“Prevention is better than cure”, a long-term strategy “green paper” for the National Health Service launched by the Secretary of State for Health in the UK 12 months ago continues to stir debate about public health and the role of the NHS in preventive medicine. It argues for a substantial shift in funding in that direction. In the UK, about ten times as much public funding is spent on treating illness than preventing it.

It is of course absolutely right. Intervention in the later stages of disease costs far more and is far less likely to defeat the disease than earlier intervention. If the disease does not arise in the first place, that’s obviously the best of all. The potential savings from adequate preventive measures are game-changing and could be directed to much needed areas such as reducing waiting times for treatments or bulking up services in parts of the country that face a shortfall in adequate services. And people will live and work longer, more healthy lives.

The preventive steps that the Health Secretary had referenced included “people choosing to look after themselves better, staying active and stopping smoking,” and “making better choices by limiting alcohol, sugar, salt and fat”. He is paying credence to the notion that we are what we consume and that lifestyle choices we make have a profound influence on our health. Such a notion is as obvious as it is ignored for all practical purposes by far too many, including within the medical profession.

Nutritional science is still regarded by many medical professionals as a branch of alternative medicine, to be treated with a heavy dose of disdain. Part of the problem lies in the fact that claims about the benefits of certain foods, and other naturally occurring substances (nutraceuticals), are not required by regulation to be substantiated to the same level as claims about the effects, and general safety, of pharmaceuticals.

But that’s because foods and other products that are naturally occurring are generally “safe to eat” and do not pose a threat of dangerous side effects in the way that powerful synthetic pharmaceuticals do. Moreover, that lower regulatory standard does not mean that naturally occurring foods and other products cannot be as beneficial for health as proven pharmaceuticals: the evidence is all around us that they very much are – from the different life expectancies among different societies within rich countries with different lifestyle and nutritional cultures to much that the medical profession itself acknowledges, including the effects of consuming too much sugar-sweetened beverages and restricting the intake of fats that result in high cholesterol levels.

In any event, scientific studies continue to support the arguments for many naturally occurring substances. To cite one recent study of more than 25,000 healthy middle-aged men and women over five years, researchers from Harvard Medical School found there was a 40 per cent reduction in heart attack risk among the participants that took fish oil capsules containing omega-3 fatty acids versus those that took a placebo. The study concluded the preventive effect of omega-3 exceeded the 15 per cent reduction in heart-attack risk offered by taking aspirin, and there were no side effects. Yet, which is your doctor more likely to recommend to reduce the risk of heart attack? And what does that tell us about the primacy of pharmaceuticals?

Even if we take the argument for prevention by better nutrition at face value, how then to influence the population to improve their lifestyles and to make health choices that they do not currently make? In some countries with major private health insurance coverage, innovative insurance companies are starting do this by offering premia discounts to customers that make healthy choices in food bought and fitness classes attended. This is no different from progressive motor insurance providers whose customers get reduced premiums by installing motion tracking devices that measure the way they drive in terms of speed, cornering and braking. It works. Not only do premiums go down, so do accidents. Obvious.

What about countries where the health industry is dominated by a national health service, such as the UK? How can its citizens be incentivized to make the same choices? The UK Health Secretary suggested “harnessing digital technology” as a form of “predictive prevention”.

This indeed makes sense and much of the cornerstone technology already exists in the form of wearable devices that download health data to apps in real time. In the future, those devices will go further and deeper to capture more of our essential health data, make sense of it and provide instructions, all before it’s too late. The world’s technology giants are prioritizing customer healthcare as a new business area, with innovation being rapidly stepped up. At the moment, their products are expensive and inaccessible to large parts of the population – essentially that part of the population that would benefit most – and their business models are not aimed at the true mass market. That should change given the scale of the opportunity for entrepreneurs and investors and new market entrants must be encouraged.

For individuals, the benefits are clear from early warning to real-time intervention – Apple Inc. is proudly publicizing the “saved lives” from its new health focused Apple Watch – but awareness and affordability issues must be tackled. Here the government can step in with incentives akin to those offered by insurers – perhaps through credits that can be allocated against the contributory cost of treatment in old age.

