"Living in a retirement village has the capacity to be a great lifestyle decision, sadly it also has the capacity to be your very worst financial decision." - RETVILLDOTNET.
An example for a village with the Deferred Management Fee calculated on the ingoing $$$.

"My father must have been one of the few people who lost money when he sold his home in a booming Melbourne property market. This huge loss on his home, in a popular suburb not far from the CBD, was despite it selling for more than he paid for it. The problem? He bought into a retirement village." - Diana Thorp. Sunday Herald Sun. 22/08/21
An example for a village with the Deferred Management Fee calculated on the outgoing $$$.

Thursday 20 September 2018

Private Equity And Aged Care

Although written in 2007 this article is so relevant today as the government calls a Royal Commission into Aged Care.

Private Equity and the Australian Aged Care Sector


Article by Marie del Rama - Centre for Public Governence, University of Technology, Sydney.

"While some private equity activities have been highly publicized such as the failed takeover of QANTAS by a consortium of players, another industry sector is quietly being transformed by private equity's presence. It is the aged care sector.

If you are planning to retire or are reviewing nursing homes for an aged relative, the chances are the retirement village or nursing home is owned - or will be owned - by a private equity group. As we have heard often enough, be alert but not alarmed for some parts of the aged care sector in this country is now in the hands of the large private equity groups: Macquarie Capital Alliance Group or MCAG, Babcock and Brown, ANZ Capital, AMP Capital, CVC Citigroup and others.

Why aggressive private equity players should take such an interest in a sector that is by all means, intents and purposes concerned with looking after the sunset stage of life is a conundrum but upon closer inspection, it makes sense and is a logical business decision. It is a growing sector - we are an ageing population. There are many candidates on the waiting list for a nursing home place. The needs of elderly Australians will increasingly dominate the national agenda as their requirements and services will impact our economy and political decisions.

Previously, the aged care sector was mostly catered to by non-for-profit charitable organizations such as the Salvation Army and others. When I emailed a Uniting Church representative on why they were in the sector, their response was:

Caring for people has been a principal Christian activity for 2,000+ years. Churches ran the world's first orphanages, hospitals, schools, universities and hotels. In the 20th Century, Churches pioneered the care of older people...The first services provided specifically for older people were accommodation-type services for homeless older men or women. Convalescent and other hospitals were also an expression of this sense of mission to minister to older people.

In 2004, the Salvation Army sold most of its nursing homes to Retirement Care Australia, part of Macquarie Bank's private equity behemoth, MCAG. It was not an easy decision for the Salvos. Press reports at the time cited their decision to sell out was mostly due to the operating costs and the capital needed to ensure their homes were up to standard.

A reason Macquarie bought the homes is outlined on its website: The aged care industry provides stable, underlying revenue streams and predictable cash flows, primarily from government funding and subsidies.

AMP Capital, which is the funds management arm of AMP, bought a for-profit organization Principal Aged Care. For AMP Capital, the aged care arm is part of their Social Infrastructure Fund. This fund is marked as mature in the business life cycle, and investors should expect an annual income yield of 8-10% over the next 11 years.

Earlier this year, I made a submission to the Senate Committee on Private Equity. In it, I stated:

In entering not for profit sectors, private equity investors have turfed out traditional non-profit organizations as they compete for the same pool of government funds and subsidies. Indeed, the allure of government subsidies have made the aged care sector a most attractive, stable 'investment' as part of a 'social infrastructure fund'.

The aged care sector is too important to be carved out by the desires of private equity Wall Street-type managers for short-term gain. The long-term pain will be felt by most Australians, especially those who have people close to them using aged-care facilities.

On the positive side, the influx of money that private equity has brought into the sector is improving a lot of facilities. They bring a certain amount of professionalism and corporatism. The managerial and resource capabilities private equity have in contrast to the non for profits is incomparable. Of course, as private equity players have to make a profit, they usually focus on the high-end of the market leaving those who can ill afford aged care to the charities and non for-profits.

However, given the amount of money our private equity funds have in their respective financial warchests - surely, at the very least - they do not require the government subsidies that they currently use in their prospectuses to attract investors. In a competitive sector, subsidies have the unhealthy habit of distorting the market place. If private equity is the purest expression of unfettered market capitalism, why enter a highly subsidized sector?

After all, do we really need our public taxes to be subsidizing Macquarie Bank?"

Marie dela Rama
Centre for Public Governence
University of Technology
Sydney

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Function of Government

The role of government is to create an environment for commerce to function whilst at the same time protecting retirees and particularly vulnerable retirees from both financial and emotional harm emanating from that function.

The Victorian Retirement Villages Act 1986 provides the environment for commerce to function but fails to fully protect retirees from financial and emotional harm as a result of it.

The Victorian legislative definition of a retirement village in demanding the payment of an 'in-going' amount without the transfer of property ownership is a major contributor to that financial and emotional harm suffered by retirees.


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