Walter Secord: The average life of an aged care facility is 30 years and then you have to replace the stock, meaning rebuild for revenue.
Sam Sicilia: We’re thinking about how to fund aged care or how individuals will fund it. There is a class of products called longevity bonds which are not readily available today. Basically when you reach retirement age, you don’t know how long you’re going to live. But you should be able to in the future buy an annuity and an insurer would be well placed to group the risks together, and continue to pay you if you live beyond your expected date of death.
I think those products will become available and will be ultimately directed towards meeting your needs in retirement, including retirement living. Could I just say that it is possible to make money from social infrastructure. In fact my fund Hostplus is the largest operator of campus living in the world, 48,000 beds across Australia, UK, US and New Zealand.
That’s a lot. The concept of vacancy just isn’t there, and that’s the same characteristic that aged care facilities will have. They will be 100 per cent occupied and they will be supported by longevity bonds in order to pay for them. So you can make money on this. Build a site on land that could be provided to us by the government or as a university does, provides land to you.
You build the facility at cost. You operate it for 30 or 40 years and you hand the asset back at that stage because it’s basically worthless. You might renew it along the way but the money is made along the way. These are not astronomical rates of return. But at the same time if there are second and third order benefits to our members that have some nexus to investment returns, then we will entertain that. I’m more than happy to go in with other superannuation funds because our time horizon is similar. And I’m also more than happy to co-invest alongside the operator of the facility because their alignment of interest has to be the same as ours otherwise it doesn’t work.
And government’s alignment of interest, if they wish to co-invest through some way of providing that service. So whoever the investment parties are, the critical factor is, one of them should be the operator, otherwise don’t do it. And the second is that the term horizons for the individual investors ought to be similar.