The fund also invests in providing residential care for adults with learning disabilities, another rapidly- growing demographic. A major driver of the interest in this sector has been the publication of the Budd Report late last year. The report helped define government policy; particularly the recommendation to move residents out of inappropriate NHS accommodation into private paying care, which Godden says has created investment opportunities.
He adds: “The growth of that market is driven by the massive change in life expectancy of people with issues such as autism and Down’s syndrome, which has grown immeasurably over the last couple of decades.”
While the fundamentals look attractive, the sector has been hit by a number of high profile scandals in recent years. One of the biggest was that of private care home operator Southern Cross, which not only faced claims of patient abuse at one of its homes, but also hit financial difficulties and could no longer pay its rent. By July 2011, all the homes owned by the group had been repossessed and the company broken up.
Target Healthcare’s MacKenzie, whose REIT oversees the profit stream of eight underlying care home operators, says Southern Cross suffered because it relied on the after-rent profit stream of a single operator. Similarly, Montreux’s Godden says Southern Cross ran into difficulties as a result of a huge rental bill and became unable to train staff properly.
“Training is absolutely critical,” says Godden. “No one is allowed to be a carer until they have at least a basic level of training.”
But Aon Hewitt senior investment consultant Oliver Hamilton says while the demographic argument is strong and healthcare costs are likely to outstrip inflation, none of his clients are investing directly. He does, however, believe there is potential and likens the sector to student housing, which grew to become an asset class in its own right.
“As it does become more institutionalised more funds will consider it as an opportunity,” he says.
A case in point is the Church of England Pensions Board, which has some exposure through a portfolio of investments in pooled property funds managed by CBRE. Chief investment officer Pierre Jameson says: “The exposure is primarily an investment about diversifying the property base. It is not an attempt to play the residential care market.”
For others meanwhile, the reputation and regulatory risks are just too much.
Antony Barker, director at the Santander UK Group Pension Scheme, has dismissed it on these grounds, as well as the convoluted nature of who the operator is – private or local authority – and the danger of that provider running out of cash.
He adds: “[The over 85s] may be the fastest growing demographic but you can prove anything with statistics. For example, did you know that that, over the entire course of history, nearly 100% of those that have ever reached 85 globally have gone on to die – perhaps funeral directors are the real growth play.”
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