What we are witnessing is the harnessing of technology for preventive health outcomes. This is sure to be one of the most exciting areas of healthcare innovation and socioeconomic development in the near future.

Tom Speechley

The debate about the presence of profit in healthcare systems often reduces to a political argument of the relative merits of publicly funded national health services and healthcare systems that rely on patients paying for the service, usually through insurance policies. This is far too simplistic and actually has very little to do with profit.

Profit is everywhere in the healthcare sector, all of the time, in private and public models. The doctors and nurses and medical device companies and pharmaceutical corporations and the sterile glove manufacturers do not provide their goods and services on a subsidized basis. No system as complex as a national healthcare system would be viable if its constituent parts were not financially sustainable. That means having healthy competition among commercially motivated and viable suppliers.

Competition between suppliers and service providers increases the quality of goods and services provided. The most technologically advanced, best staffed, cleanest, best value for money diagnostic facilities will gain market share at the expense of weaker competitors. The patient receives a significant benefit from such commercially motivated competition.

Many medicines and treatments simply would not have been discovered or developed if there was no commercial driver behind the process. The best scientific minds tend not to work for free. Clinical trials cost tens of millions to complete. Innovation requires investment and investment requires a financial return.

So, should we conclude that there is no need to restrict the profit motive within the healthcare sector? Is it really the same as every other part of the economy?

One commonly cited objection to the presence of profit is that in countries where healthcare is not “free at the point of service” and a private payer model dominates, some individuals get left behind. Whatever your political persuasion, statistics in the United States show a significant gap between people that can afford health insurance premiums and those that qualify for Medicaid or Medicare support.

One part of the equation here is not about profit but about having an adequate safety net that doesn’t leave anyone behind. But the other part is that healthcare costs are so high that the associated insurance premia are unaffordable, even for a group of individuals in employment and with disposable income. Perhaps profit has been allowed too free a reign in such systems? In the absence of a solution to bring down healthcare costs to a more affordable level, an adequate safety net that leaves no one behind is essential.

Another area of concern is where the profit motive creates conflicts of interest between patient and clinician. Treatment volume targets for private hospitals are unlikely to be consistent with the highest quality of those treatments. Or put another way, the most profitable treatment – whether for a mundane medical matter or for a truly serious one – may not be the best one for the patient. Can we be confident that the Hippocratic Oath always trumps the profit motive in such circumstances?

This concern is valid. As is the need for a safety net to ensure that all citizens have access to adequate healthcare. But both issues can be dealt with by legislators and regulators and there is no ethical reason to exclude profit from the healthcare industry. To do so would run counter to the best interests of citizens and patients.

Tom Speechley

On October 17, 2018, it became legal for a Canadian adult to go online or walk into a retail store and purchase cannabis products for recreational consumption. In doing so, Canada has become only the second country (after Uruguay), and the first major Western economy, to take this momentous step. Europe is catching up on the medicinal side, with the UK becoming the most recent country to initiate legalization for medicinal purposes. But in many peer countries, possession of cannabis remains a serious criminal offence. The number of US citizens in state or federal prison for cannabis-related criminal offences remains high despite the fact that nine US states have legalized recreational consumption of cannabis and 31 have legalized it for medicinal purposes.

There can be no doubt that we are witnessing one of the most significant cultural shifts in the West since the US adopted Prohibition and then abolished it. These developments have happened so rapidly that political change has leapfrogged public perception in many parts of the world. This creates a moral dilemma for state and national governments. How can one government deny its citizens access to a potentially life-changing pharmaceutical product when others do not?

Multiple studies have shown that cannabis – in the right form and the right dose – can have significant and demonstrable success in the treatment of various illnesses, their symptoms and side effects. Its medical uses include: acute pain relief, appetite stimulation for chemotherapy patients, treatment of sleep disorders, decreasing spasms in nervous system disorders and reducing seizures in intractable epilepsy, to name a few. There are also clinical trials underway that, at a preliminary stage, show activity against cancer cells.

