Winston Churchill once said that if you weren’t a socialist when you were young you had no heart and that if you didn’t become a conservative as you got older you had no brain. “I seem to be going the opposite way,” says Guy Hands, the founder and chairman of Terra Firma, the private equity firm.

Perhaps it is the care home world that has done this to Hands, who is widely regarded as one of the most formidable financiers of his generation. Terra Firma bought Four Seasons, the biggest care home operator in the country, for £825m in 2012. The company operates 470 homes and specialist facilities, which contain more than 20,000 beds. However, this week, rating agency S&P warned the company could run out of money early next year unless it radically restructures its finances.

Four Seasons is at the forefront of a crisis facing the entire industry. Experts have warned that half of the country’s 18,000 care homes are at risk of closing, squeezed between a decline in the fees local authorities pay and a rise in staffing costs, which will increase further with the introduction of the national living wage next April.

Hands says that 25% of Four Seasons care homes are losing money, even before capital expenditure and interest charges are taken into account. He has a dire warning for the government – if it does not increase the funds councils use to pay care homes, then Four Seasons will start to sell and close them. “We can’t continue to operate 25% [of homes] at a loss, it just doesn’t make sense,” he says. “If government doesn’t agree with that, we will have to do the inevitable thing of reducing the number of nursing homes and increasing subsidisation by private patients [who pay their own fees].

“Yes, I think inevitably we will have to sell homes, some of which will stay as nursing homes, but some of which will end up closed and changing their use. It’s not something we want to do. You can’t just close a home, you have to think about the residents.

“For the last three years we have assumed the government would look at the economic effect of their policy and make a decision. I don’t think the effects will be felt this winter, but next April or May is when you will see care homes closing or for sale.”

The financier insists that Four Seasons’ £500m of debt hasn’t affected the company and can “easily” meet its £50m annual interest bill. Terra Firma reduced Four Seasons’ debts from £780m when it bought the company, he adds. However, the growing fears that the industry faces a crisis have inevitably led to questions about the role of private equity and the care home operators.

Hands began his career at Goldman Sachs as a bond trader in 1982 after graduating from Oxford with a degree in politics, philosophy, and economics. He founded Terra Firma in 1994, initially as the Principal Finance Group at Japanese bank Nomura, before spinning it off. At the helm of Terra Firma, Hands, who was diagnosed with dyslexia at school, became one of Britain’s best-known businessmen and worked on billions of pounds’ worth of deals.

This culminated in 2007 with the £4.2bn takeover of EMI. However, the deal ended in disaster. The record label was put under pressure by the rise of digital music, a strong US dollar and spiralling interest payments. In 2011, Citigroup, the investment bank and EMI’s main creditor, took control of the company after a bruising legal battle.

Today, Hands is a tax exile living in Guernsey. He and his wife Julia are worth an estimated £250m. The investor is still pursuing Citi for more than £2bn in damages over the EMI saga, with a trial scheduled for next year. Four Seasons was Terra Firma’s first major deal after EMI.

Hands insists the private equity firm has improved the quality of care in its homes since it bought them. “It is in a better position from an operating position, but economically it isn’t. On a nursing-home-by-nursing-home basis it’s in a better shape, definitely,” he said. “The only responsibility we have is in not making the decision at the start to close unprofitable nursing homes. Most of the nursing homes that we have that are not profitable before cross-subsidisation [fees from private patients] came from Southern Cross [a rival care home operator that collapsed in 2011]. The previous management took these homes largely because they were asked to.

“If anything, the issue we had was mixing social responsibility with business, in some ways it would have been better to focus on business. But the second you commit to buying into the industry you have to think about your social responsibility.”

Hands believes a lack of joined-up thinking and long-term planning has led the care industry to its present state. “Today, most people arrive in nursing homes in their mid-80s, are not healthy, and need substantial care, on average 35 hours a week of nursing care. That is roughly the same as a hospital, but they get £3,000 a week and care homes get £500 to £530,” he says.

“Bed-blocking, which is a major, major problem in the NHS, is increasing all the time. If you had a coordinated policy of looking after people in nursing homes, it would free up space, reduce costs, and lead to a substantially better quality of life for the people involved.”



This is where Hands starts to talk like the opposite of Churchill. He was a self-confessed Thatcherite in the 1980s but now believes her policies had “unintended consequences”. He adds: “To me, it’s a tragedy of governmental thinking since the 1980s that we do not have any centralised planning in pretty much any area. The areas of government that used to exist to plan for the long term don’t exist anymore.

“I don’t think it is fair to blame Thatcher, but I don’t think we have enough centralised planning. Everyone likes to criticise civil servants, but the reality is you do need people to think about where the country is going and what the right decisions for the long term are. I don’t think that is bureaucratic, I think it’s good governance.”

Hands also feels strongly about Britain’s future in the European Union. In fact, he says he has not felt so passionate about an issue since apartheid. “I think people have forgotten why it exists. It exists to bring peace to a part of the world that has been at war for centuries. For people to forget that is to forget the lessons of history,” Hands says.

“If there is a breakdown of the European Union, it will lead to wars, as night follows day. If people think that peace is guaranteed without a common ideal, I think they are delusional. You have people listening to hedge funds [about leaving the EU], which is total madness, absolute insanity, it’s ridiculous.

“I feel incredibly strongly about it. I think people are missing the point: I do think it is actually economically good for the UK [to stay], but that is secondary to being able to live somewhere that is peaceful.”

• The headline on this article was amended on 9 November 2015 to better reflect the article.