Funding of care homes isn’t meant to be exciting – or labyrinthine | Nils Pratley

It’s a shame that Jeremy Hunt, health secretary from 2012 to 2018, didn’t propose an inquiry into private equity-style funding models in the care home sector when he had the power to command one. An investigation would have been a good idea then, just as it would have been 20 years ago.

Such an inquiry might have come to the bleedin’ obvious conclusion that financial engineers, fixated on viewing care homes as property assets to be leveraged via debt, are not natural owners of businesses charged with providing care for elderly people. In such a sensitive sector, a basic level of financial stability ought to be a requirement – and that’s not what one generally gets via an approach that tries to transform thin operating margins into outsized financial returns by injecting debt.

Trouble arrived when Southern Cross failed in 2011. The slow collapse into administration of Four Seasons Health Care a couple of years ago was even more dispiriting. The backdrop was a long and ugly standoff between Guy Hands, whose Terra Firma private equity house overpaid for the business in 2012, and US hedge funds seeking gain by bagging chunks of the debt at distressed prices.

Operators could point to external factors that had upset their calculations – the squeeze on local authority budgets, rises in the minimum wage, and lenders’ greater aversion to risk. The point, though, is that such difficulties are easier to tackle when you’re not funding yourself at nose-bleed rates of borrowing.

Hunt’s comments were prompted by Monday’s Panorama programme that focused on HC-One, the operator founded out of the collapse of Southern Cross. The point of interest with HC-One isn’t merely the allegation of a payment of a £4.8m dividend (which the company describes as “interest on a third-party loan” and “asset management fees”) while receiving public money to survive the pandemic. It is also a complex corporate structure involving multiple companies in offshore locations that makes it hard for outsiders to follow the flow of money. Clear and transparent it ain’t.

In two other sectors that deliver public services, parallel concerns eventually forced reforms. After Carillion fell in 2018, the government insisted that major outsourcers should have stronger balance sheets. In the privatised water industry in England and Wales, the regulator Ofwat has made it unacceptable, more or less, for companies to establish labyrinthine structures in the Cayman Islands.

It is hard to understand why large care home operators have escaped the same pressures and scrutiny. The era of big debt-funded buyouts in the sector is probably fading anyway (private equity, like everybody else, can see the cost and revenue pressures), but the case for high financial standards and disclosures should not depend on temporary deal-making appetites.

Hunt wants to see an investigation by the Competition and Markets Authority. That may or not be the right body to have a look, but an inquiry is long overdue. One can hope that it would clear the ground for more private capital to arrive from what would be the logical source: boring pension funds that seek low but stable financial returns. That is the direction to go. Funding of critical care homes is not meant to be exciting.

Proof that cryptocurrencies don’t protect against inflation

Choose your own explanation for the 20% plunge in the value of bitcoin over the weekend. Was it a case of holders becoming nervous ahead of a US congressional committee this week that will hear from the bosses of cryptocurrency exchanges? That seems as good an explanation as any; regulatory regulation is one of many ways in which the dreams of speculators could be dashed.

In the end, though, trying to explain short-term price movements of bitcoin and other “altcoins” is a fool’s errand. There is nothing, such a cashflow or a GDP projection, to analyse. And, while 2.3 million adults in the UK hold crypto assets, or so the Financial Conduct Authority told us in the summer, its actual usage as a medium for buying and selling goods and services remains tiny.

Still, the weekend fun has usefully helped to kill the notion that cryptos somehow offer protection against the risk of inflation. Come on, that’s always a non-starter. Defensive assets, even after a good run, do not suddenly fall by a fifth on no real news. Vehicles for pure speculation can, though.