The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations. I am not claiming that the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made.

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Markets & aging

Aged Care

Story of corporatisation
 Nonprofit dilemma
Aging bonanza
Retirement Villages
Nursing homes
Home Care
Breadth health corporat.

Health care

Hospital Corporatisation
Entry to Privatisation
Privatisation Background
Australian states
Pathology & Radiology
Gen. Pract. Corporatisation

Introductory page
This corporate web site addresses the issues of corporate health care within a broad framework. A web page describing this broad context should be considered as an introduction to each page on the web site. If you have not yet read it then
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Content of this page
Behind the market enthusiasm lie the bankers and financiers who accumulate the funds and invest or lend money to business projects. This enthusiasm is reflected in the surging purchases of aged care operations by the Private Equity arms of these financial institutions. This page examines how they have set up investment vehicles for aged care. These protect their investments from risk by forming property trusts and then leasing the facilities to closely associated capital light operators. National and international investments are described. Also cashing in on the expanding sector are the construction companies.

 Australian section   

Banks, Trusts and Financiers
invest in
Australian Aged Care




What happens during a recession is well illustrated by the problems in retirement villages in the late 1980s and early 1990s. Investors in aged care lost a lot of money and many facilities closed.

Since then the banks have embraced the aged care bonanza with enthusiasm but have been careful to protect their funds. Several banks and some property developers have bought or funded aged care facilities of various sorts and formed vehicles for these investments.

As I understand it these development trusts buy or build, and own the retirement and nursing home facilities. The management and almost all the risks are vested in a management corporation which leases the facilities from the property trust. It does not own them. Most of the investment is in the expensive properties owned by the trust. If the company goes under the capital investment is not at risk.

A new management company can be formed or the buildings re-purposed. The management groups with few assets, their investors, and the residents who have paid large bonds carry the bulk of the risk. Primelife for example indicated that if regulators had forced it into bankruptcy by disallowing its allegedly illegal transactions then the residents in its villages would have lost $80 million paid in bonds under their contracts. A compromise was found.

In addition to this banks are experts in cutting costs and making profits. They give financial advice. They own enough of the service providers, whose survival depends on running the facilities owned by the banks, to insist that their market prescriptions are followed. They are there to make money for their mostly institutional shareholders and their prime responsibility is to these shareholders. They have little understanding of the consequences of their economic prescriptions for residents and patients. This is a recipe for problems.

One of the misconceptions revealed in their claims is that there are big economies in size. This is a person intensive one on one service. They consequently reduce staffing levels in the expectation that these economies and other "efficiencies" will make this work. The adverse consequences for care as the USA experience shows so well are only too obvious.

Mar 1997 Banks reluctance to invest in aged care changing

A survey by Arthur Andersen Real Estate Services of bank lending department managers last year showed that 30 per cent of banks had no loans to the retirement sector and only 5 per cent said they were actively seeking to lend to the sector.

About 75 per cent of those surveyed said the retirement sector was rated high risk.

The banks' concerns were based on lack of realisable security, perceived instability of the retirement industry, erratic cashflows and the shortage of experienced and credible operators.
"There is no doubt that retirement village investment and development have been adversely affected due to the dearth of capital available to fund senior housing projects," Mr Sudholz says.
"There are at least six suburbs in Melbourne that have an identified need for more aged-care facilities." The property crash and the recession plunged several high-profile village operators such as AV Jennings Retirement Homes into deep trouble.
"Banks didn't understand the cashflow problems faced by retirement village developers and after a series of collapses in the years 1991 to 1993, the banks were simply reluctant to fund any more."

Mr Sudholz believes that banks are now re-focusing on retirement housing, because of their strong investment parameters.

It was now better understood that village cashflows would be limited in the early years of operation.

"It takes 8-12 years for a new village to reach maturity and a level where it can produce an even performance."

New projects would suffer if there was not enough capital to sustain them during the start-up years.
Mr Sudholz says he can foresee the advent of health-care trusts that develop and own retirement villages.

"It would be important that the management cashflow rights and the development profits were treated as separate. Sales of units should underwrite the cost of construction - while the cashflow consisting of a service contract to an operator and deferred management fees would provide the future returns."
Chronic Case / Retired Hurt The Australian March 29, 1997

Apr 2003 Risks allocation in the model

Village Life has entered into 25-year triple net leases with the trust, meaning it will take all occupancy and operational risks of the villages. Westpac Funds Management Limited is the responsible entity of the trust.
Property - Commercial Property - Investing in the aged takes a leap. The Sydney Morning Herald April 12, 2003

Oct 2004 Banks now investing enthusiastically

What has emerged is the capacity of groups such as Macquarie Bank to marshall private capital for the sector as long as the returns are underpinned by strong management.
Salvos close to selling to MacBank group Australian Financial Review October 28, 2004

Mar 2005 Rapidly changing

Activity in Australia's aged-care industry has reached a frenetic pace over the past few years as a sector once dominated by owner-operators and small businesses is turned over by private-equity players and listed companies.
MacBank going grey Australian Financial Review March 23, 2005

Jun 2005 The big investors

But follow the money and it tells a different story (to the retirement village companies).

Once considered the ugly duckling of the healthcare industry and dominated by family-run operators and individuals, retirement villages are attracting moves by big, well-resourced investors such as Macquarie Bank, Babcock & Brown and ING, who figure the number of wealthy boomers retiring means there has to be money to be made.
Pitch for retiring types The Australian June 25, 2005

 An article in the Sydney Morning Herald spells out the approach which the banks and financial institutions take to investing in services for the elderly. This is an industry which is people intensive where time for human contact is essential and where individualised care is critical. What will the impact of "productivity levels" be?

