About 15 million people suffer a stroke each year. Many of this mostly elderly group are left with difficulty swallowing. To help with this condition, known as dysphagia, a UK-based company called Phagenesis has launched what it describes as a “revolutionary treatment”. By stimulating the pharynx, an upper section of the digestive tract, the treatment aims to help people regain the ability to swallow properly. Like many other medical treatments, demand could be increased by the fact people are living longer, because, as the World Heart Foundation notes, although the incidence of stroke is falling in developed countries, “the actual number of strokes is increasing because of the ageing population”. Phagenesis is one of a string of companies created by Anglo Scientific, which has offices in London and Boston and whose companies have raised more than $100 million in funds, the majority from family offices and angel investors. According to Will Addison, director of Anglo Scientific's Asia operations, the ageing of populations will “surely” increase demand for products of the kind offered by Phagenesis. “The Chinese, southeast Asian and developing economies generally are very keen on gaining access to the latest [healthcare] technologies, and we see that trend developing very, very rapidly … Catering for the elderly population is a big, big concern,” he says.
This concern is throwing up investment possibilities for family offices in sectors from general healthcare to care homes to anti-ageing treatments. Where are the opportunities in the 'silver economy' and what do experts who advise family offices have to say about the market? And what impact will this group's investment strategy have on global markets?
According to the UN, the number of over 65s worldwide will increase from 600 million, or 8% of the population, now to 1.1 billion, or 13% of the total, by 2035. “It's a global phenomenon [and] it's happening fast … The one exception is sub-Saharan Africa,” says Professor Mark Hayward of the University of Texas's Population Research Center. Developed countries are affected most: by 2050, 27% of Europe's population is predicted to be over 65, up from less than 20% now, while in Japan the figure will rise from 23% to 36%. Similar pressures will affect North America, albeit more slowly, as well as Singapore, Taiwan, Hong Kong, and China, and ultimately other parts of the world too.
Several factors are causing this “demographic time bomb”. In developed countries couples are having fewer children, “baby boomers”, born after the Second World War, are retiring, and people are living longer. According to the Global Burden of Diseases Study, life expectancies worldwide increased between 1990 and 2010 by 4.7 years for men and 5.1 years for women. Most of these additional years are healthy ones: over the same two decades, health-adjusted life expectancy (HALE), an approximate measure of how many active years someone can expect, grew by 3.9 years for men and 4.0 years for women. HALE remains much higher in developed countries.
The macroeconomic impact of these changes has been widely discussed, albeit without consensus. According to one scenario, equities markets will slump as baby boomers shift investments to safer havens to support retirement. “If everyone does this, there will be a substantial decline in the demand for capital market instruments, such as equities and bonds. In addition, the lower number of children being born today means that there will be less future demand,” Financial services company Allianz notes in its Demography as an Investment Opportunity report. During the last 50 years, drops in the ratio of working-age to retired people in the US have tended to correlate with a drop in share prices.
Yet there are alternatives to this doom-laden “asset meltdown” hypothesis. The Max Planck Institute for Social Law and Social Policy argues in a briefing document that because the retirement of baby boomers is known and expected, and will be spread over two decades, there will not be a dramatic impact on rates of return in capital markets. Another suggestion is that the realisation people will be living longer, and will have more years of retirement to fund, will encourage more aggressive investment strategies, leading instead to greater demand for equities. In addition, Allianz notes that demographic trends in individual countries will be less likely to affect returns on equity in what has become a globalised world. Overall, although the company believes fears of stock market collapse are “overblown”, concerns remain. “If the working-age population trends downward and capital in the form of savings trends upward, wages will gradually increase more than the cost of capital. In the industrialised countries, in particular, returns may therefore be weaker than in the past,” the Allianz report says. The effects of ageing on economies as a whole are also the subject of debate: some predict stagnation as companies cut investment as the workforce shrinks, while others forecast high growth as increased levels of savings are channelled into good investment opportunities.
As economists exchange contrasting views on the myriad scenarios that could play out, there is more agreement that the greying of the population will benefit certain sectors. “I think it's going to create a lot of opportunities for both service provision and the development of new technologies that help people to maintain independence and provide soft care,” says Hayward. “We're probably just at the beginning edge of many of these kinds of developments.”
Much interest surrounds growth in healthcare. George Latham, managing partner of WHEB Listed Equity, a branch of the London-based specialist fund management business WHEB Group, predicts a “continual increase in the volume of healthcare demanded as the population grows and ages”. “Healthcare costs [will] continue to be an increasing proportion of GDP because of that demand,” he says. Healthcare is an area of interest for the ageing-related investment funds set up by insurers, private banks, and asset managers, and there are also funds that specialise only in healthcare. Johan Utterman, portfolio manager for the Golden Age fund of the Swiss private bank Lombard Odier, which focuses on ageing-linked investments, indicates that the healthcare spin-offs from the ageing of populations can be diverse. “In healthcare it's obvious things – cancer drugs, diabetes, hip and knee, and cardiovascular implants,” he says. “But much more than that: in healthcare services and senior living facilities.”
