Old money: investing in the retirement village boom

It makes intuitive sense that superannuation funds, which are firmly in the retirement business, should look to invest in the villages and nursing homes which their growing legions of ageing members will require. They generally have not until now, but that may change as an array of institutionally-focussed products gain a track record. CATHERINE JAMES reports. Australia is getting old. The Australian Bureau of Statistics has predicted that within 30 years, more than a quarter of the estimated 31 million population will be over 65 years of age. Compared to today’s count of over 65ers (13 per cent of 21 million), the future situation poses both problems and, of course, opportunities. Such a shift in the age demographic will force change and innovation in products and services.

But one growing demand of the over-65ers that is already apparent – and is only expected to increase – is more accommodation options. Whether it’s retirement village housing or nursing homes, demand is outstripping supply in Australia and New Zealand. And with demand for more bricks and mortar comes investment prospects. A recent entrant on the investment scene is Retirement Villages Group (RVG), a wholesale, unlisted fund with a $1.5 billion portfolio of retirement village assets across Australia and New Zealand. RVG is jointly managed by Macquarie Bank’s specialist funds management arm Macquarie Capital and Australia’s largest retirement village operator, FKP.

Macquarie Capital and FKP began buying retirement living businesses in late 2005, starting with an 82 per cent stake in NZ’s largest operator Metlife Care. Four 100 per cent buyouts in NZ and Australia soon followed, and RVG was launched in November last year as the largest operator across both countries. At the time of the launch, RVG had raised about $850 million from institutional and sophisticated investors.

The latest estimate of funds under management is $1 billion, and performance is pitched at “low double digit” returns for a 10 year investment, according to RVG chief executive Patrick McClure. The portfolio holds only retirement villages, unlike some of the other “community funds” in the market with a mix of retirement village, nursing home and aged care services on their books. RVG does have some exposure to “aged care units” in NZ, but this is only around 1 per cent of the total portfolio value.