The Speculator

The demographic goldmine

11 September 2014

1:00 PM

11 September 2014

1:00 PM

Demography is destiny, they say, and if that’s the case then Britain’s future looks wrinkled and grey. Today, one in six Brits is over 65. By 2050, on current trends, it will be one in four. There are now three million octogenarians living here, a figure that is expected to double by 2030 and reach eight million by 2050. Retirement? Sorry, dears. The government will have to keep pushing back the state pension age, so many of us should expect to carry on working until senility or death intervenes.

It’s grim stuff. But here’s the good news: geriatric Britain presents a huge investment opportunity. It’s hard to think of a safer bet, in fact: unless we introduce mass euthanasia (step forward Lord Falconer!) healthcare costs must rise and rise. As individuals and taxpayers, we will have to fork out more on nursing, pain relief and medicine. Dementia is a total banker, for instance, and the profits of incontinence pad makers won’t dry up either.

Care homes represent the biggest and most obvious golden goose. The trouble, though, is that it’s hard for the average ‘retail’ investor to get a slice of the action. Private equity groups dominate, squeezing the margins of this vital service for their guaranteed returns. Most of these funds go through a ‘prop‑co op‑co’ model: a property company, usually a real estate investment trust, develops, maintains and leases out the care facility, and a separate operating company deals with the gerries and their bed sores.

In 2011, Southern Cross, a FTSE 250 operating company with property interests, over-leveraged itself and went bankrupt. One investment arm’s loss was another’s gain, however, and some vast and conspicuously anonymous American healthcare equity groups sank their teeth into the vulnerable British market. It’s all globalisation and consolidation — none of which much helps the everyday punter looking for a comforting profit amid the depressing facts of life.

You could plump for the cowboy option: a buy-to-let care residence scheme. This means you buy a room in a nursing home and let it out to an OAP until they run out of money or croak, whereupon you find another tenant. These can be found advertised all over the web. How reliable they are, let alone how ethical, it’s hard to say.

The safest option might be to buy shares in Target Real Estate Investment Trust, a established fund which specialises in healthcare property. Alternatively, and more enticingly, you can invest with a specialist like Octopus Investments, which is an active player in the healthcare sector.

Since providing for our ageing population is arguably the greatest social challenge of the millennium, it’s worth thinking big. One intriguing Octopus-backed venture is Rangeford, a developer that is building retirement villages across Britain for those ‘entering the third phase of life’. Retirement villages are already popular in other countries such as New Zealand, and while they might sound a bit dystopian to cynical Englishmen, they must be preferable to the lonelier alternatives.

An even more exciting prospect, perhaps, is Evermore, a new venture which hopes to enable old people to buy their own property within a retirement home, using equity from their existing property, then pay a flat rate for medical care until death. Its founder Sara McKee aims to create an affordable system that will give the elderly a measure of independence and control — as well as a sense of community — even after decrepitude takes over. ‘The current care home system is just not fit for the 21st century,’ she says. ‘It needs a total reboot.’ It’s early days for Evermore, but Sara is interested in pursuing new models of funding, such as crowd sourcing. Put her down as one to watch.

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