Evaluating the investment performance of Australian retirement living and aged care assets

AbstractIn Australia, the Retirement Living and Aged Care (RLAC) sector lacks a historic benchmark performance metric. Institutional investors utilising modern portfolio theory require such benchmarks for making future decisions. It has been considered that this lack of a benchmark has hindered investment in the RLAC sector. This paper evaluates historical investment performance of listed entities in the sector and constructs a market capitalisation weighted return index. From this, the historical performance and diversification potential was analysed from 2004 to 2016. Compared to other investments, RLAC had an inferior risk-adjusted performance. Due to this performance, the inclusion of RLAC in a portfolio did not lead to optimisation. The heterogeneity of the sector coupled with changing business models has implications for drawing conclusions from this historical performance.