More studies must be, and are being, undertaken including research into any harmful side effects. But there is no reason yet to suggest that that the two major active ingredients of the cannabis plant – Tetrahydrocannabinol (THC) and Cannabidiol (CBD) – if taken in the right doses and formulations, are inherently more dangerous than any other pharmaceutical product. We’ve all heard the extensive verbal disclaimers on US commercials about possible side effects of pharmaceutical products “…which may include death”. The evidence for cannabis, if anything, points the other way. Notably, as a replacement for highly addictive opioid-based painkillers, cannabis products may actually reduce drug dependency crimes and deaths.

Underlying these advances is the wider recognition that the cannabis plant is a complex biological system comprising over 100 cannabinoids, of which one – THC – is principally responsible for psychoactive effects when consumed at a high enough level. Medicinal cannabis strains and derivative formulations have low levels of THC. With that understanding, the stigma attached to cannabis in wider society, especially among the more conservative elements, dissipates.

It is this kind of cultural change that creates significant opportunities for investors. Canadian cannabis entrepreneurs, and investors in particular, have created enormous wealth in 2017 and 2018. They are on track to generate significant tax dollars and they are creating employment in an entirely new industry. They also remind us that not all modern-day entrepreneurship need be technological. Technology is not the only disruptive factor in a modern economy. Cultural factors are as important.

We see cultural disruption at work in many sectors. The food and beverage sector is an obvious example from the last few decades, with new acceptances of taste, diet, eating out and home delivery having a significant impact on the F&B economy. Other less obvious but increasingly important sectors relate to how society accepts and engages with its ageing population.

Eldercare: At one time, it was unthinkable that children would not support their ailing and aged parents at home. Now that is the norm, and a vast industry has grown off the back of that revolution in societal morality.

Mental Health: There has also been changing public perceptions around dementia and mental health in general. The treatment of mental health is already a societal challenge and governments cannot afford to cover the cost of the necessary expansion in treatment and care that our demographic data predicts. The private sector will need to step in.

End-of-life care: Long reliant on philanthropic donations, this sector deserves new business models that entrepreneurship and investment can provide. And as euthanasia and assisted dying become more widely accepted in society and under the law, future investment opportunities must surely be created where stigma exists today.

We also see significant growth in longevity medicines more generally. To date, the alternative medicine movement has sought ownership of the broader wellness and longevity narrative. But, here again, attitudes are changing. The global nutraceutical industry has an annual growth rate of around 7% as the public becomes more open to treatments from naturally occurring products. The future we see for this domain is in sifting through the various natural remedies available and applying the Western scientific method of clinical studies to uncover solutions that satisfy both perspectives. Who is to say that the major advances in human longevity will not come from rainforests rather than synthetic molecules?

As a firm, we have chosen to focus exclusively on sub-sectors within the broader healthcare space that reflect changing attitudes, as well as advances in science and technology. We include nutraceuticals because we foresee more plants and natural substances, like cannabis, being the impetus for major medical breakthroughs.

We focus on specialized human care for dementia and other mental illness, because there is inadequate provision currently and because it has been unfashionable for investors to focus on these diseases. We see significant room for growth and investment opportunity. Similarly, we see a critical need and opportunity for business solutions for end-of-life care. These are tough sectors because, ultimately, they rely on the provision of human care by humans, with all of the attendant brick and mortar and human resource challenges that go with them.

Many of these sectors can be enhanced by scientific and technological advances, but all are being shaped by advances in cultural norms. Our role is to support private sector solutions for the changing healthcare landscape. We have placed investments in the business of human care at the heart of our mandate.

By Tom Speechley

There is debate as to whether private equity and its early-stage cousin, venture capital, are a force for good in society. Both play an important role in a market-based economy, but that’s not quite the same thing. We believe that venture capital strategies can, and should, have a positive societal impact, as well as a financial one.

Entrepreneurs seeking capital for their ideas, innovations and enterprises have limited choices. At the very earliest stages, they can self-fund a business (‘bootstrapping’ it) or they can raise money from friends and family. Banks tend to avoid early stage and speculative businesses, with good reason. Fledgling businesses need equity and venture capital has stepped in, financing some of the most important new business models of the past 50 years, creating proportionate economic benefits in the process.

Together with the entrepreneurs that it supports, venture capital has put satellites in space and brought internet access and mobile applications to the global population. It has revolutionized retail and invented and reinvented digital technology many times over. As consumers, our lives have been immeasurably improved. There is also something Darwinian at work with venture capital. The collective experience of its practitioners, and the way they sort winners from losers (with losers failing fast, making way for better solutions), accelerates innovation. Venture capital is probably the most important source of finance for innovation the world has ever seen.

