The coronavirus pandemic hasn’t turned health-care institutions away from private markets and risk assets, new research from Goldman Sachs shows.
The firm’s asset management unit recently published its third annual health-care investment report based on a survey of 42 U.S.-based health-care and hospital systems managing over $350 billion in investments.
Within alternatives, these institutional investors have allocated the most capital to hedge funds — and they remain bullish on the sector following a year of positive performance for hedge funds, the report said.
“I think that the fact that they’re more liquid than other private investments is more appealing,” Paget MacColl, managing director and co-head of the America’s institutional client business at GSAM, said by phone. “A lot of health-care investors invest like endowments and foundations, which have stuck with hedge funds.”
According to the report, 76 percent of respondents said they would maintain or increase their exposure to hedge funds, compared to 61 percent in 2019.
Private assets generally were also attractive to health-care investors, according to the survey. Ninety-seven percent said they planned to keep or increase their exposure to private equity, while 90 percent said the same for private credit. Neither significantly changed year-over-year, though.
Meanwhile, 30 percent of respondents said they intended to increase their exposure to equities, as compared to 18 percent in 2019. At the same time, 33 percent of respondents reported plans to decrease their cash holdings moving forward.
“What was interesting is that our respondents were more bullish on equities,” MacColl said. “That is not distinct to health-care. We’re seeing that across all institutional investors.”
MacColl added that she is also hearing investors overall expressing more interest in active investment strategies.
“I think it’s a return of dispersion in the market, and more volatility, which would lend itself to active outperforming passive,” MacColl said. She added that small-cap, emerging markets, and single-country strategies are particularly desirable to clients.
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Elsewhere in the survey, health-care investors expressed more bearish views about market risks and their overall portfolios. Goldman asked respondents to rank risks on a scale of one to five, where a one indicated that investors were “not at all worried,” and a five indicated that they were “very worried” about specific risks.
In 2019, at least half of all respondents ranked two out of seven categories as a four or a five on the scale. That increased to four out of the seven categories in 2020.
Their worries changed too. In 2019, health-care institutions said they were most concerned about not meeting return targets. In 2020, geopolitical turmoil and operational pressures eclipsed those concerns. Sixty-seven percent of respondents ranked each of these risks as a four or a five on the scale. That said, concerns about meeting return targets and the risk of a recession also ranked highly — 60 percent of respondents ranked each as particularly worrisome.
According to MacColl, it’s “no surprise, given the market volatility, that investors appear to be more bearish than last year.” That, she added, is why they’re turning to private markets and active investment strategies.