| | | | | The Research Pitch | July 22, 2023 ![]() | | Presented by Masterworks | | | | | | | The state of sustainable investing: When it comes to ESG and impact investing, it's important to look beyond the sensational headlines. On Wednesday, we'll host a live discussion centered on the investor views featured in our Sustainable Investment Survey Report. Register here.
H1 data and analysis: Last week, we released our flagship reports on US VC and PE, covering all the key trends from the first half of the year. Get them here: PitchBook-NVCA Venture Monitor, US PE Breakdown.
Top reads: If you missed them, here were our most popular research releases since the start of June: | | | | | | | | | A message from Masterworks | | | | Billionaires wanted it, but 54,578 everyday investors got it first | | When incredibly valuable assets come up for sale, it's typically the wealthiest people that end up taking home an amazing investment. But not always…
One platform is taking on the billionaires at their own game, buying up and securitizing some of the most prized blue-chip artworks for its investors. In the last few years, its investors have realized annualized net returns of 17.8%, 21.5%, 35% and more from these opportunities.
It's called Masterworks. Its nearly $1 billion collection includes works by greats like Banksy, Picasso, and Basquiat. When Masterworks sells a painting—like the 14 it's already sold— investors reap their portion of the net proceeds.
As a trusted partner, PitchBook readers can skip the waitlist with this exclusive link.
See important disclosures at masterworks.com/cd | | | | | | | | | | | Our value-based care crystal ball | | Value-based care is healthcare that focuses on improving holistic patient outcomes across a population while controlling costs.
More precisely, it involves alternative reimbursement models that reward healthcare providers for keeping patients healthy through holistic and preventative care—in contrast to traditional, fee-for-service reimbursement, which rewards providers simply for providing a higher volume of care.
In our recent research, we've addressed three common questions about the future of value-based care and the role of private capital:
1. Will the US healthcare system ever fully transition to value?
Our short answer: No.
Our long answer: It depends on what you mean by "fully."
CMS—the Centers for Medicare and Medicaid Services, the nation's largest health insurer and driving force behind the industry's shift to value—intends for all Medicare and most Medicaid beneficiaries to be value-based arrangements by 2030. Commercial (employer-sponsored) plans will transition to accountable care much more slowly, but employers, with the assistance of care navigators, will drive their own transition toward value as they work to control costs while improving employee welfare and productivity.
But there are other corners of the health system that are unlikely to participate substantially in value-based care, including on-demand care providers, which trade ease of access for longitudinal patient-provider relationships; high-margin, hospital-based specialties, such as radiation oncology and neurology; and providers at the intersection of aesthetics and medicine, such as orthodontists, plastic surgeons, and medspas.
Then there is the pharmacy benefit. Although a few companies, such as bluebird bio, are piloting value-based pricing agreements for high-cost therapies, widespread value-based prescribing is a distant proposition.
2. Why is the transition taking so long?
Even for a provider fully committed to pursuing value-based care, the hurdles are immense. Health systems, many of them stretched to near-breaking by the COVID-19 pandemic and its aftermath, must make enormous up-front investments in organizational change and technology infrastructure to successfully move into value.
On the payer (insurance) side, value-based contracts are highly complex and often bespoke, and payers are often reticent to embrace novel approaches. This is one reason why we think the enablement model will be key for advancing VBC in the coming years.
Add to this the fact that our clinical understanding of how to consistently improve patient outcomes remains limited in some areas, such as oncology; in other areas, such as mental health, care pathways are better defined, but acute provider shortages restrict access to care. Merely aligning incentives cannot solve these problems; research, technological innovation, and policy action are required to move the needle on care quality.
3. Is value-based care still worth investing in?
Yes—though we caution against the buzzword effect.
Many industry actors claim to advance value-based care but come up short in their care delivery model, payer relationships, or financial sustainability. We believe the key questions to ask of a value-based care play are:
Does this company materially improve patient outcomes while reducing total cost of care? Does it do so without increasing the burden on providers, and can the company bring providers into its vision to ensure their alignment and participation? Are early results replicable in subsequent cohorts, different payer relationships, and new geographical markets? Are payment mechanisms in place to capture enough of those savings to sustain the company's operations and growth?
The VBC transition will continue because the fee-for-service reimbursement model is unsustainable at a macroeconomic level and fundamentally at odds with the values that draw most healthcare professionals to the industry.
