Pension funds pulling cash out of for-profit LTC sector
Canada Pension Plan among those who have divested since pandemic took grip of homes
Pension funds around the world have invested more than $44 million of retirement savings into Ontario’s for-profit nursing homes, where severe outbreaks of COVID-19 have killed residents in staggering numbers.
At least two of these pension funds, including the Canada Pension Plan, have divested millions from the companies since the pandemic began, selling at a loss. The moves highlight ethical questions for seniors whose livelihoods rely on dividends from companies accused of scrimping on seniors in their care.
The Star has also confirmed two major European funds are reviewing their substantial stock holdings in Ontario longterm-care (LTC) chains Extendicare, Sienna Senior Living and Chartwell Retirement Residences to determine if they contravene their ethical investment guidelines.
Should these funds decide to divest, they would have to sell almost $30 million in stock.
Richard Leblanc, a professor of corporate governance at Harvard and York universities, says COVID has exposed problems with for-profit nursing homes, and this has worried investors.
“LTC homes are a very good example of what happens when you put profits ahead of people,” Leblanc said. “I’m not surprised at all that they’ve divested.”
Star investigations over the course of the pandemic have shown that for-profit LTC companies in Ontario employ 17 per cent fewer staff than non-profit and publicly owned nursing homes. Forprofit providers also operate the oldest
buildings, which have experienced the most severe outbreaks of COVID-19. One investigation from last May showed that for-profit homes had four times more deaths per 100 beds than city-owned homes.
For-profit long-term-care companies are also profitable investments. Over the past decade, the big three companies have paid out more than $1.5 billion in dividends to shareholders. Since the pandemic began, the companies continued to pay out dividends — $171 million in the first three quarters of 2020 — while receiving at least $138.5 million in government COVID-19 bailout money.
The Star combed through the public declarations of institutional investors in Ontario’s three big publicly traded forprofit LTC chains and found more than $44 million in stock held by public and private pension funds from Canada, the U.S. and Europe. At least $4 million of that has been sold since the pandemic began. All three firms — Extendicare, Chartwell and Sienna — are headquartered in the GTA.
In response to questions, Extendicare spokesperson Laura Gallant said the company receives the same amount of funding as all other LTC homes for nursing, personal care, social programs, support services and food. “If any of these funds are not spent on their intended category, the remaining dollars are returned to the Ministry. There is no opportunity to profit by ‘scrimping on care,’ ” she wrote in a statement.
The government provides funding to long-term-care homes in four envelopes. Every penny given for three of those envelopes — nursing and personal care; raw food; and, programs and social services — must be spent for those purposes or be returned to the province.
Any surplus money in the fourth envelope — other accommodation — can be kept as profit. Homes use this funding for things ranging from kitchen staff to laundry, services that seniors’ advocates say can have a meaningful impact on residents’ well-being.
Gallant said 80 per cent of Extendicare’s investors are “small, individual investors,” who “understand that their investments in Extendicare fund the development of new homes.”
In an emailed statement, Sienna declined to comment on individual investors’ activities.
“The COVID-19 pandemic has had a disproportionately negative impact on the entire longterm-care sector,” company spokesperson Natalie Gokchenian wrote.
“While this has been a challenging period in history, investors can be confident that everything possible is being done by the sector to navigate this global pandemic.”
Chartwell spokesperson Sharon Ranalli said the company was recognized as the sixthbest governed company in Canada by the Globe and Mail. “We believe this is a reflection of our sound governance practices that include accountability, transparency, and integrity in all facets of our operations.”
Long-term care only represents about 10 per cent of Chartwell’s business, she said.
“The government controls100 per cent of all revenues in longterm care and, therefore, also controls potential returns on invested capital,” she said.
A fourth large for-profit LTC chain, Revera, is wholly owned by the Public Service Alliance of Canada, a pension fund for federal civil servants, RCMP and reserve armed forces members. The union representing these public sector employees called for the pension to completely divest early in the pandemic, saying COVID has exposed how the business practices have been “detrimental” to employees and residents and could also have “long-term consequences” for pension contributors.
While none of the pension funds commented in detail about individual investments in the three large, Ontario forprofit care providers, their money has done the talking.
Canada Pension Plan (CPP), which owned more than $3 million in Sienna stock last March, has completely divested from the company, according to a source with knowledge of the transaction. CPP only publishes its public holdings once per year and has not yet publicly disclosed its divestment.
Sienna’s stock price took a dive last February and March alongside the rest of the market, losing 52 per cent of its value. The price has since recovered about half of that loss. CPP’s sale of Sienna occurred sometime after its last declaration on March 31, 2020, meaning it could have lost as much as 37 per cent of its investment in the company, depending on the timing of the sale.
A CPP spokesperson declined to comment on the rationale behind selling Sienna shares.
The CPP’s policy on sustainable investing states that divestment can occur, “where brand and reputation considerations from ESG (environmental, social and governance) factors may generate risk impacts beyond expected risk-adjusted returns.”
Institutional and sophisticated investors rarely sell “low” during a market-wide downturn, like the one that happened last spring, because most stock prices will bounce back. But where there are long-term concerns around a company, sales can happen at any time, Leblanc said.
