Strong industry fundamentals plus global demographics are providing the healthcare sector with the largest potential for value creation in the next decade, despite the possible repeal of Obamacare in the US, one of the world’s largest healthcare markets.

“The structural forces of an aging population and rising affluence make the healthcare sector a solid long-term investment,” says James Cheo, investment strategist for the Bank of Singapore.

The healthcare sector continues to benefit from improving pipeline productivity because of strong fundamentals, with an increasing number of new therapeutic drugs approved by the US Food and Drug Administration (FDA). In addition, valuations remain relatively undemanding while M&A activities provide potential upside catalysts.

But in addition to investing in public markets, investors are urged to consider private equity as a means of tapping value creation in the healthcare sector.

“We continue to remain tactically overweight on the healthcare sector. But needless-to-say, investors need to be selective on companies that are focused on therapies that are relatively less impacted by pricing pressures,” Cheo says.

Even if the repeal of the controversial Affordable Care Act (ACA), also known as Obamacare, is successful – an unlikely scenario because of the lack of consensus between President Donald Trump and the Republican-controlled US Congress – it is not expected to result in major changes to the healthcare system, nor any major shifts in US drug prices over the next few years, according to Cheo.

Globally, demographic shifts will intensify the pressures on healthcare systems, demanding new directions in the delivery of healthcare with aging populations in both emerging and developed countries driving up demand.

These findings are consistent with the findings of Deloitte in its 2017 Global Healthcare Outlook which states that the world’s major regions are expected to see healthcare spending increases ranging from 2.4% to 7.5% between 2015 and 2020.

“Healthcare expenditures as a percentage of GDP are projected to rise more quickly in low-income countries due to limited government reimbursements for respiratory conditions; meanwhile, cardiovascular disease costs continue to rise for lower- and middle-income countries,” according to Deloitte.

Cheo says investing in private equity that focuses on healthcare is one of the best ways to reap the long-term benefits of the healthcare sector.

“In the search for diversification and higher returns, there is a need for investors to deploy into patient capital – [meaning] less liquid investments such as private equity. Typically, private equity often has restrictions on withdrawals for seven to ten years before fully returning capital and profits to investors. However, in exchange for holding for a longer period, investors are compensated with higher returns or an illiquidity premium,” Cheo says.

Factors to consider when investing in healthcare include: cost, care delivery, innovations, operations, and regulations, according to Deloitte.