In this instance power and control lie with the bankers who are well removed from the coal face in the facilities. The methods of evaluation, lines of communication and command are commercial and financial. It is not difficult to predict the likely outcomes.

The article below gives the bankers and the markets view of it. A nurse working in the system compares it to battery farming and calls it "people farming". Different worlds (starting points) and different words for the same thing lead to a divide in perceptions. Experience clearly indicates which are the more accurate words. Brave new world!

Jul 2006 Its all about profits

Nursing homes and hostels that were once run by not-for-profit organisations, such as the Salvation Army, could soon have investment bankers as managers and shareholders looking for returns in the form of capital growth and dividends.
Given the ageing population, says Ben Mitchell, Shaw Stockbroking's head of research, demand for retirement villages and aged-care will continue to escalate. "There's also an increasing acceptance in the community that [the homes are] where we will all end up.

"What Macquarie and Babcock & Brown are doing is buying assets to put into trusts. They will then list them."

In other words, it's all about profits.
"Because of the returns places like Macquarie and Babcock & Brown generate, you have to think that they will look to make very big profits out of nursing homes," says Rodney Lewis, a lawyer who specialises in aged-care law at legal firm Dormers.

"High returns come from keeping costs down and pulling productivity levels right up, as much as possible. These people might be able to get economies of scale and bring in new technology that delivers that.

"The main game for Macquarie and other big players in the nursing home industry will be in extra service places. These allow for the charging of an accommodation bond. It's a matter of choice for people, of course, but the potential for growth in that part of the industry is significant," he says.
"The aged-care industry is very fragmented. They will bring new capital investment and better management. They will consolidate assets, take it global and run them much more efficiently. They won't be making the beds but they will be running them in the Macquarie way."

Kunnen says a fragmented industry may have meant under-utilised capital or under-developed assets. "Macquarie will make fees on it, but it will deliver a yield to investors. That's how it will be sold," he says.
Turning grey power into profits The Sydney Morning Herald July 5, 2006

(Added Aug 2008)
The further management is distanced from the coal face the greater the likelihood of inappropriate managerialism. The provision of sufficient diapers for incontinent residents in Macquarie Bandk owned nursing homes is a good illustration of a pervasive problem.

Good business managers must manage costs, structure them and be able to control them. The costs of diapers mount up. But the needs of patients vary enormously, some requiring large numbers, others very few. It is simply impossible to standardise this or predict what will be required from day to day. In addition some makers of diapers promote their absorptive capacity and claim that they can be left on the resident for long periods even when soiled. This is nonsense but managers in their ivory towers seize on this. Frail residents can be left sitting in their urine and faeces for long periods. Managers even persuade relatives that this is acceptable.

We know that managers in Australia are rationing the number of diapers for residents because the nurses are complaining that they have to hoard nappies and hide them to be sure that they are there when needed. The corporate response is to deny and to claim that extra diapers are always available on request. They don't seem to realise that the overworked trained nurse responsible for giving out extras will be busy or absent resulting in unacceptable delays. Managers looking for bonuses will ensure that this is a big hurdle and will discourage the issue of more diapers. It is simply a disguised system of rationing.

It is not often that spokesmen for big companies are so blinded by their rationalisations that they openly admit what they are doing is company wide policy. Australia's Macquarie bank owns Leisureworld, Canada's largest for-profit nursing home operator. One of their Canadian managers did just that. The use of "professional third-party providers" to determine the needs of the residents instead of the actual experience of their own staff at the bedside is particularly revealing on the sort of out of touch managerialism that is so prevalent. Instead those at the bedside are seen to have some ulterior motive - never that their actions are a response to what is happening in those beds.

It tells us what is happening globally as well as in Australia and across health and aged care. What is so difficult to understand is that they really do believe what they are saying - but they really do. The more impressive and wealthy people that believe it, the more legitimate it sounds to others, the more credible it becomes, and the more they can persuade others that they are right.

Aug 2008 Managerialism - Outside assessors for allocating diapers needed for residents

An east Toronto nursing home is threatening to fire front-line staff for hiding extra diapers in residents' rooms – a practice workers say is necessary to ensure that residents are not left in wet and soiled briefs.

Staff at Leisureworld West Hill said they grew so frustrated by diapers kept under "lock and key" that they called in the Ontario health ministry to investigate. A spokesperson for Health Minister David Caplan told the Star that investigators visited the home on Aug. 11 and cited it for violating the nursing home act.
Leisureworld CEO David Cutler admitted the home has been hit with a violation, but said he will complain to the ministry, alleging its investigator accepted the concerns of front-line workers without investigating whether extra diapers were readily available.
Cutler said the West Hill facility – and the Leisureworld chain of 26 homes – spends extra money on diapers to ensure the residents receive proper care. He also said residents are assessed by "professional third-party providers" for their incontinence needs.

