead, whose group covers financial services, healthcare and retirement living, estimates that about $150 billion is spent on health in Australia each year.

Mr Mead cites Deloitte research that estimates federal government health spending will rise from 13 percent of total expenditure in 2009/10 to 21 per cent in 2049/50, while for states health costs will eat up 40 per cent of all spending.

“These numbers, which were always considerable and challenging, are going to become more and more challenging for governments,” Mr Mead said.

The result will be more private operators providing medications, treatment and medical facilities.

A recent media briefing by Australian Unity Investments and affiliated fund managers Platypus Asset Management produced five key points for understanding the healthcare sector.

1. Demand for health services is rising and changing.

By 2023, an estimated 595 Australians will turn 75 each day, while already in China 114 million people have diabetes and in India around 10 per cent of city dwellers have diabetes, Mr Mead said.

2. A new breed of healthcare consumer is rising.

“If you have a chronic disease for 10 years you start becoming a sophisticated consumer in the health system,” Mr Mead said.

“The rise of the consumer in relation to healthcare is going to be a pronounced trend and that’s going to throw up its own investment risks and opportunities.”

3. Hospitals and medical centres

Growth in the healthcare property sector is driven by an ageing population and private operators providing an increasing proportion of services.

“Healthcare property provides more attractive long-term returns than other property sectors,” Australian Unity Investments’ head of healthcare and retirement property Chris Smith said.

Health property is higher risk because of the smaller pool of potential tenants for a major medical facility but leases tend to be longer-term as well.

4. Initial Public Offers (IPOs)

Attention is focused on Medibank Private but private hospital group Healthscope is also expected to list in 2014, with a potential value of $4 billion.

Platypus Asset Management chief investment officer Donald Williams said he anticipated a number of healthcare IPOs in 2014 which would be good opportunities.

5. Companies placed to benefit from healthcare

Resmed, Ramsay Healthcare and CSL are companies that have a number of positive factors working for them, among them defensive earnings and a lower Australian dollar.

Mr Williams said Platypus invests heavily in healthcare.

“The growth in the sector is faster than most other sectors and on top of that a number of Australian companies with a product or a technology advantage have actually managed to turn their businesses into global businesses,” he said.

“That’s why we believe it is a very good sector to go hunting for high-quality investments.”


By Peter Trute