In May and June, the Canadian military was deployed to a number of LTC facilities in the GTA, including homes owned by Sienna and Extendicare. A report issued on the conditions in the homes detailed cockroach infections, residents left in soiled diapers, force feeding and a “culture of fear to use supplies because those cost money.”
Prime Minister Justin Trudeau said he was “shocked” and “angry” after reading of the conditions. Premier Doug Ford called an independent commission to investigate.
The big three publicly traded LTC chains are also facing proposed class-action lawsuits brought by families of residents who died of COVID and who allege inadequate staffing and personal protective equipment. The companies have not yet filed defences to the suits.
Financière des Professionnels (FDP), a Quebec-based private pension fund that manages the retirement savings of doctors, dentists, architects and other professionals, has divested about 35 per cent of its holdings in Chartwell since the pandemic began, all of it for a loss, according to financial statements posted on its website. Depending on the timing of the sales, FDP could have lost as much as 29 per cent of its investment, which stood at $2.7 million at the end of 2019.
The FDP’s responsible investment policy states that “all companies have a duty to act responsibly in terms of respect for human rights, respect for labour rights and protection of the environment.”
FDP spokesperson Sonia Bergeron said the fund employs an external portfolio manager, which, in addition to divesting
nearly two-thirds of its Chartwell holdings, is also engaging with the company’s management.
They are “monitoring the situation very closely,” said Bergeron. “It is indeed easier to influence the decisions and behaviours of a company when you are a shareholder and you are in continuous dialogue. That way, we can best influence the actions and decisions taken by Chartwell for the benefit and protection of their residents.”
Two experts say COVID has laid bare the failings of the forprofit model in long-term care, which extracts dividends from their budgets while non-profit and publicly owned nursing homes top up their operating funds.
“The financing is the real crux of this problem,” said Hugh Wheelan, co-founder and joint managing director of Responsible Investor magazine.
“States have been retreating from old age care and outsourcing it to the private sector. Most of it has been private equity money — at least in the U.K. — and they’ve been trying to achieve returns that are unrealistic for the sector.”
“The dividends appear to be a significant factor in the business model,” he said. “It doesn’t make sense. In fact, it’s worse than that. It’s bloody dangerous.”
Wheelan’s magazine launched a competition this month called “Silver Linings,” which offers cash prizes for innovative business plans for elder care. The idea, said Wheelan, is to spur a reimagining of the sector and develop financial models that provide a reasonable return while ensuring top notch care for seniors.
And pension funds, with their huge resources, could play a large role.
“There is a direct correlation between what the pensions are invested in and the people whose savings are being allocated. The people who are investing are the same people who might end up needing this care. So there is a lot of lining up in thinking there,” Wheelan said.
Ethical investing rose to prominence around the turn of the millennium, driven by a movement to divest from companies that manufactured weapons and used forced labour. More recently, ethical investors have become concerned with climate change and moved to divest from carbonemitting industries. Could COVID-19 be the next frontier for ethical investment?
“It started with tobacco companies but it’s much broader now. You can’t just scrimp anymore for profit. COVID has driven that,” said Leblanc, the corporate governance professor.
COVID has shown that things can change rapidly and no one wants to be caught flat-footed with an investment that plunged in value because of an unanticipated issue with your business, Leblanc said.
“COVID has really hit home. If ESG is narrowly defined, it does no good. It needs to be broadly based: Climate risks, racial equity, employee wellness, mental health. I’m seeing new measures that didn’t exist a year ago because investors know that if you don’t pay attention to these, they get ignored.”
In addition to divestment, ethical investors, including pension funds, can use their ownership stakes to push for improvements in care in LTC homes.
KLP, Norway’s largest pension fund, which owns $1.5 million in Sienna and Extendicare stock, confirmed that the Star’s reporting on for-profit long-term care has been flagged internally for review.
“Thank you for your important work on investigative journalism, that is so important for us as investors and owner(s) of companies,” wrote Jeanett Bergan, KLP’s head of responsible investments, in an email to the Star. “We will review these stories and reach out to these companies with some follow-up questions.”
“We have strong responsible investment guidelines that may ultimately result in us divesting companies if there is an unacceptable risk of contribution to human rights violations (among other things),” wrote Bergan, who is responsible for the fund’s responsible investments.
An official with a second major Norwegian investment fund, which manages the country’s government pension plan, said the fund is assessing the $27.8 million it has in Chartwell stock.
A Chartwell spokesperson said the company has not heard from the Norwegian Council on Ethics, which oversees the government pension funds, since the start of the pandemic.
Also invested in the three forprofit LTC companies are the U.S.-based Teachers’ Insurance & Annuity Association, California Public Employees’ Retirement System (CalPERS), Alaska Permanent Fund Corp, Colorado Public Employees’ Retirement Association (PERA) and the New Zealand Superannuation Fund, none of whom commented on their investments.
“You can’t just scrimp anymore for profit. COVID has driven that.” RICHARD LEBLANC
YORK UNIVERSITY CORPORATE GOVERNANCE PROFESSOR