" We don't just provide the bare minimum," Cutler said.
The letter, which says it is "MANDATORY" that staff read and sign, threatens disciplinary action possibly leading to "TERMINATION," if staff are found "hoarding" diapers in residents' rooms.
The letter ends by saying "hoarding of supplies is theft and will not be tolerated."
" Staff, because they are busy or whatever, will take product and hoard it, in individual residents' rooms and hide it. Why do they hide it? Because it is easier to hide it in a closet than it is to go to the trolley," he said. Each resident receives their allocation of diapers each day. If there is need for an extra brief, the workers must ask the charge nurse, who has the keys to the room where they are kept, he said.
Many homes now use diapers that come with a claim that they can be worn comfortably until they are 75 per cent full of urine and feces – a practice that sparked outrage last summer when it was reported in the Star. The Ontario Federation of Labour filed a human rights grievance over the practice.
Staff risk firing for 'hoarding' diapers The Toronto Star August 22, 2008

Most of the big financial institutions, but particularly Macquarie Bank see aged care as a global cow from which to milk profits and they have bought aggressively.

In most instances the financiers also have a stake in the operators (and visa versa). They exert a powerful influence on them and act as business advisers. Although the financier could terminate the contract and employ another operator this is really a partnership and the trust is simply a strategy to protect the investment. Termination of contracts is far more likely to be for financial reasons than for issues about the quality of care. There are therefore strong pressures to compromise care in order to please financially. I do not know if the lease arrangements give the financiers any share in profits but would be surprised if this were not so. This is an area and a set of arrangements to be watched carefully.

The for-profit operators are at particular risk. Pressures are put on them by the investing financiers, by their own financial difficulties, or by their eagerness to perform profitably. This drives them to increase profits at the expense of care and then develop strategies and justifications to make this seem legitimate. The strongly profit focused rhetoric used by the big financial investors is not reassuring.

Someone does of course have to own the homes and there does need to be some stability in the sector when it is run as a market so that frail elderly are not deposited in the street when owners go under. Straight rental arrangements to an operator are one method by which a barrier can be kept between carers and the financial institutions that invest in buildings.

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Private Equity (Added Oct 2007)

Sept 2007 Private equity carving up aged care

Earlier this year, I made a submission to the Senate Committee on Private Equity. In it, I stated: "In entering not for profit sectors, private equity investors have turfed out traditional non-profit organisations as they compete for the same pool of government funds and subsidies. Indeed, the allure of government subsidies have made the aged care sector a most attractive, stable 'investment' as part of a 'social infrastructure fund'.

"The aged care sector is too important to be carved out by the desires of private equity Wall Street-type managers for short-term gain. The long-term pain will be felt by most Australians, especially those who have people close to them using aged-care facilities.
"Currently, the sector is an unbalanced, unequal playing field where the short-term investment horizon of private equity investment has placed these players at an unfair advantage against traditional not-for-profit participants. The non-profits are competing against financial behemoths to survive in the current environment. The outlook for them in the sector is stark - relegated to the edges, their former benevolent role reduced or vanquished."
Aged care money may be heading in wrong direction by Marie dela Rama in The Age September 17, 2007

The term "private equity" typically refers to corporate financiers who are not listed on the share market and who trade in other businesses by buying and selling them. They claim to be business managers and aim to make large short term profits by "turning companies around" - making them profitable in the short term - and then selling them at a large profit. They are high risk. In practice other financiers operate in the same way even when they are listed on the share market and are still considered private equity. Like others I have used the term broadly to include all those who operate in this or similar ways. There is no sharp dividing line. Sharemarket listed Macquarie Capital Alliance Group (MCAG) is a good example, but in 2008 when it was in financial trouble, and wanted to escape the glare of public oversight it went private.

Jun 2008 Macquarie's MCAG, a market listed private eqiity

MCAG was established with a private equity style mandate, aiming to add value to investment and resell within 3 to 5 years.
Delist and grow: Macquarie Capital fund decides to go private in an effort to lift asset value The Australian June 17, 2008

Most of what we are talking about on this page can be considered "private equity". These were once the venture capitalists. Wealthy people invested if they had money to burn and were prepared to accept big risks if there was a chance of big profits. They invested in startups and enabled new ventures to come to market.

More recently the focus of these groups has shifted from venture capitalism to distressed companies. Venture capitalists changed into turn around specialists and assumed the mantle of private equity. They bought companies in trouble, put in their own advisers or managers and introduced their market practices, cutting staff, restructuring services and chasing market opportunities. Once the company had been rendered profitable they would sell it and make their profit from the capital gained. The goals were and are short term and the community is left with any adverse long term outcomes from the process.

These private equity groups are typically not listed on the share market so have a lower level of public accountability. The investors are large financiers who themselves are often market listed (eg. banks). This allows them to operate outside the public eye. Short term adverse publicity does not impact their ultimate profitability. This is particularly valuable to them in sensitive sectors like health and ageing.

Part of the swing to private equity is a consequence of the increased scrutiny and oversight we now impose on our market listed companies. This increased oversight is a response to problems in the market sector. Private equity has obvious attractions for those wanting to make money and avoid scrutiny. It has been very profitable. There has been some shift away from the short term invest and sell strategy and more long term investments have occurred.

The profit focus is as strong or stronger than in shareholder companies, but management is further removed from the actual business and what happens there. The only aim is profitability. The threat to health and aged care is obvious.

Private equity has taken off during the 21st century first in the USA, which leads the world in this and then in Australia.

Health and aged care have become targets first in the USA and then Australia - both for short term gains and for longer term investments as illustrated for aged care on this page. Most of the investments described on this page are part of the private equity phenomenon.

