RUTH SUNDERLAND: Home truth for investors

Trying to make a profit from services for the vulnerable sounds like a recipe for disaster.

Over recent years, however, private sector investors have gone into areas including care for the elderly and children’s homes. And a number of companies have been set up to invest in property for homeless and troubled adults.

This is sometimes encouraged, based on the theory that private investment can produce better quality and cheaper provision. But, as property investment trust company Home REIT shows, it is a minefield.

Minefield: Home REIT was launched on the stock market two years ago by two managers at wealth management firm Alvarium, who promoted it as a socially responsible venture

Home REIT was launched on the stock market two years ago by two managers at wealth management firm Alvarium, who promoted it as a socially responsible venture that would ease the homeless crisis.

The company is now in serious difficulty having been attacked by short-sellers betting that the shares will fall. Hedge fund managers have their own agenda, but they can serve as a canary down the coalmine.

Trading in Home REIT shares has been suspended because top firm BDO is carrying out ‘enhanced audit procedures’ and cannot sign off on its accounts. Shareholders, including small investors, have seen the value of their holdings plummet.

Home REIT says it is ‘completely confident’ in the integrity and financial soundness of its business and its ‘beneficial impact’ on reducing homelessness.

The affair raises concerns for taxpayers. Home REIT’s business model is based on renting properties to charities, housing associations and community interest companies. Those tenant organisations are supposed to provide safe accommodation and additional care for residents including many vulnerable groups.

The housing benefit such residents can claim is exempt from the usual maximum limits, to cover their additional care costs.

However, a number of the charities are overdue with rent payments to Home REIT, adding up to millions of pounds.

One of the biggest, Lotus Sanctuary, which provides accommodation for women fleeing domestic abuse, has a £2.7m debt pile.

Home REIT is appointing a specialist manager to help with rent collection.

There have been previous episodes where the involvement of profit-seeking investors in the provision of care has come under scrutiny. A decade ago the UK’s then largest elderly care company, Southern Cross, went to the wall following a period in private equity ownership.

In 2021, the Competition and Markets Authority warned that firms owned by investment barons were charging taxpayers excessive fees to run children’s homes.

Failures in private equity-owned facilities resulted in children being sexually exploited, while others lived in accommodation where walls were covered in faeces.

Home REIT is not a private equity vehicle, but a Real Estate Investment Trust. These property rental companies have been popular with investors because they offer attractive returns and tax advantages.

The investment trust sector as a whole has been prey to scandals over the years, including the so-called split capital affair in the 1990s. Yet most are reputable savings vehicles. Financiers who seek to profit from the provision of services to some of society’s most fragile individuals are in morally sensitive terrain.

They may aim to be responsible, but there is a glaring clash of values and culture.

The ethos of caring for the vulnerable should be all about support, warmth and empathy. That is the other end of the emotional spectrum from the beady-eyed calculation that makes for investment success.