Investor and manager interest in health care isn't showing signs of abating any time soon.
"It's a pretty big playground," said John Haggerty, Westwood, Mass.-based managing principal and director of private markets investments at Meketa Investment Group.
The health-care sector is extremely broad, ranging from large buyouts of hospital networks to early-stage venture capital investments in potential new drugs, he said.
"The reasons why people like it are the reasons why it has become expensive," he said. "It is seen as pretty resilient and that's the result of the obvious fact that in the hierarchy of needs, people are going to spend on health care no matter what." However, health-care investments have myriad risks, including that the popularity of the sector has led to higher prices, which could lead to lower returns, Mr. Haggerty said.
Until the first quarter, the median U.S. buyout equity to earnings before interest, taxes, depreciation, and amortization has been on a jagged upward trajectory, PitchBook Data Inc. information shows. Equity to EBITDA ratio rose to 7.3x in 2020 from 4.9x in 2015. That multiple dropped to 3.6x in the first three months of 2021, according to PitchBook's most recent report.
Reputational risks are another concern.
"The reputation of a health-care institution needs to be carefully guarded," any decline in quality of care brought on by cost cutting or cultural changes is a risk, Mr. Haggerty said.
Health-care assets require much more careful attention than, for example, a private equity investment in a manufacturing company, he said. And institutional investors are very mindful of this, Mr. Haggerty said.