Moreover, technological progress has reached a tipping point: Cloud-based EHRs, predictive analytics, and improved interoperability are finally beginning to make driving and measuring value achievable. Given the challenges that remain, we believe private capital has an important role to play in the US healthcare system's transition to value.
For more data and analysis, read our VBC research:
Value-Based Care: An Investor's Guide
Anatomy of a Population Health Program
The Value-Based Care Enabler Landscape
Feel free to email me to discuss any of the above or join my distribution list for healthcare private markets research.
| | Best,
Rebecca Springer, PhD
Lead Analyst, Healthcare
Email | LinkedIn | | | | | | | | | H1 thoughts in Europe: Rates and the road to recovery | | With sentiment across European private markets continuing to be muted, two key questions emerge at the halfway point this year:
1. Which areas of the market are winning and losing in this environment?
2. Have we reached the bottom yet?
We recently published our thoughts on how H1 2023 activity is trending for PE and VC markets: European PE Breakdown, European Venture Report.
Whilst two very different beasts, it appears private equity is showing more resilience than VC on deals, fundraising, and exit value trends, with smaller YoY declines in activity metrics during H1.
Between the two, the starkest difference at H1 this year has been fundraising trends. VC fundraising paces lower than last year, compared to PE fundraising being one of the few metrics on track to exceed 2022 levels. The latter was helped by a few megafund closes in the half.
Less LP capital flowing into VC funds means less capital to do deals and fewer deals undertaken, with GPs more selective in the process. Companies are likely to have to do more with less or give away more equity for the same or lower deal sizes. Cost management and capital efficiency therefore will also be key, and sectors that can prove profitability and recession-proof business models will be best placed.
Regarding whether we've reached trough levels of activity, the picture is less clear. Sequential declines in PE deal value show some signs of abating over recent quarters. PE exit value is also showing signs of promise, increasing 28% in Q2 versus Q1.
Such sequential resilience is less evident in VC markets. Within European VC, we see the weakest area so far this year in exits, with exit value declining to decade lows of €0.9bn in Q2, less than half of the value in Q1.
The key driver for a revival here will be a recovery in valuations across the industry and specifically public listing activity. This is contingent on public equity markets and more widely, interest rates. With the end of the rate hiking cycle in Europe unlikely to occur in 2023, recovery in activity is unlikely to see support from wider macroeconomics this year.
Overall, we believe higher rates in Europe are likely to weigh on activity across deals, fundraising, and exits as valuations decrease alongside higher financing costs and return benchmarks. Recovery will ensue, but given peak levels of activity over the last two years, valuations are still correcting and therefore will be markedly lower at least this year.
Ultimately, the end of the hiking cycle will need to be in sight before players can get more comfortable about whether we've reached the bottom.
For more data and analysis, download our European PE Breakdown and European Venture Report.
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Floating Wind and Solar Energy
Offshore floating wind projects cost 176% more than traditional wind farms to operate—so why would anyone bother investing in them?
Stronger and more stable wind, less land use, and a burgeoning market are just a few of the reasons.
|  | | Global interest in floating wind tech is growing. | | | |
Historically the domain of utility giants and oil & gas companies, offshore energy production is picking up steam among solar and wind cohorts.
Still, challenges abound for the new technologies: | | | | | | | | | |
One more event to add to your calendar: - August 9: The US venture ecosystem remained under stress in Q2, as dealmaking slowed, pressure persisted on fundraising, and the IPO window stayed firmly shut. Our expert panel will dive into key findings from the latest PitchBook-NVCA Venture Monitor. Register here.
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Our insights and data featured in the press: - VCs raised seven funds totaling at least $1 billion during the first six months of the year, a slower pace compared to the full-year totals of 33 in 2022 and 23 in 2021. [WSJ]
- The PE industry continues to face "a stubbornly high interest-rate environment that makes the cost of borrowing and servicing floating-rate debt prohibitively expensive for deals that would otherwise get done." [The Messenger]
- VC deal value in Europe was down 61% in the first half of 2023. [TNW]
- European PE firms prefer add-ons to take-privates as financing dries up. [Citywire Selector]
- Our lead VC analyst, Kyle Stanford, joined the Equity podcast to discuss the key venture trends of Q2. [TechCrunch+]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. | | | | | | | | | |
Highlights from our other recent research:
Market updates
Thematic research
Industry & tech research
Coming next week (subject to change) - Global M&A Report
- The Food-As-Medicine Market
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