By Dr Ash Patel, Investment Manager at Mercia
As early and growth-stage investors we are obsessed with understanding where value creation will lie in the future. For Mercia’s Life Sciences & Bioscience steam, this means focusing on the areas of healthcare where we can have the maximum impact on improving patient outcomes and reducing healthcare system costs. In this article, Dr Ash Patel explores the macroeconomic trends that we believe will drive value creation in healthcare for the next generation of businesses.
Increased life expectancy and the aging population
Let’s start with a big one. This is probably the single greatest challenge facing our societies at present. Modern science (and with it modern medicine) has been an overwhelming success in the human story.The average life expectancy of an individual living in a developed economy has grown consistently since World War 2, resulting in a female child being born in the UK today expecting to live to 82.8 years on average compared to 71.5 years for the same child being born in 1951. This is as a result of improved childhood survival due to vaccines, the massive reduction in infectious diseases over this period, and the increasing availability of treatments for chronic illnesses such as hypertension and heart disease.
Along with challenges posed to governments about how best to provide long-term pension incomes for a population now living for significantly longer than previous generations, a significant challenge lies in the provision of healthcare. Many of the healthcare systems we have in Europe and North America were originally designed in the period after the Second World War, when the population demographics were entirely different. As a result, a new generation of technologies are required to reduce the cost of caring for an increasingly elderly population, whilst also dealing with the physiological challenge of providing interventions for the elderly. Surgery and anaesthesia were always designed with young patients in mind, and as our population ages, we are going to have to develop better technologies that are more suitable for dealing with patients with multiple existing health issues, but still expect (and deserve) a high quality of life post-care. These technologies must work both en-masse and at scale, in order to bring down the cost of complex care which is vital for the NHS.
As a trained hospital intensive care doctor, it’s clear to me in the clinical environment that new technologies are needed to ensure older people can benefit from surgeries that both prolong and improve the quality of life. At Mercia, we believe the next generation of technologies that help this segment will be drivers of innovation and value generation. Companies like Canary Care (a Mercia Technologies PLC portfolio company) are building technologies that help older people live independently for longer, bringing dignity for users, peace of mind for carers, and reduced costs for payers like the NHS or local councils who will potentially have fewer people needing expensive residential care. We believe companies like these will form vital parts in a healthcare ecosystem geared towards an older population.
Acceleration of development in “emerging” markets
Over the last few decades, the majority of commercial interest in healthcare has been focused on Europe and North America, but the coming years will see an increase in expenditure from high-growth “emerging” markets. The BRICS countries (Brazil, Russia, India, China and South Africa) have seen pharmaceutical sales double between 2006 and 2011 – so crucially, maintaining cost-effectiveness at a scale is of paramount importance.These high growth markets consist of a blend of public and private care provision and encourage a consumer mentality towards purchasing care.Novel organisational structures are also required to meet this growing demand for single country populations that in effect, are larger than the whole of Europe.
It is anticipated that some of the most valuable healthcare companies in Europe will generate a large proportion of their sales from BRICS economies. In my opinion, key features of success in these economies will include targeting so-called diseases of plenty (obesity, hypertension and diabetes) which are becoming increasingly prevalent as societies are lifted out of poverty. For example, in China 10% of all adults are currently thought to have diabetes. This is up from 5% of all adults in 1980. In absolute terms, this represents a patient population of 110million, with further growth in this disease expected to result in 150 million patients by 2040. This is likely to result in market demand for new products and services such as targeted therapeutics that are optimised for the genetic make-up of the Chinese population, improved diagnostic tests, and methods of delivering care to in a cost efficient manner across a population sizes that are measured in the billions.
Key challenges for new entrants to the market will be understanding rapidly changing regulatory landscapes, navigating the political risks associated with being a foreign company in economies with varying levels of restrictions, and the challenges of intellectual property protection in jurisdictions where traditionally, it has been difficult to defend a product or service from imitators. However, with the BRICS economies predicted to overtake most of those in Western Europe by the middle of the century, we believe there is a significant chance that the most valuable companies may be those that serve these markets first. We’ve backed exciting companies like Concepta, which is bringing the latest fertility technologies to China and aiming to help millions of couples start a family. These kinds of opportunities in emerging markets show that it’s entirely possible to solve problems and capture value on a greater scale outside of Europe and North America.