The changes in the marketplace leading up to the private equity phenomenon are criticised by John Bogle in a 2007 article (pdf file) in Daedalus. Bogle is a very successful businessman who is critical of the direction taken by the marketplace. He is a strong supporter of the primacy of the interest of the shareholder. In this article he is not talking about health, and does not write about the conflict intrinsic to this when it is taken to its logical conclusion in a society increasingly fundamentalist in its beliefs. When Bogle was interviewed about the intrusion of private equity into aged care he quite clearly indicated that this was a sector from which the for-profit processes should be excluded (see below).

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A Senate Inquiry

The rapid growth of private equity across all sectors of the economy precipitated an inquiry by the senate economic committee in 2007. Marie dela Rama from UTS (206 KB pdf file) and myself (659KB pdf file) both made submissions to the committee in regard to health and/or aged care. These submissions which come from very different perspectives point to serious problems for health and aged care. For a deeper analysis of the implications of private equity please examine them.

In their report released on August 2007 the committee discounted our arguments.

Within a month the New York Times published a study (link to aged care crisis centre page) which revealed that not only had standards of care deteriorated in the large numbers of US nursing homes acquired by private equity firms, but the private equity groups had set up complex structures which made it almost impossible for residents and their families to seek penalties and compensation when they suffered from neglect and abuse in these homes. This had previously been the only really effective means of controlling corporate excesses. Government agencies were experiencing the same difficulties in extracting fines from the substandard private equity owned homes.

This caused considerable community and political concern in the USA with senior members of both US parties pressing for it to be dealt with by congress. John Bogle participated in an interesting television interview with Bill Moyer in which the private equity phenomenon and the findings in nursing homes were discussed. He does confront the problem of providing health and aged care in a market context where the the duty to shareholders dominates - in his view below "they have no place here"!

Sep 2007 Businessman John Bogle. Market no place for health

JOHN BOGLE: Well, first, it's a national disgrace. Simply put. And there are some things that must be entrusted to government and some things that must be entrusted to private enterprise. And what we see there, at least in my judgment, is that we've taken medical care, healthcare and going from making it a profession in which the patient is the object of the game - preserving the patient "first do no harm" as Hippocrates would say or would have said and turn that into a business. And so, it's a bottom line. I've often said we're in a bottom line society. We're measuring the wrong bottom line.
Bill Moyer talks with John Bogle Interview Bill Moyers Journal September 28,2007

These developments were drawn to the attention of Australian federal politicians but there has been a stunning silence and it is clear that no real changes are being contemplated. In the meantime the USA has gone through a series of review and legislative processes. This has resulted in a greater emphasis in recording ownership, and some changes in state regulations which the proposers claim with control the problem. My assessment is that, as in the past, these will prove to have little utility. Real change in the USA is restricted by the enormous power of the marketplace, and the impossibility of credibly promoting changes outside the all encompassing marketplace world view of the population.

At present (August 2008) the results of the New York Times investigation have not been seriously challenged. Studies by the unions and a professor of nursing have shown similar results. I have not found anything else new.

In Australia probably the best example is the eviction scandal and the nursing home failure involving MFS and its Domain Aged Care. The statements made are particularly revealing of the extreme end of the marketplace in aging - private equity.

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Is the suitability of the Private Equity Groups being assessed?

All of us I am sure have a basic cultural perception that the sort of people who are permitted to provide care to the vulnerable should be those who can be trusted to give our interests priority and we think that the system ensures that this is so. We feel betrayed when we are exploited.

This is a hangover from the days of professional ethics, the social contract and community values. It was enshrined in probity clauses in our health and aged care regulations. Owners who controlled how care was funded and managers who operated facilities were required to be fit and proper people (to include corporate entities).

Probity requirements in state regulations proved a major stumbling block to conservative government plans to bring multinationals into our hospital system in the early 1990s. Most had track records which made them unacceptable and although attempts were made to subvert our probity requirements these companies were checked and failed to prosper in Australia.

In 1997 the newly elected federal government restructured aged care to turn it into a corporate marketplace. They removed protective structures including the probity requirements. I was involved in correspondence with them in 1999 and was given a firm insurance that the regulations were intended to ensure that only suitable people provided aged care. This was deceptive and there were major and, I would argue deliberate flaws, in this legislation which Doug Moran claims was largely drafted by him and the rest of the industry.

This deficiancy was revealed when a Citigroup private equity subsidiary that had previously been found wanting in NSW, purchased DCA, Australia and New Zealand's largest aged care group in 2006. Citigroup had a dreadful history of exploiting the vulnerability and trust of those it claimed to serve.

An objection was therefore lodged with the approval authority. In spite of a request for acknowledgement, phone calls and a further letter it was almost 5 months before the government agency admitted that there was this serious deficiency in the regulations.

A company buying a nursing home company that already owned nursing homes did not have to seek approval at all. Citigroup had been allowed into our nursing home sector without any scrutiny in regard to its suitability. Citigroup was able to move in, restructure the business to make it more profitable and then sell at a large profit 2 years later.

The implications are mind boggling. Probably the vast majority of corporate owners described on this page including MFS were allowed into our aged care sector without any scrutiny of their suitability.
The government must have known this was happening. It could not have been an oversight. Most of these companies have bought the homes and control the financing and business practices that are a prime threat to care. They are managed by closely related (but in theory only) independent operators who hold the approved provider status.

When the response in 2007 disclosed that the assurances I was given in 1999 were deceptive if not frankly dishonest I pressed these matters with non-commercial groups interested in aged care and with politicians. I received letters from both the ministers concerned promising to fix the regulations so that they would work. These issues including most of the correspondence is available on, or linked to from, the DCA sale web page.

