PE firms make profit from children care homes - report

By Rizza Sta. Ana

Sep 14, 2013 06:20 AM EDT

Deep in the Rochdale child-grooming scandal was the alarming revelation that some private equity firms and property dealers had been taking a financial advantage over dozens of children care homes subsidized by the government. A report from UK newspaper The Independent had said that inspection reports commissioned by UK Education Department Secretary Michael Gove disclosed that one of the homes run by Britain's largest private sector provider Advanced Childcare Limited did not provide "good" or "outstanding" child care facilities. Advanced Childcare charges up to USD208,000 per child for care in annual fees to councils. 

A US hedge fund set up by former Nomura and Merrill Lynch banker Rick Magnuson owned Advanced Childcare. Turnover of Magnuson's fund was at a 50% increase year per year and profits after taxes were at a 25% increase to GBP2.5 million. The hedge fund is a subsidiary of GI Partners. GI Partners manages over GBP4 billion worth of assets from its offices located in London and California. The firm reported in 2009 that it had awarded its backers triple their investments to the fund.

The Rochdale child-grooming scandal rocked UK councils to date as allegations of government complacency led to child abuse reports. The Daily Telegraph newspaper reported that over GBP1 billion a year was spent on less than 4,900 children in private child care homes.

When asked for comment about the 52-page government dossier, Chief executive Rizwan Khan of Advanced Childcare said, "Some of the information in that report is inaccurate. But I am not going to respond to a journalist. I am the chief executive of 160 care homes. We will respond to you formally on Monday."  

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