In inflationary times, doing nothing could be your riskiest move

Cashflow is the lifeblood of any business and healthcare practices are no exception. Ensuring the optimum balance between long-term financing and day-to-day working capital requirements is a key challenge. Avoiding cashflow constraints is critical but retaining too much cash in the bank feels like ‘paying on the double’ if money is sitting idle, earning no return.

At Davy, we have been active in the healthcare sector over many years, working with business owners and healthcare professionals in planning for their short- and long-term financial future. 2023 was a standout year in terms of the demand from the sector for short-term liquidity solutions. This is consistent with a broader trend across industries that saw Davy channelling over €2.5 billion to secure returns of typically 3-4% on short-term funds.

The catalyst for this surge in liquidity solutions was the dramatic change in market dynamics over the last 12-18 months. With surging inflation followed by 10 European Central Bank rate hikes since July 2022, and a 450 basis points increase in rates, the conversations within the healthcare sector have intensified.

Interestingly, these engagements underscore the surplus liquidity present, often surpassing near-term needs. This surplus, a residue of an ultra-prudent approach coupled with historically low inflation and interest rates, presents both challenges and opportunities.

In the face of inflation, this excess liquidity not only risks a loss of value growth and future provision but also jeopardises the purchasing power of ‘idle’ money. Recognising this, Davy has been able to work with the sector to capture low-risk, short-term returns of 3-4% while maintaining a high level of liquidity.

This proactive approach to managing liquidity reflects a unique point in the cycle, as interest rates are widely expected to reduce somewhat beginning June 2024. Though the healthcare sector has seen substantial investment in more attractive short-term returns, many practitioners may yet lose out on the opportunities present at this point in the cycle. Inaction is also a decision, and in this instance, it may be a costly one.

The right solution for you will depend on your specific situation and your objectives. Our personalised approach, wide investment platform, and team of experienced advisers and specialists can help you understand the best options available.

For more, visit davy.ie/potential

Publication date: June 5th 2024.

Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.

Warning: The information in this article is not a recommendation or investment research.  It does not purport to be financial advice and does not take into account the investment objectives, knowledge and experience or financial situation of any particular person. There is no guarantee that by putting a financial or investment plan in place, you will meet your objectives. You should speak to your advisor, in the context of your own personal circumstances, prior to making any financial or investment decision.

J & E Davy Unlimited Company, trading as Davy and Davy Private Clients, is regulated by the Central Bank of Ireland. Davy is a Davy Group company and also a member of the Bank of Ireland Group.