New £250m fund to create new aged care model
LONDON: A new $250m fund will introduce a social impact investment model in aged care.
Former NAB CEO Andrew Thorburn has a plan to revolutionise investment in social services under a new model that puts bank-like rigour around public spending. It promises to lift standards in the aged care, disability and social housing sectors while also delivering infrastructure-like returns to investors.
The funding of social services was in the spotlight this week, as the federal budget unveiled $17.7 billion in aged are funding over four years, while Labor pledged $10 billion to social housing as the centrepiece of its budget reply on Thursday night.
Thorburn, and Michael Triall, a former Maquarie banker, established For Purpose Investment Partners last year, which is preparing to raise a $250 million strategic investment vehicle after making two standalone investments in social housing and social services staff training.
The social impacting investing model involves applying the same financial discipline and strategic acumen that Thorburn and Traill were used to at NAB and Macquarie to the social sector, where operators are often sub-scale and lacking proper systems and talent, or are publicly-listed and driven by cost and earnings pressures.
For Purpose, a not-for-profit, is creating a third way – which Traill describes as ‘Capitalism 2.0’ – where areas of critical social need that involve significant government funding are operated under sophisticated business disciplines typically applied to large scale enterprises.
The model aims to provide a stable, annual return of around 12 per cent to investors over a ten to fifteen year horizon. The majority of income earned from the investments is backed by government subsidies.
But social impact investing has been slow to get off the ground in Australia. A $1 trillion market internationally, the market is worth around $20 billion in Australia, a figure that includes $17 billion of green bonds. The Responsible Investment Association of Australasia reckons the true social impact investing market is closer to $2.5 billion.
Traill, who is also chairman of the government’s social impact investing taskforce, reckons it has the capacity to grow to a $10 billion to $20 billion market ex green finance, as more institutional capital enters the space, which up to now has largely been supported by family offices, high-net-worth investors and foundations.
Thorburn, who left NAB days after being criticised by the final report of the Hayne royal commission, says another royal commission – into aged care – and this week’s federal budget provide a “huge tailwind” for For Purpose, because standards of governance and the level of staffing and training will need to lift.
“We are not asking for subsidies. We are going to run the business really well for the long term,” he says. “These social issues are real. Finally, government is working on it. But you need funding with business discipline that gives returns to investors while also thinking about explicit social KPIs.”
The new $250 million fund will be raised after For Purpose, whose board also includes former deputy chair of the ABC Wendy McCarthy and venture capitalist Mark Carnegie, has made two standalone investments in the past ten months. Last August, it was part of a consortium that put $48 million into 60 specialist disability accommodation (SDA) apartments managed by Summer Housing.
Then last month, it acquired Catalyst Education, which provides training to workers in aged care, early childhood education and disability, in a deal worth around $25 million. Thorburn and Trail are sitting on the board of Catalyst, and will guide it to scale nationally.
Jo Asquith, Catalyst CEO, said the new funding provided by this week’s budget should help to lift the ratio of staff to clients in aged care centres. For Purpose, she said, will help the company ”consolidate, quantify and measure our social purpose and the impact we are having in society”.
“Rather than it being a by-product of what we do, we will target and collect and quantify, using qualitative and quantitative data, so we know the impact we are making,” she said. “It’s about how can we make the maximum positive impact so we can show investors a financial ROI [return on investment] and also the social impact we are having.”
The model for For Purpose’s investments is Goodstart, which acquired the ABC Learning Centres after the global financial crisis under Triall’s guidance as founding CEO of Social Ventures Australia. It has grown to a $1.1 billion revenue operator with higher occupancy levels as it focuses on quality learning outcomes.
“Our thesis has always been – and I think it has been reinforced by the budget – that in big chunks of the economy, where there is significant government funding, you need a combination of business discipline and social purpose,” Traill says.
“If you do that well – and Goodstart is a proof point, and we are confident Catalyst can be too – then over the long term, you can drive both financial returns acceptable to mainstream institutions and a virtuous circle of strong demand by providing a high quality service offering. And with a time horizon of ten to fifteen years, we can create an infrastructure-type of investment with an explicit and measurable social purpose focus.”
