In the fourth of a series of real asset investment case studies, Iryna Hanbury, Portfolio Manager at Gravis Capital Management, looks at hospitals.
As the UK’s healthcare system continues to grapple with rising demand, ageing populations, and strained acute care services, the need to bolster non-acute healthcare infrastructure has increased. From community clinics and rehabilitation centres to mental health facilities and social care services, these often-overlooked elements of the health system play a crucial role in maintaining wellbeing and preventing hospital admissions. Investing in this infrastructure is not only essential for easing pressure on NHS hospitals but also for delivering more holistic, accessible, and cost-effective care to communities across the country.
8.4%* of GCP Infrastructure Investments’ portfolio is currently invested in healthcare assets like this across England and Scotland.
The investment case
GCP Infrastructure Investments Ltd issued a loan note secured against subordinated debt in the Queen Elizabeth II (‘QEII’) Hospital in Welwyn Garden City, and six Local Improvement Finance Trust (“LIFT”) projects in the South East and Midlands. The primary counterparty for each project was the local Primary Care Trust (“PCT”). PCTs are statutory NHS bodies responsible for the delivery of health services. The LIFT assets are underpinned via a head lease with Community Health Partnerships (“CHP”), a Department of Health and Social Care owned company.
The QEII hospital in Welwyn Garden City is the largest asset, a day hospital that opened in 2015 replacing the original Queen Elizabeth hospital that opened in 1963. It provides a range of outpatient clinics and services including blood tests, as well as an urgent treatment centre which is open every day.
The hospital was designed to be sustainable and environmentally friendly; the shape and layout of the building creates natural shading, the window glass prevents the building from getting too hot and a planted green roof encourages biodiversity.
How revenue is derived
The underlying loan is financed from the subordinated cash flows that arise from the projects, with the investment returning an IRR of 7.7%. The loan allows the Company to earn an attractive yield from a portfolio of mature, well‑performing PPP/PFI projects that benefit from Government‑backed cash flows without taking equity risk, and therefore fits the Company’s investment strategy.
The nature of the underlying projects (non‑acute healthcare services) is at the stable and secure end of the infrastructure spectrum of asset types.
How the sector could evolve
The UK was an early pioneer of PPPs, but following some criticism that earlier models were too complex and inflexible, the government has not deployed them since 2018. They could, however, make a limited come back. The UK 10-year Infrastructure Strategy, which was published in late June, made mention of a ‘careful and targeted’ return of PPP.
The report acknowledged that a significant increase in private investment is needed to complement and maximise the value of the extensive public investment underway and, as part of its incentives, would “explore the feasibility of using new PPP models for taxpayer-funded projects (for example in decarbonising the public sector estate and in certain types of primary care and community health infrastructure) in very limited circumstances where they could represent value for money.”
*Source: Gravis, 31 March 2025
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