New Infrastructure Players in the Health and Social Care Sector

Ruben Bhagobagti, Principal, AMP Capital
Phillip Hyman, Advisory, DC Advisory
Mike Leto, Amber Infrastructure

July’s Care Conversation was a panel event featuring Ruben Bhagobati of AMP Capital, Phillip Hyman of DC Advisory and Mike Leto of Amber Infrastructure, on the subject of new infrastructure players in the health and social care sector

The last 18-24 months had seen a ‘huge influx’ of capital to the healthcare space, Phillip Hyman told Care Conversation delegates. At the lower end of the risk spectrum there were a number of funds – including government-backed projects – and an investment strategy that was leading to a shift in the mindset regarding the risk spectrum.

Infrastructure funds focused on yields, he said. “It’s about buying assets that meet an asset test – it’s important that there are higher margins in comparison to other businesses, as this plays into the stability of cash flows. TMT and infrastructure are the focus of a lot of funds in regard to mid-tier returns.”

Amber Infrastructure’s focus on the healthcare sector had mainly been on the primary care space, Mike Leto told the seminar. “Some of the policy changes that have taken place in the past haven’t always taken into consideration the property side of it,” he stated, such as clinical commissioning groups (CCGs) being left with buildings that were not fit for purpose. Technology would be an increasingly vital factor, he continued, and it was essential to understand the effect this would have. Changes in demographics – such as the UK’s ageing population – would also play an essential role, as would improvements in primary care delivery, such as boosting GP efficiency by reducing the focus on admin.

“From an investor perspective, projects are becoming more complicated – we’re having to make our capital work differently,” he said, citing a recent project for the NHS that required three different sources of capital. Engagement could sometimes be difficult in delivering these projects, he explained – for example, local authorities should be able to use the land they own more efficiently.

The specialist care space would always be attractive, however, said Ruben Bhagobati, as investors looked for a combination of capital growth and infrastructure characteristics. “Specialist care is an essential service – local authorities are legally obliged to provide care for vulnerable groups, and when investors look at the funding of the industry it seems robust. The revenue and operational certainty that comes from the funding model is attractive, and if a high quality of care is provided then financial benefits follow.” Although it remained a fragmented industry with “a lot of mum and dad owners”, over time the larger players would dominate.

Provision of care for the elderly was increasingly evolving towards a ‘retirement community’ model, said Mike Leto, and opportunities were greater in the UK than in the US or Australia. An aging population also meant that it would be easy to forecast the requirements of the sector which made it attractive, added Phillip Hyman. One of the roles of private capital in healthcare was that it had easier access to funds which helped with capacity, stated Ruben Bhagobati, particularly in comparison with the public sector.

When asked by a delegate where they would invest £100m, Mike Leto answered in the retirement community space, Phillip Hyman in greenfield elderly care expansion, and Ruben Bhagobati in elderly care – “it’s sustainable and based on a public funding model”, he said.

On the subject of the biggest challenges facing the sector, Phillip Hyman replied that for the moment it was Brexit, but “ultimately the Corbyn effect has more of an impact. If he comes into power there could be drastic changes.” Recruitment and retention of staff – whether doctors, nurses or care workers – was a huge issue, said Ruben Bhagobati, while Mike Leto said it was “frustration with the need for a longer-term vision and strategy for the NHS. It should be taken away from the political cycle, and we need more engagement – a gap needs to be bridged at local level.”

In terms of who had the best care model, Ruben Bhagobati stated that it was Europe. “Germany is a good funding model, Finland’s primary care model has enhanced care and increased freedom of choice, while private healthcare penetration in Ireland is around 45% – very different to the UK. Other countries are further ahead in the dialogue of how to enhance primary and community care – the UK is falling behind.”

“The German model seems to work but it’s paid for through the tax system,” stated Mike Leto. “So we would need to be willing to make that investment.”

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