Although the healthcare market is set to grow, it is also predicted to face severe cost pressures as governments struggle with potential budget deficits as the working-age population shrinks and pension payouts increase. UN figures forecast that in South Korea, for example, the old-age dependency ratio – the number of individuals aged over 65 for every 100 people of working age – will rise from 17 in 2013 to 66 by 2050. In Germany (currently 32), Spain (currently 27) and Japan (currently 41), the figure is set to reach 60, 67 and 72, respectively. “The ageing population is in part driving greater demand for healthcare, which is driving pressure on government budgets. There's greater demand on healthcare, but constraints on the ability to deliver. There will be pressure on businesses operating in those areas, as support can be withdrawn,” says Latham. Also, as a 2014 news report notes, since healthcare stocks have long been popular with institutional investors, there are “few bargains” available and staying ahead of the downward cost pressures is difficult.
In the light of spending pressures, there will likely be a premium on “more efficient ways of delivering healthcare”, according to Latham. Sectors that could benefit include generic drug manufacturing, and “areas looking for prevention rather than cure”. “For example, medical technology and diagnostics is important,” says Latham. The potential of new technologies is a theme echoed by Lombard Odier's Utterman. “There's some technology use in healthcare systems, like healthcare IT and robotics, which I think in future will become more important. There's even flooring companies with in-built sensors, so if an old person has a fall an alarm goes off and a nurse will visit,” he says. He highlights other technologies such as hearing aids that adjust the sound volume to the ambient noise level. Companies such as Denmark's ReSound, the world's largest hearing-aid manufacturer, produce these.
Much smaller healthcare technology companies, including those in areas like pharmaceuticals and biotechnology, may offer family offices a greater chance of high returns, albeit accompanied by greater risks. Addison at Anglo Scientific says their growth potential makes them worth including as part of a balanced portfolio. “In five or 10 years' time you might see a 10 times return on your money if you do really well. It can even be more than that. For a portion of capital, angel investors and some family offices feel it makes sense to put it there,” he says.
Investments in start-ups and other growth-stage independent companies also avoid the management charges of ageing-themed investment funds, says Joanne Sawicki, a non-executive director at Isocell, a French biotech company that has developed a patented anti-ageing melon extract, GliSODin, which people can consume to help combat the oxidative stress that contributes to ageing. Investors in Isocell, set up a decade ago, included a number of families. “A lot of these families have made their money because they're entrepreneurs, and they have the skill set to directly acknowledge whether it's going to be a good investment or not,” says Sawicki. The wider anti-ageing field may offer many investment opportunities. The whole anti-ageing sector – encompassing everything from hair colourants to anti-wrinkle creams – is achieving growth of about 8% a year, according to Transparency Market Research, and will be worth $192 billion by 2019. Some areas are growing faster still: the botox treatment sector is reportedly expanding by 14% year on year, and should be worth $2.8 billion in 2018. With growth driven partly by cash-rich baby boomers, cosmetics and clothing companies are increasingly keen to feature older female models in their advertising: last year the 69-year-old British actress Dame Helen Mirren was signed up as a face of cosmetics giant L'Oréal.
Other sectors could be set for an uptick thanks to demographic changes, notably financial services – pensions and life insurance especially – and, as Utterman describes them, “discretionary services” for older people. With the over 55s worldwide predicted to have $15 trillion worth of spending power by 2020, seniors can afford many extras. “In Japan, 23% of the population is over 65. In 10 years, that will get to 33%. That [current] quarter of the population is an important consumer group. They represent close to 45% of consumer spending and they have about 67% of individual financial assets,” says Utterman. Residential accommodation is being influenced by these demographic shifts. In the UK, house builders are tailoring designs to account for the fact that older people are becoming more likely to buy a smaller house for retirement. Typically, these properties have a larger main bedroom and flexibility in how the other rooms are used.
Investors may need to consider how cultural values impact investment opportunities from country-to-country too. Take for instance the London School of Economics report into elderly care, released earlier this year: “In southern European countries such as Italy and Spain … strong cultural beliefs mean that families accept most of the caregiving responsibilities for an [elderly] individual's wellbeing.” However, opportunities may exist if these cultural effects weaken. A 2008 report Home Care in Europe produced by the WHO and Bocconi University in Milan noted that “fragmentation” of family groups on the continent is reducing the number of people who can care for dependants. In Japan, traditional values are weakening and fewer elderly in Japan are being looked after at home by their children. This cultural change – alongside growth in life expectancy – is increasing demand in one of the most prominent areas for potential investors: elderly-care facilities in other developed parts of the world. In Australia, a doubling in the number of over 65s is expected by 2050, and the trade organisation Leading Age Services Australia said in 2013 that by 2022 an extra 83,000 beds in care homes will be required.
In the UK, property investor Octopus Healthcare predicts the number of registered care beds in the country will double to more than one million over the next 25 years. The company has two private funds that have invested about £400 million ($625 million) in 30 elderly-care homes and two retirement housing projects. “By the time someone who is 15 today is 85, there's predicted to be five times the number of 85-year-olds in this country,” says chief financial officer Mark Osmond. “With these population dynamics, there's just going to be this demand for increased facilities. It's going to be a big issue and become a bigger issue as the population does become increasingly elderly.” Osmond says funds that put money into such facilities are “not designed to get the racy returns you would expect from the more volatile class of the property sector”. This, he says, can make them attractive to investors such as family offices – potentially making this the dawn of a golden age for baby boomers and family office investors alike.