By Claire Milhench | 6 October 2017

Imagine contact lenses that monitor glucose levels for diabetics, tiny implants to tackle chronic diseases, or algorithms that crunch data to predict illness rates. Rather than science fiction, these are examples of cutting-edge research being pioneered by biotech firms seeking to revolutionize healthcare from cradle to grave. Such work tends to be highly expensive and can take years to pay off — which makes it a good fit for deep-pocketed sovereign wealth and pension funds that can afford to tie up capital for a long time. Shares in big pharmaceutical and healthcare companies still appeal for their steady returns. But sovereign funds are increasingly tapping private markets, hoping that early investments in small firms will at some stage yield outsize returns. Their direct investments in healthcare totalled $5.58 billion in the year to mid-September, Sovereign Wealth Fund Institute data show, up from $2.15 billion in the first three quarters of 2016. Pressure on the healthcare industry to innovate is enormous. Western governments need to reduce the crippling burden on public finances of ageing populations, with Deloitte forecasting that the global healthcare spend will reach $8.7 trillion by 2020. And limited state provision in emerging markets means costs there need to come down so more people can afford treatment. “Healthcare is a basic product that someone has to provide and there’s a mega-trend globally – there is still a tailwind from ageing demographics,” said Markus Massi, a senior partner at Boston Consulting Group (BCG). BCG data shows healthcare makes up 13 percent of sovereign wealth fund (SWF) portfolios with 54 deals expected in 2017, a five-fold rise from 2012.