24 February 2006
NHS foundation trusts must be cautious when investing their money, particularly in non-health care schemes, their regulator Monitor said this week.
Foundations have a wide-ranging freedom to invest, which could include potentially risky areas such as acquisitions, joint ventures and brand licensing deals.
Experience in other countries and the private sector is that investments frequently go wrong – studies have shown that more than 50% of private sector mergers and acquisitions fail.
Monitor said a common pitfall was investing funds derived from cross-subsidies that mask underlying financial weaknesses. Another was entering into transactions that appear low-risk but create contingent liabilities, for instance by guaranteeing the debt of joint ventures.
The regulator also pointed out that foundation trusts must report to it about any high-risk transactions they are involved in.
Tanuja Pandit, Monitor's head of financial policy, said trusts must not exceed the powers given to them by the 2003 Health Act. 'This is a fundamental new freedom and it needs to be exercised in keeping with the Act and the trusts' terms of authorisation,' she said.
Meanwhile, foundations were warned this week that some of them could receive the lowest rating from investment rating agency Standard & Poor's.
It said Private Finance Initiative transactions should be given an investment grade rating, which is considered a precondition for private sector involvement.
But it added that, in some cases, because of increasingly variable levels of income and competition for patients, this might be the lowest one of BBB–.
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