There are lingering questions as to whether venture capital, like biological evolution, is truly democratic. For example, female entrepreneurs are surprisingly underrepresented in the pantheon of venture-supported entrepreneurship. That major observation aside, if your idea or business solution is the most suitable for its industry, it tends to get selected. The school you went to, or your family’s connections, are mostly irrelevant.

Aside from being adept at picking winners, venture capital also aligns the interests of shareholders and business managers, the importance of which cannot be overstated. Shareholders are entitled to expect that the management team has shareholder interests in mind as they make decisions about the company’s strategy or operations. Venture capital is built on this premise by ensuring that all key executives in the enterprise have skin in the game, with something to gain or lose as the venture succeeds or fails. The result is that managers are fundamentally incentivized to increase investor returns and venture capital returns are frequently among the highest of any asset class.

Yet the real measure of venture capital’s capacity to be a force for good is not the financial returns it generates. Success in business involves much more than financial outcomes. The companies that focus exclusively on financial outcomes live fast but often die young. The examples are almost endless and defy the need for publication. There are additional dimensions to success and venture capital is well suited to their promotion.

Venture capital is adept and incentivized to bring best practice into business enterprise. On one end, that might mean establishing the best in class product or service available, for example, making the most cost-effective and reliable food delivery service or funding the clinical trials for a breakthrough medicine. On the other end, it may mean putting in place a wellness program for employees to ensure their long-term health or adopting a corporate social responsibility program. Across any number of dimensions, a venture capital investor can and should be seeking to invoke best practice within the company. This is not exclusive to venture capital, but it is germane to the industry. When the sector focus of the venture firm is targeted at socially important areas such as healthcare or education, the benefits to society can be increased further.

Venture capital may retain a slight hubris hangover from the dotcom boom bust, but it is now firmly established as an economic game changer with the capacity to effect profound positive change without conceding its high financial return credentials.

Tom Speechley

Unbridled and concentrated financial incentive might be a driver of economic activity, but it produces a ripple effect that can be detrimental to society. Self-interest, without doubt, drives entrepreneurs to do things that ultimately benefit society: they build companies that employ people, pay taxes, generate economic activity and even solve societal issues. But does that mean we should conclude that greed is good?

Self-interest and greed are not synonymous. Greed, in a financial or economic sense, speaks to an extreme form of self-interest that demands personal returns well beyond the innovation, effort or risk-taking invested. It exacerbates inequality and, perhaps more importantly, it weaves cynicism into the fabric of society. The repercussions of greed as a paradigm are numerous and reverberate throughout the economic, social and political aspects of our lives. We’ll focus on three:

An inverse correlation between inequality and social mobility. As inequality increases, social mobility decreases. It’s not supposed to be that way. Economic systems that reward entrepreneurship and hard work should create societies where individuals can move more freely from one stratum of society to another. Yet that’s not being borne out in practice.  Inequality secures social benefits for the few. We can see this played out in higher education: spots in the best schools don’t really go to the best students from across the social spectrum. Deserving and talented students from difficult backgrounds often get stuck at the bottom. (Philanthropic efforts to counter such shortcomings exist precisely because the system itself does not).

Inequality increases pathology in a society. Income inequality predicts higher rates of violent crime within countries (and between countries). That shouldn’t really come as a surprise if we look at the missing link of fairness. A sense of unfairness is one of the first emotions we feel as young children and it does not dissipate in adulthood. It causes anger and despair. Anger at unfair inequality, and the despair that often accompanies it, results in crime, particularly in societies where the inequality is obvious.

The unfairness of inequality promotes cynicism. Only a small percentage of people commit crime due to anger or despair at inequality. A more common, lower order reaction to the unfairness of inequality is cynicism. In many societies there is an increasing view that the system is unfair and operates for the benefit of those at the top or for other ‘special interests’. Indeed, cynicism has a much more corrosive influence on society than inequality by itself, and even the crime that it generates, because it impacts so much of the basic infrastructure of society. We see it today vividly in the breakdown in trust between electors and the elected and in a declining trust of news media, right at the time we need the media to be holding politicians to account. The downward spiral is obvious. We are also beginning to see a backlash against perceived excesses by the technology giants, driven by cynicism engendered by their hegemony.

