The Case for Life Science Investments:

A Real Estate Investor’s

The past few years have proven unpredictable for real estate investors. The global pandemic in early 2020 had a profound impact on the ways we work and live, whilst concurrently accentuating an existing shortage of logistics space required to support disrupted supply chains. This period of uncertainty was followed by a moment of unprecedented liquidity in the real estate markets, underpinned by a strong economic recovery as the world slowly re-opened. However, this recovery is now threatened by the return of inflation, causing central banks to raise rates across the world.

Given the unpredictability of these global macroeconomic events, at PSP Investments we root our investment philosophy in identifying and predicting secular trends and themes which, over the longterm, are intended to deliver superior risk-adjusted returns. With $230.5 billion of net assets under management at March 31, 2022, PSP Investments is one of Canada’s largest pension investment managers, managing a diversified global portfolio of investments in public financial markets, private equity, real estate, infrastructure, natural resources and credit investments.

Alongside the shift to e-commerce, urbanization, and the energy transition (amongst others), arguably the biggest paradigm shift our society is facing is an ageing population. PSP Investments operates at the crossroads of these trends across the firm with active dialogue between asset classes to share knowledge, perspectives, and insights on how these shifts could impact all parts of our portfolio.

Life Sciences: a sector primed for growth

Between 2015 and 2050 the proportion of the world’s population over 60 years will nearly double from 12% to 22% (or 2.1 billion), while the number of over-80s is expected to triple between 2020 and 2050 to ~0.5 billion1. Whilst a longer life brings with it opportunities and societal benefits, the proportion of life in good health has remained broadly constant despite advances in health technology, resulting in greater need for medical solutions to support ageing individuals2

PSP Investments was amongst the early investors that identified Life Science real estate as an attractive sector that represented a meeting point between the ageing population thematic and the technological revolution. With its significant experience of investing in the Life Science sector in North America, PSP Investments has witnessed first-hand how advances in technology such as computational sciences, AI and machine learning have fundamentally changed the drug discovery and production processes over the past 20 years.

Pharmaceutical R&D is expensive, time-consuming and uncertain. It takes on average 10-15 years and costs $1-2bn to develop new medicine before even factoring in that only ~ 12% entering clinical trials ultimately receive US FDA approval3

These challenges alongside the application of new technologies have led to what some have termed the ‘biotechnological revolution’. Small pharmaceutical companies now account for more than 70% of drugs in phase III clinical trials4 This illustrates a changing dynamic of increasing research taking place in smaller,