People all around the world are living longer. It is funny because they are not necessarily living a healthier lifestyle. But with great gains in medical care in recent years we can have our cake and live forever too! Living longer has all sorts of interesting economic implications such as the future of pensions and government funded healthcare, but it also uncovers an interesting investment opportunity for private-equity firms. The increase in the number of old folks has led to an increase in the demand for nursing homes. This demand is limited to primarily rich countries, but nonetheless; in 2009, Americans spent $104 billion on nursing-home care which is a 20% increase from just four years earlier and this percentage is likely to rise. The main goal of any financier is to maximize returns while minimizing risk. The returns are obviously great with enormous amount of money being poured into these facilities coupled with the strong prediction of more to come. However the risk is low too since a great deal of the revenue brought in by nursing homes comes from government reimbursements. This means they do not feel the sting of economic downturns the same way purely private firms do. So, there is the return to risk ratio and therefore private-equity firms are gobbling it up.
Of course there are some unintended consequences (aren't there always?). Another key aspect of any financier is to maximize profit. How do they do that? They trim the proverbial fat. And so while these investment firms may see the benefit of laying off workers at nursing homes in the form of increased profits, old folks may feel the sting of the consequences through diminished quality standards and limited care.
Investment opportunities seem to pop up in the most unlikely of places, especially during economic turmoil. It seems, however, particularly bitter when the ones being exploited are our parents, grandparents, and indeed in due time, ourselves. It will be interesting to see what sort of outcry this may lead to and to what extent the outcry will be heard from country to country.
How much do you think the free market will kick in and help the old folks? Do you think they will really suffer worsened conditions due to layoffs implemented by investment firms? Or do you think the firms will push for increased quality standards to attract more customers?
References: The Economist Volume 397 Number 8710, "Wall Street goes long on grannies" p.73
(This was posted by Trevor Murphy-Mannix)
Bravo, agreed that investing in nursing homes is a low risk high return investment. With the baby boomers set to retire its going to increase nursing home demand ten fold. I would think they would push for quality over worse conditions. Retirement centers and nursing homes will only continue to try to attract the average retiring senior by offering a higher quality lifestyle. The way some of these centers look right now im ready to retire and enroll myself into one! horse shoes and water polo all day long baby!
ReplyDeleteGood point Trev. Or rather, "Interesting query, Mr. Murphy-Mannix." I think the nursing homes themselves will get fancier and nicer, with more "activities," more curb appeal, and excellent advertising. But like everywhere else in the consumer world, quality control and customer service will drop. Nursing home workers already get paid crap to do an extremely difficult job, so no wonder the care is oftentimes sub-par. I visited my Grandma in her nursing home a while back and it was a traumatic experience... Old people everywhere moaning and crying and begging for their families. I'm just going to commit seppuku the first time I lose control and shit my pants...
ReplyDeleteBy the time we are old people they are just going to take the rest of our money and stuff us all into the old folk's matrix and harvest us for our the rest of our diminishing battery potential. Meanwhile we all can be young again epically fighting Mr. Smith for the rest of our days.
ReplyDeleteBut seriously, our economy/society/world is built on the backs of exploited people, and the elderly are probably the easiest to exploit. They can no longer be exploited for their cheap labor, so we just figure out a way to keep them marginally alive we we drain them of the rest of their money. RABBLE RABBLE!
I think that demand for retirement homes remains visible in our society. As long as this stands true, some investment firms will most likely have interest in making their home more desirable. As a business, they will likely want to cut costs, and unfortunately test the waters on how low they can go with the amount of costs they put into making the retirement home compatible for living.
ReplyDeleteI find many retirement homes slightly disturbing, but what else are we to do than to stick senior citizens somewhere where they can be tended 24/7?