During this period, the pandemic strained the healthcare provider workforce, while exposing both how fragile and resilient our public health infrastructure was, how complex our supply chains were and how access to care disproportionally impacted disenfranchised populations. We also saw the life sciences community develop and launch multiple diagnostics and mRNA vaccines while the medical care community distributed and administered them at incredible scale and with astonishing speed. What has emerged is a medical community that created technological and scientific leverage in the face of incredible adversity.
And through it all, a rapidly aging population—with 10,000 Americans turn 65 every day—continue to grow healthcare demand that existing systems struggle to handle without further future innovations1.
For investors, this convergence of explosive technological growth and sustained demographic-driven growth represents a rare opportunity2.
“Our view is that there is an attractive growth outlook with defensive characteristics for our healthcare market, and it’s because of the intersection of two powerful trends — an aging population and technology advancement,” said Rajiv Chudgar, Co-Head of Ares Specialty Healthcare (ASH).
The COVID-19 pandemic accelerated transformations already underway, creating “capital gaps” as healthcare companies struggled to access traditional funding sources. Even as market demand intensified during the crisis, the banking industry pulled back from lending with traditional sources of equity and debt capital being highly selective.
But where there are gaps, there are opportunities. “Alternative capital and direct lending fill those gaps and take greater market share every time traditional bank financing sources are unreliable during market turmoil and volatility,” said Doug Dieter, Co-Head of Ares Specialty Healthcare (ASH).
Recent disruptions revealed the kind of market dislocation that can transform industries and usher in a new era of growth.
“There’s an opportunity to provide capital for quality companies that are driving innovation, improving access to care, creating greater patient efficacy and safety and reducing the cost of healthcare,” said Dieter.
Driving Demand
For healthcare investors, the demographic trends represent something rare in modern markets: guaranteed demand growth. Over the past decade, the U.S. population over 65 has grown by 40% and, over the next 20 years, as Baby Boomers age into their 80s and 90s, the number is projected to double1.
The implications are staggering, as aging demographics translate into higher healthcare utilization rates and sustained demand growth across all healthcare subsectors. "When you think about population growth and the unmet need for medical treatment with drugs, medical devices and diagnostics, it creates this incredibly strong growth effect across the entire healthcare system," said Chudgar.
The sustained demand has fueled unprecedented investments in innovation. Healthcare research and development has grown by around $100 billion over the past decade2.
The investment surge underscores the sector’s resilience, its defensibility and its lack of correlation to the broader markets. While other sectors typically see R&D budgets reduced during downturns, healthcare and life sciences companies continue investing in innovation throughout.
Even during economic contractions, healthcare spending has continued to outpace GDP growth, making it what institutional investors prize as a "low correlation" asset class — one that moves independently of broader market cycles.
This resilience creates opportunities throughout the entire healthcare ecosystem. Investment capital flows not just to household names in pharmaceuticals and medical devices, but to the specialized companies that support them — from contract research organizations running clinical trials to manufacturing partners scaling production to technology firms building the digital infrastructure that modern medicine runs on.
“When we think about investments, we are investing across the value chain, across multiple sectors,” says Dieter. “Beyond drugs and medical devices, we are also investing in businesses that help take those companies through their approval process along with companies that manufacture those products. There's a lot of capital that has to be spent from the development of an idea through the product’s approval and commercialization.”
The diversified value chain approach is advantageous in an industry where breakthroughs can create broad financing market opportunities. The COVID-19 pandemic exemplified this dynamic. Technologies in clinical stage or early commercial programs became critical infrastructure; telemedicine platforms saw adoption rates jump dramatically and diagnostic and pharmaceuticals gained approval on accelerated timelines.
But the same crisis that accelerated innovation also exposed vulnerabilities in the system. When healthcare providers were forced to lay off staff early in the pandemic, the consequences rippled throughout the system. “It took them a long period of time to restaff,” Dieter says. “Staffing issues along with the ensuing inflation became a huge problem.” Delayed medical appointments and screenings caused a wave of underdiagnosed illnesses now surfacing as more complex, costly cases requiring intensive investment.
This delayed care has created elevated healthcare utilization that extends far beyond COVID-19’s immediate impact.
“We’re seeing the aftermath of delayed chronic care result in higher utilization and medical cost inflation for longer periods of time. For example, it is suspected that the current accelerated rates and costs of cancer care are due to underdiagnosed or delayed care related to covid’s disruption,” said Chudgar.
More specifically, not only have delayed screenings contributed to rising cancer detection rates—colon cancer rates among younger demographics have increased at unprecedented rates, creating demand for new treatment protocols.
“What this demonstrates is that preventive care and general practitioners have an incredibly important role, because when things are delayed or ignored, things are going to be missed, leading to bigger and more expensive problems later on,” said Dieter.
Data-Driven Transformation
For healthcare investors, this confluence of demographic demand and systemic changes represents a fundamental shift in market dynamics. The recent delayed care crisis has exposed the need for preventive technologies that can detect diseases earlier as well as digital solutions that can bridge gaps in traditional care delivery. What's going to drive many of these breakthrough solutions isn't just better treatments—it's better data collection, manipulation, and utilization.
The transformation is profound. “Historically, we've treated the disease,” Chudgar explained. “But now, with new technologies, we can treat the patient.”
This shift to personalized medicine is powered by vast databases that track patient outcomes, genetic markers, and treatment responses across thousands of cases. "Instead of following the same protocol for everyone, we have databases that help us treat people more individually and effectively," Chudgar said.
This data revolution has created particularly compelling opportunities for investors willing to back commercial-stage companies that have moved beyond pure research into scalable business models. "There's a significant opportunity for private credit solutions to commercial-stage companies," Chudgar says. "We're stepping in to help those companies reach profitability."
"We're seeing a lot of development in data-focused and AI-powered healthcare companies," says Chudgar. These companies create value not just through traditional drug discovery or device manufacturing, but by fundamentally changing how research and medical decisions are made.
Differentiation and Stability in an Uncertain World
Success in this rapidly evolving environment increasingly comes down to demonstrating clear differentiation. “Businesses demonstrating differentiated clinical results, safety, and efficiencies are the ones that can and should charge premiums to reward innovation and research successes,” Dieter said. “Generic businesses and services should be exposed to reimbursement cuts and competitive dynamics to benefit the patient and system.”
This focus on differentiation creates critical protection from the regulatory volatility that destabilizes other industries. While many sectors face regulatory pressure from today’s political shifts, healthcare remains remarkably defensive. “With any new administration coming in, there are normal policy shifts, and when there are policy shifts, this creates opportunity,” Dieter explained. “Policy changes typically do not impact differentiated assets and businesses.”
This stability of differentiated businesses and assets becomes even more valuable as global interconnectedness amplifies how disruptions spread worldwide. As Chudgar said: “Countries are more interdependent and the concept of diseases going viral literally has, can and will happen again and again in the future. Small changes in initial conditions can lead to large and unpredictable differences in outcomes.”
This reality is further driving unprecedented demand for advanced healthcare infrastructure—and the investments to build it. “The systems need to be more sophisticated, so the investment in technology systems needs to be more sophisticated, too,” said Chudgar.
As global uncertainties accelerate and demographic pressures intensify, healthcare represents something increasingly rare: a sector where universal need, technological innovation, and policy resilience converge to create sustained—and unexpected— investment opportunities.
