Today’s announcement by the Reserve Bank of Australia of a cut in interest rates to a record low of 1.25% has particular and urgent implications for aged care providers. Now more than ever they need clear investment strategies to protect and grow their income and assets.
When rates drop, many aged care providers feel the hit in lower returns from their investment portfolio. This is occurring at a time when other sources of revenue are volatile and costs are rising.
RADs and DAPs
One example of this volatility is a change in the pattern of usage between lump-sum Refundable Accommodation Deposit (RADs) and the rental-style Daily Accommodation Payments (DAP). According to the latest Aged Care Financing Authority report, more people now choose the latter. Some of the reasons for this shift range from more anticipated short-term stays through to the softer average sale prices of houses across many regions of Australia.
On the costs side, the Royal Commission into Aged Care Quality and Safety, established in October 2018, will likely result in rising compliance and operating costs.
Making money work harder
Put simply, with other revenue sources more volatile and costs on the rise, aged care providers need to ensure they are generating appropriate returns on their RAD pools and invested capital.
“Aged care providers really need to come to grips with the risk-return trade-off,” says Perpetual’s Aged Care Investment Specialist, Scott Hawker. “With rates so low, they need their investment portfolio to work harder, to understand the risks that might involve and be across all the strategy and governance issues that follow.”
To manage this, boards, CEOs and CFOs of aged care providers need to develop the right investment strategy for their organisation. They need to find a partner who understands the uniqueness of their business and can give them investment advice commensurate with that profile – investment advice that aligns with their client demographics, size, objectives and of course, risk profile.
Perpetual works with aged care providers to craft an investment management strategy that is tailored for each organisation. Our clients leverage our industry expertise to enhance overall performance, while moderating risk. We work with our clients closely to determine the best possible investment strategy for their deposit pools and so to help organisations offset increased operating costs and counterbalance declining interest rates.
For more information, contact our Aged Care Investment Specialist, Scott Hawker firstname.lastname@example.org or +61 2 9229 9319
Perpetual Private advice and services are provided by Perpetual Trustee Company Limited (PTCo) ABN 42 000 001 007, AFSL 236643. This information was prepared by PTCo. It contains general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial or other adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.