Why this fund manager is placing his bets on aged care

That Australia is projected to see a threefold increase in those aged 80 or over by 2062 is not lost on NovaPort’s Sinclair Currie, who views the aged care sector as a valuable investment opportunity. 

Speaking at the Fidante Equities Symposium in Sydney, NovaPort’s principal and co-founder outlined the firm’s conviction that change creates opportunities.

“Markets in the long-term or medium-term event have been pretty efficient. People all want to find a free buck if they can find one. But where you can win against the market is if you can identify a change before the market has,” Currie said.

“The aged care sector highlights this to us. There’s been massive change in the sector. We’ve owned both Estia Health and Regis Aged Care for a while now – Estia was just recently taken out.”

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In the year to 30 June 2023, Regis reported underlying EBITDA of $83.3 million, up 7 per cent from FY22, while its share price has been up 33.3 per cent year-to-date as at 14 September.

It was a different story for Estia, however, which reported a net loss of $33.9 million, a mild improvement from its $52.4 million loss in the prior year.

“The change, from a demographic perspective, we all know about it but it’s clear [now]. The Baby Boomers are sadly getting older, and at age 80, they really start to need to move into retirement villages,” Currie said. 

The government’s 2023 Intergenerational Report, released in August, found the number of people aged 80 and over is expected to triple over the next 40 years to more than 3.5 million people by 2062–63.

Additionally, spending on aged care is projected to increase as a proportion of GDP from 1.1 per cent in 2022–23 to around 2.5 per cent during that time period.

Elaborating on his conviction on the aged sector sector, Currie acknowledged healthcare hadn’t necessarily promised a good growth story.

“If I cast my mind back, I remember when Ramsay Health Care initially floated, and it was a disaster of a float. They couldn’t fill North Shore Private Hospital, the share price went from some $6 down to $2, it looked over-leveraged – and then something changed. 

“What changed was the funding model for the private healthcare sector and private health insurance when John Howard changed the rules around the carrot and the stick to have private health insurance. That was the turning point for Ramsay Health Care,” Currie elaborated.

And although aged care has been on a downward trend, he saw similar bright spots for the sector.

“I think that’s what we see in aged care right now. It has been in decline, occupancy’s [been] under threat, it’s a sector which needs consolidation as to the private hospitals sector,” he said.

“But finally, occupancy’s improving and the funding model has finally changed with the government moving from the ACFI (Australian Aged Care Funding Instrument) to the AN-ACC (Australian National Aged Care Classification) model, which is more based around funding the care.

“That’s the change, that’s what makes it interesting.”

It’s not a trend lost on advice firms either, which have identified the sector among their fastest growing opportunities.

Recently, it was announced that Priority Advisory Group and Wise Planners are to merge, forming a combined firm that would include retirement planning, insurance and aged care. 

“Aged care advice is one of the fastest growing areas of our business and there is also strong demand for life risk insurance advice, given the large number of professionals and young families buying apartments in the area,” said Zvi Teichtahl, chief executive of Priority.