With all the buzz around private equity's role in healthcare, one could be forgiven for forgetting it's a topic fraught with myths and realities.
Let's break it down and separate fact from fiction.
Many believe that private equity firms focus on nursing homes. Contrary to prevailing beliefs, private equity's influence isn't solely confined to nursing homes. In reality, private equity firms have diversified their portfolios, with healthcare investments encompassing hospitals, medical practices, and health systems.
This is even more laid bare by the fact that private equity investment in healthcare has grown dramatically over the last decade, going from $41.5 billion to 119.9 billion, for approximately $750 billion.
And as per a 2023 report by McKinsey, fundraising fell 22% across private market asset classes globally to just over $1 trillion, as of year-end reported data—the lowest total since 2017 – signalling a bit of slowdown.
Given all these, question marks remain over the PE process.
Private equity's modus operandi hinges on capital infusion and operational optimization to maximize returns.
Through a strategic blend of mergers, acquisitions, and operational enhancements, PE discovers and unlocks value within healthcare entities with an eye toward profitability and efficiency.
A typical PE fund constitutes a pool of capital organized as partnerships and managed by fund managers who act as general partners (responsible for 2% of the capital), limited partners (20-30% of the capital), and the remaining 70-80% is debt-equity supplied by banks and assets.
Clearly, this kind of structure screams moral hazard!
However, while critics decry potential detriments to patient care (the structure and figures point towards that),
PE's potential to drive innovation and operational excellence cannot be overlooked. The reality lies somewhere in between, with nuanced implications for stakeholders across the healthcare spectrum.
To forge ahead and foster an inclusive investment atmosphere, compromises must be made to create a win-win situation for all involved.
Moving forward, as stakeholders in the healthcare landscape, it's crucial to navigate the private equity terrain with discernment and the proper guidance. Why not let those with the right expertise and insights take you by the hand and point you in the right direction?
At Enventure, our goal is to see you thrive as you provide investment for a healthcare system that prioritizes quality care above all else. Join us, and let’s make a change.