On October 3, 2007 the press reported that BUPA had bought a controlling interest in the DCA nursing home empire from the Citigroup subsidiaries. I immediately faxed then posted the aged care department asking for an urgent assurance that BUPA would now be required to seek approved provider status. I had no response even after a phone call. After considerable effort I was able to ascertain that no changes had been made to the regulations. The conclusion I drew was that the undertaking to tighten the regulations so that purchasing groups are scrutinised were as deceptive as those given in 1999.

An election was called and the coalition party and these ministers lost office. The labour opposition gained power. In spite of a different rhetoric they had given no such assurances. We were naive in assuming that they would fulfil promises extracted from their opponents. They are equally beholden to corporate donors for campaign funds.

This matter has been pursued energetically since the labor government gained power in 2007. In August 2008 it is clear that the government does not intend to do anything about this issue. These issues are dealt with in depth on the page dealing with the BUPA sale.

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Citigroup (Added Oct 2007)

Citigroup is a massive financial Wall Street entity formed in 1998 by the merger of Citicorp and Traveler. Both had dreadful track records for unsavoury conduct. Citigroup continued in this tradition and was involved in major Wall Street scandals, as well as international scandals in the early 21st century. It has paid out many billions in settlements. It could not possibly reach probity requirements.

In the early 1990s, for tax purposes, Citicorp set up a legal structure to make its European venture capital business, CVC Capital Partners, nominally independent. It acts for Citigroup in Europe and for practical purposes is part of Citigroup.

CVC Asia Pacific is Citigroup's Asian venture capital (Private Equity) arm. It has combined with CVC Capital Partners in a number of very successful ventures in Australia. It has followed the turnaround strategy, buying companies that are performing suboptimally, restructuring them and selling at a profit.

In 2003 this consortium purchased Mayne Health's ailing hospital empire and operated it as Affinity Health. It is interesting that not a single newspaper in Australia revealed that the purchasing entity was a part of Citigroup. Citigroup's conduct at the time was subject to worldwide adverse criticism in the press and the international press, reporting on this acquisition, published the connection. Our newspapers must have known but remained silent.

When the true identity of the purchaser was discovered objections followed. NSW commenced a probity review. NSW regulations do not give the department of health much legal backing but there is no time limit placed on their probity investigation. NSW spent 18 montths "investigating". It was not until 2 years later in 2005 after the hospitals were on the market that licenses with conditions were granted. The Citigroup entities made a huge profit selling to Ramsay Health.

In 2006 this same Citigroup consortium purchased DCA, Australia and New Zealand's largest nursing home operator. Objections were lodged with the federal body responsible for approving nursing home operators. After a long delay it was revealed that Citigroup had not been required to seek approval. This matter is dealt with in the section above and in more depth on the web page describing the sale of DCA to Citigroup.

In October 2007 Citigroup sold its DCA nursing home empire to the United Kingdom insurer BUPA. BUPA has already been in an aggressive commercial stouch in Australia, a stouch which must raise some concerns about its suitability as an operator of nursing homes. When forced to disclose authorities confirmed that BUPA did not have to seek approval status under the regulations. They gave no indication that they would do anything about the situation. These issues are addressed on a BUPA approval web page.

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 Macquarie Bank
Retirement Care Australia
which became
Regis in 2007

Australia's Macquarie Bank has adopted aggressive market practices and done very well for its shareholders. Like other aggressive companies it was hit hard by the economic downturn at the end of 2007 and early 2008.

Macquarie's market listed private equity group Capital Alliance Group Ltd (MCAG) invested heavily in aged care building a nursing home and retirement village empire across Australia, New Zealand and Canada. It initially subcontracted the operation of these facilities to the multiple groups from which it had purchased them. This was clearly unsatisfactory. In 2007 it merged with Regis and took the Regis name. Regis took over the management of the homes.

By this time Macquarie was under some economic pressure and wanted to sell some homes. The private equity subsidiary MCAG also delisted from the stock exchange. Macquarie did this by partnering with a number of other private equity groups in a buyout of MCAG.

Available information provides a window into the way in which private equity operates and the consequences for care.

Earlier on this page I used the manner in which the determination of the number of diapers needed by incontinent residents was contracted out to a third party to illustrate the sort of managerialism that occurs and the distancing of management from the bedside. They ignored their own nurses who were then threatened when they did not accept the resulting rationing of diapers (rationing was denied by the company).

Although we only get one side of the story it is clear that RCA tried to deskill and reduce nursing to maintain profits and was cavalier in their dealing with nurses and their unions. Nurses were alienated and angry. This was at a time when there was a shortage of nurses and a desperate need to induce them not to leave for greener pastures. Not surprisingly there have now been failures in care - failures readily explained by too few nurses and too few skills.

The material about Macquarie and RCA on this web page has now been transferred (Sept 2008) to a new updated web page.

Click Here to go to the web page dealing with Macquarie and RCA

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ING is a multinational bank operating in Australia. It has invested heavily in aged care and nursing homes. It has also bought globally including the USA. It was the major investor in the struggling Village Life where it invested in the trust owning the facilities. It was forced to renegotiate its leases with Village Life and take a more direct role. It has been looking around for another operator to run these retirement villages.

Jun 2005 Buying more of troubled Village Life.

