UK - The raising of £80m (€92m) in new equity for a UK social infrastructure fund reflects pension-fund appetite for long-term investments linked to inflation, according to Aviva Investors fund manager Neil Gardiner.
The Quercus Fund, a joint venture between Aviva Investors and property firm Quintain, will have a war-chest of £140m (including debt financing) and has already committed £30m to acquiring six old-age care assets in Scotland and the English Midlands.
London-listed Quintain has PGGM, manager of the €80bn Dutch pension fund Zorg en Welzijn, as a 5% shareholder.
Inflation-linked rents, 35-year leases and yields above 8% make elder care facilities a potentially long-term proposition for pension investors, said Gardiner. He cited demographic forecasts of a 50% increase in the UK's over-65 population over the next 20 years, and an increase of a third in the country's over-85s.
"From a demand perspective we see no drop in need," he said. "The state relies on private sector and will continue to do so. You can compare to student accommodation. The state has stopped building and instead relies on the private sector to provide."
The fragmented UK elder-care sector has seen attrition as a result of the closure of local authority nursing homes and inefficient private operations that are unlikely to meet regulatory standards.
Gardiner said the institutional pension fund market is attracted both by the sector and by the characteristics of the fund, which owns the freehold to 240 assets managed by partner Quintain.
Local authority pension funds in Merseyside and the West Midlands have already invested in the fund. Neither was available for comment before going to press.
Several UK pension funds also gained exposure to the fund last year through the secondary market (see earlier IPE Real Estate story: UK PFs in healthcare gain)
The chief risk to the sector lies in the potential for state funding to be withdrawn from social care, and the likely impact on the revenues of operations. Although the Quercus portfolio has a coupon of local authority-financed and private residents, even private residents effectively have the government underwriting them because the state steps in once savings run out.
"Our risk protection is that we monitor of the turnover of the operations so that if they get squeezed on revenues, they can still cover the rent," said Gardiner. "But the ability of local authorities to continue to pay is a risk, especially given the current spending environment."