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BlackRock is teaming up with the Greater Manchester Pension Fund to invest £1bn in NHS property as the UK government seeks private finance for the refurbishment of the UK’s ageing healthcare buildings.
BlackRock, one of the world’s largest asset managers, already owns 65 NHS GP surgeries, which it will contribute to a joint portfolio along with £150mn of investment from GMPF.
Along with other new pension fund investors, they aim to build a portfolio worth £1bn over the next five years, including new clinics and refurbished NHS property, much of which has not been upgraded since the 1970s.
The NHS estate is attractive to investors because it provides long-term inflation-linked returns that are underwritten by the government. The NHS reimburses GPs for the cost of renting the surgeries.
John Benham, head of UK open-ended funds at BlackRock, said it was “incredibly excited” to “partner with GMPF to accelerate the availability of private capital for these essential assets”.
BlackRock has invested in NHS GP clinics as a landlord for 20 years but does not deliver any healthcare services. However, the government has approached private investors such as BlackRock to finance the rollout of up to 200 neighbourhood health centres, with the aim of having one in every community by 2035.
Campaigners such as We Own it, who are concerned about increasing private sector involvement in the NHS, have criticised the government’s revival of controversial private finance initiatives, which were canned in 2018 by the Conservative government for providing poor value for taxpayers.
Private investors were being increasingly attracted to “growing policy support for public-private delivery, particularly in primary and acute care” in the UK, according to a report last year by estate agency Savills.
Savills data showed that the healthcare real estate sector, which includes care homes, private hospitals and GP clinics, saw a big increase in investment volumes last year, with appetite from US investors particularly strong.
Earlier this year, NHS landlord Assura fended off a takeover bid from private equity group KKR and instead merged with rival Primary Healthcare Properties in a £1.8bn cash and shares deal. The combined company owns one in seven doctors’ surgeries in the UK, as well as dozens of healthcare centres, hospitals and dental practices.
The deal was investigated — though cleared — by the Competition and Markets Authority amid concerns that the consolidation could lead to higher rents for the NHS.
BlackRock said it set its rents every three to five years, and would take into account inflation in construction and maintenance costs. Yields on the investments are expected to range from 5 to 7 per cent, a person close to the talks said.
Lord Jason Stockwood, minister for investment, said the BlackRock deal “will help boost provision and accessibility for hundreds of thousands of patients in local communities”.
Kevin Etchells, head of real assets at GMPF, said: “This is one of the largest opportunities to get direct private markets real estate exposure to the UK’s primary healthcare sector.”
GMPF’s involvement comes as chancellor Rachel Reeves pushes through legislation that will force local pension funds to invest a minimum percentage of savers’ cash in UK infrastructure projects, with the aim of unlocking over £50bn of private investment in UK infrastructure by 2030.
The government’s “Sterling 20” initiative is an attempt to mimic Canada’s “Maple 8” — which has resulted in the country’s large pension funds taking significant stakes in infrastructure worldwide. But the move has been criticised by the retirement savings industry, including unions and the ABI, which argue it interferes with the pension funds’ duty to act in the interests of their members.