Village Life is selling seven of its sites under construction to its trust. The trust's manager, ING, has resolved to change the name of Village Life Trust to ING Real Estate Community Living Fund. The occupancy rate in the trust's 17 villages is 79%. It wants to increase that to 95% as soon as possible.

Aug 2005 ING buys into US aged care group

But that has not deterred big institutions from big deals. ING Real Estate announced on July 19 that it had entered into an agreement to buy a 49% stake in a $US232-million seniors accommodation portfolio in the United States.
A tough old market BRW August 4, 2005

Sep 2005 Buying in the USA

In late September 2005, the Australian-listed group announced the $A28.5 million acquisition of a 49 per cent interest in two properties, one situated in the US state of Michigan and the other on Rhode Island. Meanwhile, the group's joint venture partner, Chartwell REIT, has also acquired a half-stake in the two retirement villages. ING Real Estate Community Living Fund acquired the Village Life retirement village assets in June
ING pays $28m for more US old gold The Australian (ABIX abstracts) September 27, 2005

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Westpac worked closely with Doug Moran but burnt its fingers when its got caught up in his lavish hospital ventures in the early 1990s. More recently Westpac formed a trust which owned retirement villages leased and run by Village Life. It was resistant to giving Village Life less onerous leasing arrangements. The trust was purchased by the Gold Coast Group MFS Limited which also took a major holding in Village Life.

Westpac has entered into partnership with Craigcare to expand in nursing homes and retirement villages.

Apr 2003 Listing Village Life Property Trust

One of the latest deals in the industry to be completed is an offering from Westpac. The Village Life Property Trust, the first of its kind in the aged property market, settled fully subscribed.

The trust acquired 10 villages and 13 management units across Australia that are managed by Village Life Ltd, one of Australia's largest providers of affordable rental housing for the aged.

Tamara Williams, associate director Westpac Property Advisory and Equities, said investors saw the trust as a chance to join those drawing value from an increasingly important and expanding market.
Property - Commercial Property - Investing in the aged takes a leap. The Sydney Morning Herald April 12, 2003

Sep 2003 Backing Sauve Enterprises

Suave Enterprises, which settled on the Craigcare deal on Wednesday, was formed 12 months ago by former Moran Health Care Group executive John Gillett as an acquisition vehicle and has secured Westpac-backed Hastings Private Equity Fund as a financial backer.
Mr Gillett said Hastings, which was "effectively an equity partner", was keen to invest in the aged-care sector but would not comment on the amount of funds available for acquisitions.
Suave picks up Craigcare for $25m. The West Australian September 26, 2003


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AMP, Omega and Principal Healthcare

AMP joined with the international group Omega Worldwide to form the investment trust, Principal Healthcare Finance Trust. This owned many of Moran Healthcare’s nursing home which Moran then leased back. When Moran wanted to sell this section of its operations to Ramsay Health Care, AMP and Omega blocked the sale.

In October 2006 Principal bought the leases of its homes from Moran and now plans to operate them itself and compete with DCA in consolidating the industry.

Apr 1999 Principal Health Care

AMP has tapped into the burgeoning aged care market, linking with US-listed Omega Worldwide and the Moran Health Care Group in a $130 million unlisted property trust

AMP's Statutory Fund Number 1 has paid $11.25 million for a 45 per cent stake in the Principal Healthcare Finance Trust and will also provide a sub-debt facility of $40 million to the trust.

AMP is the latest in a spate of funds clamouring for a share of the growing aged care market. APN Funds Management has a $27.7 million unlisted vehicle, while Development Capital of Australia is building a portfolio tipped to grow to $250 million.
Nursing home giant Omega Worldwide already manages the Principal Healthcare Finance Trust, with the individual properties managed by Moran Health Care Group, Australia's largest private operator of aged care facilities.

Omega, which has substantial aged care assets in the United States and United Kingdom, entered the Australian market after Moran's purchase of FAI Insurance's Premier Care Australia in June, 1998.

It paid $68 million for 10 aged care homes and 475 assisted living units in NSW, feeding them into the unlisted trust.

Since then, Omega has snapped up an additional 25 nursing home properties in Victoria, NSW and Western Australia.

Its 35-property portfolio was valued at more than $130 million in December, with all properties held under long-term, triple net leases of 30 years duration.

The trust has also contracted to buy five additional newly-constructed aged care facilities for $20 million and is negotiating investments in other assets, AMP said yesterday.
AMP Looks To The Elderly For Growth Australian Financial Review April 7, 1999

Mar 2000 Becomes Australia's biggest private owner

Another rapidly expanding group is Principal Healthcare Finance Trust, a joint venture between US nursing home giant Omega Worldwide and AMP Life.

The trust has acquired 41 homes with 3000 beds since it was formed in mid-1998, making it the biggest private owner in the country.

Over the next five years it plans to spend $200 million a year buying more nursing homes. This would give it 20,000 nursing home beds, or 15 per cent of the market.

Principal Healthcare has little more than 2 per cent of the market at present, while the 20 largest operators together control only 20 per cent of the beds.
Nursing home beds a licence for profit. The Australian March 27, 2000

May 2003 Moran plans to sell the homes he no longer owns

NURSING home magnate Doug Moran will sell the bulk of his $300 million empire to competitors in a move that could have massive implications for the aged care sector
Moran to sell off aged care empire. The Australian May 15, 2003

Nov 2004 Principal Healthcare won't let him.

