Institutional capital looks to unlock growth in Apac healthcare

Key Points

Institutional allocators across Asia Pacific (Apac) are increasingly tailoring their private market strategies to capture structural growth in healthcare, balancing the high-risk potential of drug discovery against the stable demand generated by demographic ageing.

Rather than viewing demographic shifts purely as a liability, sophisticated investors are leaning into venture capital, private equity and thematic strategies to fund life sciences, digital healthcare and drug manufacturing.

For institutional investors, healthcare is increasingly offering two complementary investment opportunities. On one hand, venture capital and private equity are helping commercialise scientific research and drug development. On the other, ageing populations and rising healthcare spending are creating long-term demand for healthcare services, diagnostics, hospitals and digital care platforms across Asia.

Together, these trends are prompting allocators to view healthcare as both a growth and resilience theme within private markets.

Life sciences, particularly venture capital investment in drug discovery, is one of the most compelling growth areas, according to Toshiyuki Kumura, chief investment officer at Japan Investment Corporation (JIC).

Toshiyuki Kumura
JIC

As this sector is characterised by long development timelines and high uncertainty, meaning "the risks involved cannot be fully borne by private capital alone," such investments, if successful, can generate "significant spillover benefits for industry as a whole and for society."

Recognising this financing gap between scientific discovery and commercial deployment, JIC has adopted a cross-border venture capital approach. 

"Growth opportunities are created by combining promising Japanese assets with overseas markets," Kumura told AsianInvestor. The firm invests as a limited partner in US-based VC funds that create companies aimed to advance Japanese drug discovery assets towards regulatory approval.

This approach addresses a structural challenge in Japan, where pharmaceutical products have been launched locally but have been assigned a relatively low priority, leaving "insufficient funding for overseas clinical trials and regulatory approvals."

In other cases, assets progress to the pre-clinical stage, but the developers "are unable to bring them to market on their own. Even when excellent science or promising technology assets exist, they do not become products or solutions on their own," he said. In these cases, JIC’s portfolio VC funds step in to act as producers, coordinating asset selection, clinical development, management recruitment, and capital. 

Despite the challenges associated with biotech investing, Kumura believes the long-term outlook remains favourable.

Kumura also highlighted that "global demand remains strong" in pharmaceutical development, noting the Japanese government positions the sector as "both a growth industry and a core industry." While risk capital remains limited, investor interest is growing, according to Kumura, as "healthcare-focused funds with commitments of approximately JPY20 billion ($129 million) have begun to emerge in Japan," while biotechnology and drug discovery companies have been attracting increasing investment from overseas venture capital firms.

THE SILVER ECONOMY AND REGIONAL HUBS

While Japan's drug discovery ecosystem illustrates how institutional capital can accelerate healthcare innovation, investors across the wider Apac region are also finding opportunities in businesses positioned to benefit from rising healthcare demand and ageing demographics.

The broader region presents diverse entry points for healthcare capital. While businesses developing new technologies, products and care-delivery models carry higher execution risk, "venture capital therefore offers the greatest upside potential, alongside higher volatility and a longer path to liquidity," according to Praveg Patil, head of Asia Pacific, impact and private equity at M&G Investments. 

Praveg Patil 
M&G Investments

Developed Asia acts as an innovation hub because markets "benefit from world-class research institutions, advanced healthcare infrastructure and strong innovation ecosystems," and the investment thesis there centres on demographic shifts. Institutional allocators are addressing ageing through portfolio diversification and thematic investing, as "healthcare and longevity are being viewed as long-term structural growth themes rather than purely defensive investments."

"Ageing populations, lower fertility rates and increasing pressure on healthcare systems are driving demand for solutions that improve health outcomes, support preventative care and enable people to live independently for longer," Patil said. "Supported by partnerships with global pharmaceutical and healthcare companies, Asia has evolved into a major healthcare production and innovation hub."

In emerging Asia, the opportunity is primarily driven by rising incomes, expanding middle classes, urbanisation and improving healthcare awareness. "Investors continue to find attractive opportunities in healthcare delivery platforms, hospital networks, diagnostic providers, pharmacy businesses and technology-enabled healthcare solutions that improve accessibility and affordability at scale," Patil said. 

Ajit Banerjee
Shriram Life

"India continues to be the pharma capital of the world and with strong domestic and export market shares," Banerjee said, adding that the Indian market "should continue growing around 8-10% over the medium term, led by chronic therapies, better healthcare penetration and volume/mix improvement."

"India remains the steadier part of the sector versus the more volatile US generics market... emerging as a reliable health care tourism destination around the globe in view of the quality health care it provides at a relatively lower cost," he said.