Golden Opportunities from the Graying Population Five Investment Prospects from Global Aging and Institutional Care

Conference edition Golden opportunities from the graying population Five investment prospects from global aging and institutional care Introduction The world is going gray. Our global population is aging This issues brief — with input from experts in at an unprecedented rate that is creating alarm for 20 countries — offers a concise overview of emerging cash-strapped governments — but also attractive new trends involving aging populations from an investor opportunities for investors. perspective. In collaboration with Canning House, we asked how the private sector should be looking to Much has been written about the scale of challenge intelligently impact institutional aged care to produce a facing governments as the world moves from positive return both financially and socially, converging on 800 million over-65s today to 1.4 billion by 2030.63 five key themes. The report also includes an overview of What are less well understood are the win-wins that how some of these themes are playing out in the world’s the business community are creating through investment major aged care markets. in innovative care service models and infrastructure to meet this growing need. Aging by the numbers — scale of the opportunity Over the next 15 years, the proportion of people aged meaning that the number of potential care residents over 65 globally will grow from 11 percent to stands to grow by 68 percent over the next decade and 17 percent, adding 600 million more elderly people. a half. With the average institutional care bed costing By 2050 this share will have doubled to almost a around US$25,000 a year,1,15,17,19,21,50 no government is quarter of all humanity.63 currently positioned to afford these kind of rises in needs. For example, in the UK, demand is growing 9 percent Industry forecasts anticipate that around 12 percent per annum faster than public investment.12 of over 65 will use institutional care at any one time,27 Target market Total population aged Average annual Public aged Average retirement 65+ by 2050 = 2 billion bed charge for an care spend age = 6440 (nearly 25% of humanity) institutional aged to quadruple Average life care facility = by 2050 = 32 Average institutional care expectancy = 79 $24,455 $2.7 trillion35 needed =12% (240 million) Extrapolated across the future user base represents a Or about $5.8 trillion $6,250 Institutional per person aged care Would be the subsector, equal to the size of per year can be a 5th biggest the energy (notice the proactive, country just before market shortfall recurring Brazil against bed revenue costs at left) source New approaches and new sources of share of those in institutional care may Individual and corporate investors alike financing are needed to match demand go up. Quality is also a growing concern, are showing increased attention and with supply. The diagram on the previous with squeezed providers in some market activity in aged care. A record page highlights some of the key figures for countries such as the US and UK leading number of mergers and acquisitions took this subsector (primarily in OECD markets). to public scandals over mistreatment and place in the subsector in 2014, with more poor coordination between care facilities than 280 transactions (up 27 percent Furthermore, experts say changing and medical services. from 2013) worth an estimated US$25.75 demographics such as smaller family billion (up 121 percent on the previous units and less-traditional lifestyles mean While many governments are under year).52 Talking strategy with those that families are increasingly unlikely to take duress, some commercial players are are most focused on growing the aged on direct care for their elderly — so the seeing an opportunity to innovate. care industry, five key themes stand out: 1. Opportunities in private-pay models are large and attractive For most investors worldwide, the a reorientation, struggling with the 80.24 “We are in a sandwich situation — contemporary option in institutional heritage of real estate and lack of adults are not finished caring for their own aged care so far appears to be in high- strategy, to attract more of the middle children, yet also having to take care of end retirement villages with a bolt-on class buyers. This requires a streamlining their parents”, said Ricardo Soares CEO and care offerings that target the wealthy. of operations, lean management teams, founder of Brazil Senior Living. Business interest and activity in this but yet still solid quality to reduce the Nevertheless, new insurance models market continue to grow strongly, stigma of entering the homes during and products are appearing. In France attracted by large and fairly quick earlier phases of life. The high(er)-end less than 1 percent of long-term care returns, and in many cases less private sector players in the Netherlands spending came from private insurance acute medical needs. are also starting to design solutions in 2007, but 15 percent of the over-40 for the middle class. At the same time, In Canada and Singapore, for example, population have a protection plan in place Indonesia is seeing non-health sector skilled-nursing institutions that are well- now.33 Countries like Japan, Singapore, players getting engaged, including positioned from a resourcing perspective and New Zealand are leading the charge retail banks with contracted physicians are pivoting to become residential on compulsory contribution schemes that providing basic health services to the homes. India, meanwhile, is seeing an start earlier in life and are expected to elderly. ROI is attributed to healthier uptick in private care providers becoming increase a reliance on aged care services patrons increasing the likelihood to meet interested in long-term facilities with while also available disposable income for payment obligations and also being loyal geriatric services, although much remains cross-sell and up-sell opportunities. customers for longer. conceptual to date. In the UK, while “The private sector appears best- retirement villages remain at the infancy Closely related in the pure private positioned to develop innovative models stage compared to other nations, there sector is the need for people to better of care, source capital, and deliver gains has been success in hotel and hotel-like position themselves financially by to both individuals and their families,” upgrades for private elderly customers managing personal assets more wisely said Chai Chua, New Zealand’s Director of residential care homes. Mexico has and at earlier life stages, including General of the Ministry of Health. “The begun to see foreign market entry areas like pensions and mortgages. private sector is better placed to respond for privatized high-end aged care, via Countries such as Argentina and India to changing preferences and demands of partnerships with hospitality groups such have underdeveloped social insurance older people who are increasingly aware as those coming from Spain. programs in place and it’s not uncommon of the options available to them.” for inflation to eat away at retirement Beyond the high-end of the spectrum, an savings over time. At the same time, The trend toward private and to some increasing number of services are being even universal models like those in extent public protection schemes is aimed at the middle-income market, Switzerland are increasingly feared to be also expected to generate downstream which in most countries represents a insufficient to support the soaring future opportunities such as the acquisition of growing and powerful purchasing group demand outlook for elderly care. operators by insurance funds observed that includes tens of millions of boomers. in Japan and other financing mechanisms Two-thirds of New Zealanders over 65 in In Brazil, the world’s second-largest private like the Immediate Needs Annuities fall into this category, for instance.38 insurance market, only 27 percent of policies developed in the UK. people over age 60 have a health plan, a The Netherlands has observed the figure that drops to just 20 percent by age traditional elderly care homes undergoing 2 | Golden opportunities from the graying population 2. But the public sector offers its own opportunities The almost exclusive focus of some investors on the private markets such as the UK have made widespread use of private sector is creating opportunities for businesses that can engage providers to deliver aged care, as the Netherlands and Australia with the struggling public sector to offer new approaches to meet have also been doing for some time. A recent step-change in the demand, potentially reduce the cost of delivery, and make a return. New Zealand market means 60 percent of aged care is now for- The diagram below shows the various types of institutional aged profit5, and in Italy nearly the whole subsector is private. care and the tendency for public and/or private funding for each. These mixed models are leading to far greater experimentation Interestingly the care demand for high-dependency facilities is with new financing and partnership models between public and increasing due to demographic trends, yet the provision of low- private sectors. One emerging trend is governments tendering dependency areas (such as retirement facilities) appears to be the for private sector partners to renovate and expand aging and current focus. under-sized facilities. In Canada, 75,000 care beds have become Countries are increasingly embracing mixed systems of financing available for licensing,5 which

Load more