It is understood that Moran and Ramsay have reached an agreement on a minimum price for the business but cannot proceed without the blessing of AMP, which holds the leases to the 39 properties.
AMP holds up nursing home bid The Australian November 26, 2004

Oct 2006 Principal buys from Moran and will run homes

THE AMP-controlled Principal Aged Care group concluded a $129.3 million deal yesterday to take over the leases and operation of aged-care homes from Moran Health Care Group.
AMP Capital Investors head of infrastructure, Australia, Greg Roder said: "We saw it as an opportunity for an element of consolidation in this sector which we think is a growth sector in Australia." He said aged care offered further opportunities for consolidation and growth.

The fund manager also believes it has the right structure in place to take on rival Amity. "There's some advantage in being an integrated owner-operator," Dr Roder said. "There can alway be some synergies," he said.
Principal takes up Moran's leases The Australian October 31, 2006

In 2008 Principal bought Domain Aged Care from MFS which had been caught in the economic downturn.

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Babcock and Brown
PrimeLiving Trust

Babcock and Brown are a relatively new and very aggressive set of financiers. They have been investing aggressively and seem to have done very well. Their Australian interest has centred on Primelife, a company whose performance and conduct leave much to be desired. Without Babcock and Brown’s support Primelife would very probably have entered bankruptcy. They have formed a number of alliances and trusts centred around Primelife which operates the facilities. Their PrimeLiving Trust is expanding aggressively in Australia and New Zealand. It joined with Primelife in buying into Aevum.

Jun 2005 B&B's interest

"Retirement villages have higher than average development margins because of its niche nature. It is also a sector with long-term cash flows which have been undervalued by the industry in the past."

Hence B&B has teamed with Multiplex and Prime Life last December to undertake large subdivisions for the future development of lifestyle residential projects. B&B was less interested in investing in nursing homes/aged care because it is government funded and a "tougher business to be in".
Pitch for retiring types The Australian June 25, 2005

Oct 2005 Forming PrimeLiving Trust with Primelife and MFS

Aged care has emerged as the latest battleground for cashed-up investment banks, with Babcock &Brown announcing a $500 million private investment trust a week after competitor Macquarie Bank made a similar strategic aged-care foray.

Demonstrating imitation is the greatest form of flattery for the MacBank mini-me, Babcock has joined fellow investment bank MFS Limited and aged-care operator Primelife to form the PrimeLiving Trust. The trust will seek to raise $500 million to buy aged care facilities in Australia and New Zealand.
"The PrimeLiving Trust is expected to be a major player in the consolidation of the fragmented Australian and New Zealand retirement village markets."
Babcock & Brown dives into aged care The Sydney Morning Herald October 13, 2005

Oct 2005 Relationships

Babcock & Brown has a close relationship with the two firms, holding 19.9 per cent of PrimeLife and 5.2 per cent of MFS.
Babcock & Brown launches joint retirement living trust Australian Associated Press Financial News Wire October 12, 2005

Oct 2005 PrimeLiving Trust goes global into New Zealand

Last week, the unlisted PrimeLiving Trust, owned and managed by Babcock & Brown, MFS and Prime Life, announced it had snapped up $170 million in NZ retirement properties as part of a bullish acquisition spree.
FKP, Macquarie find a home in NZ Australian Financial Review October 20, 2005

Jul 2006 A stake in Aevum

 Investment bank Babcock & Brown -- which through its investment in Primelife has a stake in Aevum -- has signalled its interest in establishing a managed vehicle for retirement assets of at least $500 million.
Aevum raises $20m The Australian July 13, 2006

Babcock and Brown's aggressive financial strategies came unstuck when they were caught in the 2008 financial collapse. They have lost 90% of their share value and there has even been talk of bankruptcy. Senior management has been replaced.

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MFS (added Sept 2008)

MFS is a financial group (private equity) founded by businessmen in 2004 on the Gold Coast. It is for practical purposes a publicly listed private equity company like MCAG. It functions and acts like a private equity group and I have treated it as such. It trades in other businesses, borrowing, buying, selling and taking risks in order to make a profit.

MFS grew rapidly to become a prominent player in the marketplace. High profile ex-politician and diplomat Andrew Peacock became chairman. Aged care was one of its major interests. It entered into a variety of arrangements, mergers and contracts with retirement operators. These included Babcock and Brown's vehicles PrimeLife and PrimeLiving Trust, Village Life and Villa World. It became the major investor in Domain Healthcare which grew to own 20 nursing homes.

MFS illustrates the morality of private equity. It was responsible for one of the most socially irresponsible actions we have seen. It showed a callous disregard for its responsibilities to the vulnerable 70 to 90 year old pensioners that it and Village life had tempted into its villages. This was now their home.

In a dispute with Village Life about 400 of these elderly disadvantaged pensioners nearing the end of their lives were sent eviction notices. A public outcry forced a backdown.

MFS had borrowed heavily and in 2008 it was hit hard by the economic downturn. Facing collapse it sold multiple assets in order to pay off its debts. Senior management departed and Domain Aged Care was sold to AMP's Principal Healthcare. It changed its name to Octaviar but that did not improve its fortunes. In September 2008 it is no longer listed on the share market and a decision to put it into liquidation has been deferred to 30th September.

The interest in Domain Aged Care lies in what it reveals about the way in which private equity thinks and operates in its financial dealings, in its public statements, and in its handling of staff.

