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Investing in an ageing population

Demographics are shifting in one direction and cost pressures are only going to rise


Pete Carvill

It is a story little seen in the last few days, and that was something of a surprise since it portends to larger demographic shifts not just on the continent but around the world.

As reported in Gulf News, the Capital Bay group (CB) and Gulf Islamic Investments (GII) have joined forces on a long-term ambitious project. The Germany-based investment and asset manager and the UAE-based financial firm are going to set up a platform, based in Luxembourg, to invest in real estate.

This would not be so surprising if you read just that part of the story. But two things stand out: one, the real estate in question will be for ‘senior living’; and, two, the whole thing will kick off with an initial investment of €500m. An INITIAL investment. It is all set to start in Q4 2021 and will be funded by debt and equity. Responsibility for the platform will be split equally between CB and GII.

It was all firm handshakes and smiles in the original press release, with Mohammed Alhassan, founding partner and co-chief executive of GII, in a statement worded by his marketing team that probably went all the way to his secretary for approval, saying, “The development of attractive investment opportunities in the European senior living real estate market enables our MENA-based investors to participate in this highly desirable asset class which would otherwise be difficult to access from the region. We are excited to partner with CB and look forward to our world-class teams working together.”

Similar platitudes were spouted by three others in the statement, itself an achievement that was probably mandated in the contracts (“Our guy wants to be featured in the press release, even if he’s not saying anything of substance.”). Pankaj Gupta, founding partner and another co-chief executive of GII, said the company was ‘pleased to join hands with CB’; Rolf Engel, group chief financial officer of CB and chief executive of Capital Bay Fund Management, spoke about the investment opportunities; and, tucked at the bottom, George Salden, chief executive of CB, also got in on the ‘joining hands’ theme, saying that CB were ‘very pleased’ to have GII as a partner.

Octogenarian plus

That initial press release was just over 550 words but did not give much in the way of fine detail. But Engel did touch on one subject that should be screaming and aflame at the front of the collective mind: the ageing population of Western Europe and the future demand for tailored services.

Engels said: “A growing senior population in Germany and Western Europe will lead to an increased demand for all forms of senior living, assisted living, health care, and specialised clinics for elderly people in the future.”

It is not an open secret that Europeans are living longer. The average life expectancy has gone up steeply since the middle of the last century. As the BBC reported a few years ago, “The average person born in 1960, the earliest year the United Nations began keeping global data, could expect to live to 52.5 years of age. Today, the average is 72. In the UK, where records have been kept longer, this trend is even greater. In 1841, a baby girl was expected to live to just 42 years of age, a boy to 40. In 2016, a baby girl could expect to reach 83; a boy, 79.”

Heavy responsibility

All of this is going to have a knock-on effect for the young, ie those of us still under 40 (although I have only a few weeks left of carrying that card). Despite this generation being the first in history to be worse off than their parents, having gone through multiple recessions; a pandemic; a two-decade war that may or may not have ended; terrible, terrible pensions; and working prospects, the onus is probably going to be on them to look after the generation above. And the cost they will bear for that will be increasingly steep.

As the European Commission wrote, based on 2020 data: “The old-age dependency ratio for the EU-27 was 25.9% in 2001; as such, there were slightly fewer than four persons of working age for every person aged 65 years or more. By 2019, the old-age dependency ratio was 34.1%, in other words, there were fewer than three persons of working age for every older person. Population projections suggest that the EU-27 old-age dependency ratio will continue to climb and will reach 56.7% by 2050, when there will be fewer than two persons of working age for each older person.”

Much of this cost, hopefully, will be borne by the older generation and governments have been stepping in to fiddle around the edges of the problem: raising the retirement age, mandating pensions, introducing measures such as the triple lock. Heck, some countries have even let the elderly become the head of state not once, but twice, in recent years.

But where do investment funds come into all this? Well, investing in retirement living is probably pretty sound at this point. An ageing population is going to need somewhere to live, with attendant healthcare, that is built to their needs. The problem is that this generation is more swathe than wave, a blip in spending that will rise and peak over the next two-to-three decades.

What comes after may be problematic, but there could be opportunities there, a way of—like any good gambler—spreading the risk. What if investment firms, with ideas of accumulative interest, focused more of their attention on getting a younger generation to put their money away and, over 50 years, making their profits off that rather than trying to hoover up as much as they can over the next two decades?

It is just an idea, one that I came up with this morning over a Starbucks latte and a plate of avocado toast that cost €12.