The 4th Industrial Revolution
Scarcely a day goes by without a tech blogger talking about the upcoming revolution in “digital health.” Whilst digital health covers a wide variety of innovations, we are particularly interested in computational health as this actually reflects what is happening – computers helping to deliver healthcare. With recent high-profile failures,including IBM Watson being “benched” by prestigious US cancer centre MD Anderson, as reported by Forbes, it’s easy to think that computers in healthcare may be over hyped.
While current technologies may struggle to accommodate for all of the complexities in healthcare, this is often because the data used to train these systems is often incomplete. Considering that Google’s DeepMind system trained itself on 10 million YouTube videos before it learnt to recognise an image of a cat – you can start to sympathise with systems that have access to only thousands of medical records which then try to do something as complex as recognise cancer.
Furthermore, 80% of all medical data is unstructured, sometimes hand written, making it hard for super computer systems to process it. This results in a serious lack of data to train with. If the systems were trained better, the performance would be better, which would lead to significant reductions in the cost of healthcare delivery at almost every point in the value chain and improved patient care – transforming healthcare as we know it. Unfortunately, this seems a distant dream at present, but the 4th industrial revolution will change that.
If we consider that the 1st industrial revolution was the advancement of steam engines in the 18th Century, the 2nd was the growth of electricity, the 3rd was the movement from analogue to digital machines and the 4th is the development of data-driven tools – then these are instruments that gather, analyse and store data on a scale that has previously never been seen before, and it is these machines that will power the computation technologies of the future. Data really is the new oil. Interestingly, electronic medical data (which is perfect for systems like IBM Watson to process) is growing at a rate of 48% per year. Put into context, by 2020, 94% of all medical data available will have been created after 2013. This fresh data is largely electronic and ready to be processed.
The opportunities for new companies to emerge in this space are significant and Mercia is working with many of these organisations already through our managed fund activity. These companies are data-capturing companies that allow us to understand healthcare problems better (sleep-focused portfolio company SleepCogni), image recognition technologies that spot problems in X-rays that clinicians may miss (Manchester Imaging–dental imaging),regulatory technologies that ensure the latest developments stay on the right side of government regulators (new portfolio company Miotify), and even tools that let clinicians understand the needs of their patients better by improving communication and tracking outcomes (Health Centrified). These businesses all solve problems that affect global populations. This isn’t just about value capture – it’s about genuine value creation. And in my opinion, computational technologies in healthcare will change the world of medicine and in doing so will generate immense value.
Northern Trust: Outsourcing Accelerates Through Pandemic as Investment Managers Seek to Improve Margins, Enhance Business Resilience, and Future-Proof Operations
White Paper Sees Increase in Managers Outsourcing Middle and Front Office Functions to Achieve Optimal Business Structures
According to a white paper published today by Northern Trust (Nasdaq: NTRS), investment managers of all sizes and strategies have been prompted to undertake a comprehensive review of their operating models as a result of the Covid-19 pandemic which has accelerated existing trends that are compounding cost pressures. This has led increasing numbers of managers to outsource in-house dealing and other functions, such as foreign exchange and transition management, hitherto seen as core.
While cost savings remain a core driver, and indeed are one outcome of outsourcing, costs are no longer the only focus. Far from being solely a defensive reaction to increased pressure on margins, the white paper (‘From Niche to Norm’) describes outsourcing as part of the target operating model, or moving toward the ‘Optimal State’ for many investment managers, and explains how the focus “has expanded to the variety of other potential benefits offered – enhanced capabilities, improved governance and operational resilience.”
Gary Paulin, global head of Integrated Trading Solutions at Northern Trust Capital Markets said: “The pandemic has challenged a range of operational assumptions. Working from home has, for example, questioned the need for a portfolio manager to be in close proximity with the dealing desk. Previously considered essential, the pandemic has effectively forced firms to ‘outsource‘ their trading desks to remote working setups and the effectiveness of this process has disproved the requirement for proximity, in turn, easing the path to third-party outsourcing. Many investment managers are actively considering outsourcing to a hyper-scale, expert provider as a potential, cost efficient solution – one that maintains service quality and, hopefully, improves it whilst adding resiliency.”