Serious problems in one of its nursing homes are revealed. My argument is that situations like that revealed in this home are a consequence of a failure to confront and address the conflict between its economic mission and its duty of care. The distancing of decisions and managers from the coal face in private equity owned homes facilitates this denial of conflict. The statements by Domain's CEO are particularly revealing.

I have written an article about the processes involved (pdf file). In my submission (pdf file) to the senate economic committee's private equity inquiry in 2007 I explored the processes at work and identified the risks. The committee discounted these in its report.

The validity of my predictions were confirmed soon after by investigations in the USA. I have now added a web page about MFS and Domain. This illustrates what I believe are the processes described in these two articles - occurring in Australia. Australia is not, as some believe, immune.

Click Here to go to a page examining information about MFS, the eviction scandal, Domain Aged Care and the issues referred to.

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APN Retirement Trust

Australian Property Network (APN) is a Melbourne company with a collection of subsidiaries including APN Retirement Properties Fund. Its main focus has been on property. It has recently listed on the share market and has expanded globally.

In 1999 APN Retirement Properties Fund enthusiastically raised $18 million from the market to buy five of Ted Stent’s Primelife villages as the first step into this sector. Primelife continued to run the villages. APN’s experience with Primelife may have blunted their enthusiasm as they have done little in the sector since. The investment was to run for 10 years when the villages would be sold. I don’t have further details. Babcock and Brown have become the principle supporters of Primelife.

Mar 1998 APN

APN, which was established two years ago by former Grocon executives Mr Chris Aylward and Mr Andrew Cruickshank, has brought in Mr Rod Keown and Mr Howard Brenchley to form the new venture, to be called APN Funds Management.
Funds Management Move By APN Australian Financial Review March 27, 1998

Aug 1998 Entering aged care

APN Funds Management is involved in due diligence on a $25 million retirement village portfolio spread through Victoria and NSW. - - - - .

"The bulge in the demographic has captured our interest and we've been doing a lot of research into the retirement village market," said Mr Keown. "According to the demographic and the trends we've seen in markets in North America and Canada, the retirement village market is going to be a fairly fertile field for property owners."

APN plans a passive involvement in the industry: buying and holding the properties and leasing them on to professional operators.
Developers See A Fortune Coming Out Of Retirement Australian Financial Review August 24, 1998

Mar 1999 Launching a trust with Primelife to operate facilities

APN Funds Management is poised to launch a $27.7 million retirement village trust, in the latest sign of investor interest in the fast growing aged care market.
The trust prospectus was finalised this week, with APN seeking to raise $18.2 million through a public issue, supplemented by $9.5 million in debt.
The unlisted APN trust will own five Victorian retirement villages at Altona, Williamstown, Pakenham and Mt Martha. Prime Life will retain the management rights to the properties, which include 670 retirement units.
The fund has an expected life of 10 years, after which the villages will be sold. It is a closed fund, however APN has lodged an application with the ASIC to establish an Approved Stock Market like that operated by Austock Management for MCS Property.
APN To Launch Retirement Village Trust Australian Financial Review March 27, 1999

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The builders

Retirement villages, nursing homes, hospitals and crematoriums all require buildings. The aging population is a bonanza for the big builders. They form close associations with the banks and other corporate owners. Some form retirement village sections which operate the retirement villages they have built.

Jul 2000 Builders into aged care

The health-care sector is considered one of the most dynamic for the property industry because accommodation and hospitals will become more important as the population lives longer.

Demand for aged-care homes, nursing homes, private hospitals and retirement homes and villages is rising.
"The emergence of the affluent older generation has catalysed the migration of the population to areas more conducive to relaxation,'' Nixon (property developer) said.
Aged Care A Healthy Place To Invest Sydney Morning Herald July 22, 2000

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More and more large financial groups are entering the market and staking a claim to nursing homes and retirement villages. I suspect that these groups see consolidation coming rapidly and are acquiring ownership of as many facilities as possible so that they can profit from the mergers and takeovers on the horizon. One wonders about any long term commitment to the sector by all these players and what the bidder who eventually buys all these homes will do in order to recoup what it pays for them from the care of citizens. Ultimately it is the citizens who will be paying for it.

Sep 2006 Multiple groups targeting the sector

GLOBAL finance giant GE, Queensland-based property group Meridien and Stockland are believed to be among the final bidders on almost $700 million of retirement-village assets as the sector continues to boil.

GE's bids for the $500 million-plus Australian Retirement Communities portfolio and the Glen Group, tipped to fetch as much as $180 million, come as the group launches an aged-care platform with the view to becoming one of the biggest owners of Australian aged-care assets within two years.
The shortlisted bidders for the ARC portfolio are understood to include Babcock & Brown, Macquarie Bank, Stockland, and GE.

AMP is also rumoured to be on the shortlist.
Also on the market is the Gannon Estates aged-care portfolio of nine facilities, predominantly based in South Australia, with Queensland property group FKP understood to be conducting due diligence on the assets.
Queensland property developer Meridien, a new player in the aged-care sector, is believed to be negotiating to purchase the Glen Group portfolio, but the group would not comment on the deal.
Big players eyeing aged-care The Australian September 21, 2006

For Updates:- A good way to check for recent developments in aged care is to go to the aged care crisis group's search page and enter the name of the company, nursing home or key words relating to any other matter in the search box. Most significant press reports are flagged there. The aged care crisis web site has recently been restructured and some of the older links used from this site may not work.

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Web Page History
This page created Sept 2006 by
Michael Wynne
Updated Oct 2007, Sept 2008