If these are symptoms of too much, or unfair, inequality in society, can we really go further and say that individual greed is a contributing causal factor?

Part of the problem with greed is that it distorts the notion of just reward. Greed is generally accompanied by an almost total failure to acknowledge the role of luck in financial success. Luck seems like an abstract excuse for events beyond our control. But luck is a real economic factor and it can even be quantified from the perspective of an individual. It is the difference between what is fairly deserved, for effort, ingenuity or the creation of equity, and what is actually received and it can be positive or negative – i.e. amounts lost through ‘bad luck.’ If society and individuals more openly acknowledged the role and quantum of luck, notions of unfairness, inequality and cynicism would be reduced.

In an economic, ethical and political sense, a proper debate could begin around what are justifiable economic incentives and returns in today’s society. This would have important implications for the economy, ranging from how to reward corporate executives to the regulation of banks and taxation policy.

Take share options: The concept of granting share options to managers is certainly well-intended, aligning interests with a view to increasing shareholder value. But extraneous factors often materially impact the value of those options – good and bad. Should the manager be rewarded because the economic policy of an incoming government causes a rise in the value of the stock of the company? Should a manager be penalized because of a ‘black swan’ event causing market panic? The problem is we are psychologically pre-disposed to disbelieve our success is down to factors beyond our control, i.e. good luck. (Although we seem to be OK with attributing our failures to bad luck).

Another area of the economy which might benefit from a refresh on the notion of balanced incentives is financial services. In certain segments, such as investment banking and private equity, one can argue that the incentives have tilted too far away from objective notions of just return. The fees are high, not as a percentage, but as an absolute number, because the deal sizes they attach to are so vast. And moreover, deal sizes increase directly in line with the expansion of the economy, meaning the absolute numbers have exploded, whilst the effort and ingenuity involved are the same as a generation ago. They are no longer, objectively, just. The excess amount of fees received by the participants today is simply the luck of being in the right place at the right time.

Pathological greed is self-evidently bad for society, but ‘benign greed’ can be too. Our notions of fair incentives should be reoriented by an acknowledgment of luck’s role in success and a sense of objective fairness. Successful individuals who have studied hard, worked hard, taken risks or been ingenious should be free to enjoy the fruits of those labours, risks and ingenuity. Society must encourage enough self-interest that extraordinary efforts, ingenuity and equity creation are rewarded with extraordinary personal wealth; the sort of wealth that can result in early retirement or philanthropy. The sort of wealth that we all recognize is deserved. In encouraging such rewards for individuals, the invisible hand will continue to provide the wider economic and societal benefits that Adam Smith had in mind. The kinds of benefits that citizens of rich countries have come to expect and those in developing countries aspire to. In doing so, we must have the humility and wisdom to ascribe an element of our success to luck. It will lead to better societal outcomes. Luck, for lack of a better word, is good.

Tom Speechley

Impact investing takes into consideration both financial return and social or environmental impact. Profit matters as much in the impact world as it does in the core economy because it ensures sustainability and without it, any long-term mission fails. Sustainability and financial sustainability are synonymous. Yet, in many impact investing circles, profit is a dirty word. How can you be doing good if you also seek a profit?

The total amount of impact dollars, including self-defined impact funds and philanthropic sources, is estimated at US$230bn. The aggregate Official Development Assistance (ODA) budgets of OECD (Organisation for Economic Co-operation and Development) countries were US$146.6bn in 2017. Combined, this may seem like an enormous pool of capital. Yet the world’s development problems, such as universal health coverage or the alleviation of poverty, require trillions of dollars. According to the United Nations, the 2015 Sustainable Development Goals – widely viewed as a full menu of this generation’s development challenges – will require some US$5-7tn of capital investment. Other studies identify an annual investment requirement of as much as US$2.5tn in order to meet the goals.