Northern Trust’s white paper compares outsourced trading to software-as-a-service stating: “instead of carrying the cost and complexity of running an in-house solution, firms move to an outsourced one, free up capital to invest in strategic growth and move costs from a fixed to a variable basis in line with the direction of travel for revenues.”
Guy Gibson, global head of Institutional Brokerage at Northern Trust Capital Markets said: “The opportunity to deploy capital to build new fund structures, develop new offerings, focus on distribution and enhance in-house research has been taken up by several of our clients to the benefit of their investment approach, and to the benefit of their investors. Additionally, in the last two months alone, many firms have recognized that outsourcing to a well-capitalized, global platform has enabled them to take advantage of cost-contained growth opportunities in new markets.”
A further development, which has echoes of the journey the technology industry has already undertaken, is the move towards ‘whole office’ solutions, which represent the next potential wave in outsourcing.
According to Paulin; “recently we have observed a growing number of managers wanting to outsource to a single, hyper-scale professional service provider who can do everything, everywhere. This aligns with Northern Trust’s strategy to deliver platform solutions for the whole office, serving our clients’ needs across the entire investment lifecycle.”
Integrated Trading Solutions is Northern Trust’s outsourced trading capability that combines worldwide locations and trading expertise in equities and fixed income and derivatives with access to global markets, high-quality liquidity and an integrated middle and back office service as well as other services, such as FX. It helps asset owners and asset managers to meaningfully lower costs, reduce risk, manage regulatory compliance and enhance transparency and operational efficiency.
How are investors traversing the UK’s transition out of lockdown?
By Giles Coghlan, Chief Currency Analyst, HYCM
Just when we thought we had overcome the initial health challenges posed by COVID-19, the UK Government has once again introduced lockdown measures in certain regions to curb a rise in new cases. This is happening at a time when the government is trying to bring about the country’s post-pandemic recovery and prevent a prolonged economic downturn.
This is the reality of the “new normal” – a constant battle to both contain the spread of the virus but also avoid extended economic stagnation.
Of course, no matter how many policies are introduced to spur on investment, traders and investors are likely to act with caution for the foreseeable future. There are simply too many unknowns to content with at the moment.
To try and measure investor sentiment towards different asset classes at present, HYCM recently commissioned research to uncover which assets investors are planning to invest in over the coming 12 months. After surveying over 900 UK-based investors, our figures show just how COVID-19 has affected different investor portfolios. I have analysed the key findings below.
At present, it seems that by far the most common asset class for investors is cash savings, with 78% of investors identifying as having some form of savings in a bank account. Other popular assets were stocks and shares (48%) and property (38%). While not surprising, when viewed in the context of investor’s future plans for investment, it becomes evident that security, above all else, is what investors are currently seeking.
A third of those surveyed (32%) said that they intended to put more of their wealth into their savings account, the most common strategy by far among those surveyed. This was followed by stocks and shares (21%), property (17%), and fixed interest securities (17%).
When asked about what impact COVID-19 has had on their portfolios throughout 2020, 43% stated that their portfolio had decreased in value as a consequence of the pandemic. This has evidently had an effect on investors’ mindsets, with 73% stating that they were not planning on making any major investment decisions for the rest of the year.
Looking at the road ahead
So, it seems that many investors are adopting a wait-and-see approach; hoping that the promise of a V-shaped recovery comes to fruition. The issue, however, is that this exact type of hesitancy when it comes to investing may well slow the pace of economic recovery. Financial markets need stimulus in order to help facilitate a post-pandemic economic resurgence, but if said financial stimulation only arrives once the recovery has already begun, the economy risks extended stagnation.
It seems, then, that there are two possible set outcomes on the path ahead. The first is a steady decline in COVID-19 cases, then an economic downturn as the markets correct themselves, followed by a return to relative economic stability. The second potential outcome is a second spike of COVID-19 cases which incurs a second nationwide lockdown – delaying an economic revival for the foreseeable future. At present, the former of these two scenarios is seemingly playing out with economic growth and GDP steadily increasing; but recent COVID-19 case upticks show that it’s still too soon to be certain of either scenario.
