Ruben J. King-Shaw Jr., Reveals the ‘Excellent Opportunities’ in Domestic Healthcare

Aging demographics expected to continue fueling growth

What impact did the Affordable Care Act have on the healthcare industry and what does it mean for investors?

King-Shaw: There is no simple, easy or short answer to this question. The Act has not been fully implemented at this point. Yet, in general, the ACA is expected to eventually bring nearly all Americans under some kind of insurance coverage. That would remove the single greatest barrier to healthcare services: affordability. With that barrier removed, demand for healthcare services will grow rapidly and the healthcare economy will need additional capital to supply the products, services, technology and personnel to meet the growing demand. Investors, who are the providers of capital, could benefit greatly.

Another positive effect of the Act has been to encourage the use of health information technology to contain costs and promote wellness. Investors can find good returns in those two sectors. There are, however, more concerning scenarios. Businesses may curtail hiring or cease offering group coverage if the cost of insurance rises too high and/or the penalty for NOT offering coverage is too low. A “jobless” recovery is not good for investors.

A much less talked about aspect of the Act is to usher in changes to the way hospitals and physicians are compensated. The shift to performance-based compensation (based in part on clinical outcomes and patient satisfaction) and away from fee-for-service compensation has just begun. Provider organizations that embrace this change will offer good returns for their investors. Those who do not, face a bleak future for themselves and their capital partners.

How can an individual investor best position their portfolio to benefit from the expected growth in this area?

King-Shaw: For those comfortable with public securities, a conversation with their stock broker or financial advisor can result in the selection of a specific healthcare company’s stock or select a number of healthcare stocks, which can benefit from the aforementioned trends. Also, there are healthcare specific mutual funds, which one might consider. Investment in a private equity fund is the leading alternative to the investing in publicly traded stocks. These private equity funds can be healthcare specific—such as ours at Mansa Capital—or the funds may include healthcare along with other industries.

Private equity funds generally require longer “hold” periods but they have historically produced significantly higher returns for their investors than the stock market. Both publicly traded stocks and private equity funds have their unique risks, so everyone should consider all investments carefully and get good advice before investing.

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