One of the Nordic region’s top-ranked hedge funds is betting on the success of health-care technology companies, which it says are now finally big enough to invest in.
“There is a new sub-segment that has evolved rapidly during this year in the aftermath of the Covid pandemic within digital care,” Susanna Urdmark, a portfolio manager at Rhenman & Partners Asset Management AB, said in an interview.
Rhenman’s fund, which specializes in the health-care sector, is up about 9.1% this year through Aug., in dollar terms, compared with the 6.6% gain in the MSCI index of global health-care stocks. Last year, HedgeNordic ranked Rhenman third overall in the region, and the top equity hedge fund.
Urdmark says the digitization of health care “is late compared to many other sectors of the economy.” But now, “technology companies within this segment have made great progress and with the strong increase in volumes and revenues, they have now become investable.”
That growth is also reflected in a number of public offerings and deals in the sector, Urdmark said. She offers the example of California-based Livongo Health Inc., a Rhenman portfolio company that was bought last month by Teladoc Health Inc., a U.S. supplier of virtual health care, for about $18.5 billion.
“We expect to see an expanded adoption of digitization within the health-care sector driven by the need for more cost effective care and improved technical solutions, in particular within diagnostics,” Urdmark said. “It’s a sub-segment that investors will spend more time on.”
“We have had four acquisitions and one merger in the fund so far this year,” Urdmark said. “It is somewhat counterintuitive that the smaller companies are willing to accept more development risk than their larger counterparties. As a result, a lot of innovation takes place within the smaller and more nimble companies, which are later acquired by the large firms that need to improve their pipelines. We expect this trend to continue.”
She says Covid-19 has also left its mark on Rhenman’s health-care fund, which manages about $900 million in assets.
“Some companies have temporarily been hit by the pandemic, but their ability to grow long term hasn’t changed,” Urdmark said. “Maybe you have to look forward to 2022 to see what a normal state will be. We accept that there will be weak revenue and profit growth this and maybe parts of next year.”
(Adds Urdmark comment on M&A in seventh paragraph)