A cautious approach, therefore, will evidently remain the most common investment strategy looking ahead. But investors must remember that, even in the most uncertain times, there are always opportunities for returns on investment. Merely transforming a varied portfolio into cash savings risks a long-term decline in value.
High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.
Hatton Gardens 5 top tips for investing in Diamonds
By Ben Stinson, Head of eCommerce at Diamonds Factory
Investing in diamonds can be extremely rewarding, but only if you know what to look for. For investors who lack experience, finding your diamond in the rough can be quite daunting.
For even the most beginner of diamond investors, the essentials are fairly obvious. For instance, you need to ask yourself will the diamond hold its value over time? What’s the overall condition of the stone and the jewellery? Is there history behind the item in question?
Although common sense plays a big part in investing, people often need insider tips and tricks to go from beginner to expert. Tony French, the in-house Diamond Consultant, at Diamonds Factory shares his professional knowledge on the 5 most important things to look for when investing in diamonds.
1: Using cut, weight and colour to determine value
Firstly, consider the shape, colour, and weight of your diamond, as this can play a pivotal role in guaranteeing growth in the value of your item. Granted, investing trends change with time, but a round cut of your diamond will almost always be the most sought after. The cut of your diamond is incredibly important, as it can influence the sparkle and therefore, the overall value. It’s a similar story for the intensity of some colours, such as Pink, Red, Blue, Green etc. Concerning weight, the heavier (bigger) stones will generally increase in value by a bigger percentage. Collectively these factors also contribute to the supply and demand aspect, which will determine their high price, and will ensure your item is re-sellable.
Looking for significant value? Well, aim to own jewellery or diamonds that come from an important public figure. If you’re lucky enough to own a piece that has significant history, or was owned by a celebrity or person of interest, it’s an absolute must to have concrete evidence of this. Immediately, this proof will increase an item’s overall value, and there’s a good chance the stardom of your item might drum up interest amongst diehard fans, increasing the value even further…
Equally, it’s possible to proactively bring provenance to unique diamonds of yours. For instance, you can offer to loan bespoke, or unusual pieces for film, theatre, or TV performances – then it can be advertised as worn by xyz.
3: Find the source
Establishing your diamond’s source is one of the most important things you can do when investing in diamonds. If you’re starting out, try to purchase diamonds that have NOT been owned by too many people, as the overall value of the diamond will reflect multiple ownership. Alternatively, I’d always recommend buying from suppliers like ourselves or other suppliers and retailers, who buy directly from the people who have had them certified.
Primarily, this will allow you to have a greater degree of transparency, which is crucial when buying such a valuable item. Next, you should immediately see an increase in value of your diamonds, as identifying a source will allow traceability and therefore, market context.
Linked closely with my previous point, is the requirement to ensure that your diamonds are certified by a credible lab, and you have the evidence to prove so (a written document with specific grading details about your diamonds) – this will remove any doubts of impropriety.
It’s essential to remember that not all labs are the same, and many labs are better than others. Both the AGS (American Gem Society) and GIA (Gemological Institute of America) have great reputations and are world renowned. I’d recommend doing your own research into the labs, and when you’ve found the pieces that you’d like to invest in, then make an informed decision based upon your findings. Ultimately, proving certification will make your stones easier to insure, and deep down, you can have peace of mind knowing you have got what you have paid for.
Don’t forget to keep this paperwork in a safe location as well – you’d be surprised how many people we’ve met who have lost, or forget where they’ve placed it.
5: Patience is a virtue…
If the market is strong, it might be tempting to look for an immediate sale once you’ve purchased a high value item. However, I suggest holding onto your diamonds for some time before even thinking about selling. More often than not, an item is more likely to increase in value over a few years than a few days – try and wait a little longer!
Equally, I would encourage having your diamonds, or jewellery professionally valued regularly. If you don’t have the knowledge to make a rough judgement on how much your pieces are worth, a consultant or expert can provide both a valuation, and contextualise that amount in the wider market. From there, you should be empowered with the knowledge to decide whether to keep or sell.
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