The valuations of care homes are driven by the net fees generated by each bed, rather than property market dynamics, thus insulating returns from corrections in the property, bond or equities markets. However, there remains a real estate value underpin to any portfolio, which acts as embedded risk support.
Consequently, the return stream from the care home sector looks very different to any equity, bond or alternative asset. In fact, it more closely resembles an inflation-linked, high-yielding liability, such as a pension or an endowment.
Unique asset class
The ageing population and the increasing requirement for residential care provides a degree of predictability not afforded to other asset classes. Care sector dynamics are unlike any other form of investment, demonstrating that alternatives cannot only provide uncorrelated returns, but a high and sustainable level of income.
While it is not on every investor’s radar, this sector is being increasingly recognised as a credible portfolio diversifier and can provide a solution in the continued quest for truly alternative assets and income.
Oliver Harris is managing partner at Montreux Capital Management