How then to bridge the gap between what is needed and what capital is mandated for developmental outcomes? The answer is to mobilize funds that come with the requirement of a profit or market rate of return on investment. The largest sources of capital on the planet – the savings of private citizens in advanced economies, in the form of public and private pension plans and wealth management funds – can and should be allocated in greater amounts towards developmental challenges. Yet such funds require market returns; after all, the primary purpose of that capital is to provide retirement benefits to its beneficiaries, not do good in the world. Even a small reduction in investment returns can have a significant negative impact on those benefits. So how can such funds deliver the right returns and help solve our development challenges?

Two things must happen. First, the fiduciaries of such funds need to recognize that it is possible to blend market returns with societally beneficial outcomes. Many simply do not. And secondly, there needs to be a revolution within the asset management world as to how to deploy the funds to achieve these outcomes.

Regarding the first challenge, progress is being made in some parts. Not all private capital fiduciaries are constrained by legacy thinking. The wealth management platforms of the world’s largest banks in particular are offering an increasing number of ‘impact products’ to their clients, based on increasing demand. The issue there is more about how to deploy the funds.

On the public pension side, however, the response to date has been muted. Either for legal constitutional reasons, or through adherence to a strict fiduciary model for discretionary allocations, trustees of large public pension plans tend to avoid any fund that has an impact element to it. They fear being held to account for reductions in returns when returns are already under pressure from increasing pension liabilities. The fundamental issue is the perceived wisdom that impact outcomes inevitably come at a financial cost (a trade-off). Is that not why philanthropic capital and government aid budgets occupy that territory? This shows a lack of imagination and a misunderstanding of how the world of impact investing has progressed over the last two decades.

A few observations need to be made. First, the term ‘impact investing’ is misleading and out of date. It is too easily associated with philanthropic investing, whereas the majority of self-defined impact funds in today’s world have some level of financial return built in to them, and many, a true market return.

Secondly, over the last twenty years, the development finance institutions (DFIs) set up by national governments and multi-lateral organizations like the World Bank, have actually proven that strong financial returns can go hand in hand with avowedly impact outcomes. They do this by providing debt and equity to good companies in the developing world at market rates, thereby increasing economic activity or building critical infrastructure for the benefit of the societies that depend on it.

And thirdly, what counts as a developmental impact outcome has been way too narrowly defined. For too long it has been defined by ‘impact evangelists’ who dismiss profit-related metrics, such as economic growth, as qualifying outcomes. Under that thinking, it is not enough to create employment even though there are so many data points linking increased employment and economic activity generally with improved health, education and other social benefits. The asset management industry must adopt a much broader perspective on impact. For those willing to invest in the developing world, there is the entire scope of the UN’s 17 Sustainable Development Goals to consider. Even a cursory analysis shows that there is almost unlimited opportunity to identify and address these global challenges through smart investment that generates a market return.

But developmental outcomes are not limited to the developing world. Impactful investment opportunities abound ‘at home’ too. For example, we believe that funding advances in the delivery of healthcare outcomes in the advanced economies should be considered. Our societies are far from providing adequate services for the care of the elderly, especially those with dementia-related illness or those at the end of their lives. There is a huge gap in quality between expensive private services and public funded services. We believe that businesses that can increase the quality of services in these sectors whilst reducing price points will be both financially successful and also societally impactful. And for the conservative fiduciaries of public pension plans in the developed world, these opportunities are in their home markets and, given the sectors themselves, highly resonant with their beneficiaries. This is just one area where the revolution in thinking needs to happen.

We do not dispute that an enormous amount of good can be achieved through philanthropic endeavor. Some problems cannot be solved directly and quickly and generate a profit at the same time. Much of the amazing work of the Bill & Melinda Gates Foundation would not have happened if a profit layer were applied to its activities. But none of it would have been possible without profit being generated elsewhere. The great foundations are generally built on the side of an endowment that absolutely requires profitable investment to maintain the programmatic side. Moreover, foundations would not exist at all had the benefactors not created the wealth in the first place. The Bill & Melinda Gates Foundation is so game-changing because Microsoft was so profitable. Profit is an important driver of developmental funding and always has been.

Today’s asset managers have an opportunity to revolutionize how we perceive impact investing. Those who take up the challenge will find growing receptivity from societies increasingly concerned with the developmental challenges of the world, both from the poorest economies to our home markets.

Tom Speechley