Are Private Schools in Dubai still a sound investment?

The announcement by KHDA that there will be 27 more private schools opening in Dubai by September 2016 ('More than 63,000 seats for students in Dubai by September 2016'  The National 23/08/2015) will undoubtedly bring more competition to the Private Schools' sector, but will it bring profits for investors?

The economic overview of the Dubai Private School sector is a relatively simple one: demand for places has outstripped supply for a number of years. This meant that new players were able to enter the Dubai market place with the relative security that schools will be full and that profits would follow.

However, 2014-15 saw a shift and supply outstripped demand.  The cover of the KHDA's Private School Infographic 2015 highlighted the new era:  "More seats for students - More choice for parents."  According to KHDA's figures, 13% of Private School places were left unfilled last year.  

Furtherore, with some seven new schools opening in Dubai in September 2015 and a promised further 27 opening by September 2016, the Dubai Private School market place is going to awash with places. 

There are four main consequences of this shift the supply curve:

1. Parents will have more choice: New parents are likely to be much more discerning in their choice of school. It is almost certain that we are going to see a significant number parents looking to move schools. The main drivers will be geographical location ('convenience' - moving to schools that are nearer to home - reducing their daily commute) and academic standing of the school ('trading-up' - moving out of under-performing schools to one's with a stronger academic record). 
2. There will be increased competition between schools. This competition will take three forms: quality (academic standards, wider educational/extra-curricular opportunities, pastoral care), value for money (including class sizes) and price. 
   It is likely that we are going to see Academic League Tables appearing within the next couple of years. There is no doubt that there are going to be opportunities for school marketeers (as schools inevitably put a greater emphasis and resourcing into their marketing strategies).
   Some schools will develop specialism that enable them to fulfil a particular market niche.
3. Standards will rise.  Competition between schools will inevitably mean that schools will have to up their game. Until recently, standards have risen because of the drive of KHDA; going forward competition between schools both for the best students and to stay full will drive standards up still further.
4. Schools will fail. In any free market there are winners and losers. Some schools will thrive, but those schools that do not provide value for customers (parents) will struggle.

The consequences for Investors

These likely trends will be of interest to potential investors.  There are two types of Dubai private school that are likely to succeed. First, are those schools that can ensure high academic standards. Some of these will be the established academic schools (Dubai College, JESS, etc), but others, no doubt, will be new entrants who bring established traditions of excellence to Dubai, whether that be from strong chains (such as Nord Anglia) or UK independent school franchises (such as North London Collegiate School - Sept 2017). Secondly, are those schools which are embedded in a strong residential community. These are particularly important at the Primary level, where parents of young children do not want to be travelling great distances to school, particularly where are a different times for the end of the school day. Thus, schools that have been established in partnership with housing developments, such as Ranches Primary School (declared interest: my wife is the Principal) on Arabian Ranches 2 is well placed to be successful as they have a built in residential community on the doorstep.

Overall, the Private School sector in Dubai is likely to continue to be a fertile sector for investors; however, the era of easy pickings for new comers is over, and some schools will need to review their business models to ensure ongoing survival. 

The Last Foundling by Tom H. Mackenzie - Book Review

The Last Foundling is not the sort of book that I'd ever pick out in Waterstones, but fortunately social attitude and human interest stories are a particular interest of my partner, hence it found its way onto our holiday reading list. It caught my eye because the book is set, for the most part, in Berkhamsted and unveils a chapter of the town's history with which I was previously unaware.  

It follows the parallel stories of a mother, Jean, and her child. It tells how Jean was forced to give up her son in 1939 to the Foundling Hospital, because, as an unmarried mother, she was unable to support him. She expresses her anguish in having to give up her child and charts her hopes and aspirations to be reunited with him once more.
The heart of the book is Tom's account of his upbringing: how, once removed from his birth mother and given a new name and identity, he was placed in a safe and happy foster home for his early years, from which he was torn away to be placed in the Foundling Hospital in Berkhamsted just before his fifth birthday.
The original Foundling Hospital had been established in Bloomsbury by Thomas Coram and received its first foundlings in 1741. It moved to a purpose-built school in Berkhamsted in 1935 only to close in 1954. The buildings are now used by Ashlyns School.  No doubt the intentions of the Founder and the Foundling Hospital staff were otherwise, but Tom Mackenzie describes a cold, loveless, institutional existence; the brutality of the dormitories; and the scrapes into which he got with the various families who were kind and brave enough to take him in during the vacations.

Written throughout in the first person, the unemotional, matter-of-fact style of the book powerfully conveys the detachment and lack of belonging that clearly characterised the author's upbringing. There is no bitterness or blame here - just the mature reflections of an old man looking back on how this institutional unloving childhood shaped the adult that he became. Above all the book explores the theme of the importance of family life in defining who we truly are: the account of a foundling childhood devoid of affection or family can only draw out in the reader a deeper appreciation of those who provided love and a stable home for those of us who were lucky enough to have both.

'I was one of Britain's last foundlings' Guardian 08/03/2014

The economics of education: "Independent" versus "Private"

The Daily Telegraph's splash that "Parents turn to 'no frills' private schools due to fears over recession" [12/01/09] is sensational:

Parents are turning to "no frills" private schools as the recession hits middle-class families.

Schools with fees set at a fraction of the national average are reporting increased demand during the economic downturn. Some cheap and mid-market independent chains are even preparing to open new schools despite fears of falling interest elsewhere.

The New Model School Company - linked to the Civitas think-tank - is opening two new prep schools in London charging around £5,000-a-year. Its one other existing school in West London is also expanding.

Robert Whelan, Civitas deputy director, said: "The demand is fantastic. It is a question of finding buildings."

Talks are under way for a school to join the Alpha Schools Group, which has four "affordable" schools in the capital.

Independent School fees are undoubtedly expensive: the average school fee is £11,253 per annum which is a significant amount of money for all but the ultra-rich. Now that money is more scarce parents are right to ask exactly what they are getting for their money.

It obviously sells newspapers to complain about the amount that independent schools charge. However, we are charities and we do not exist to generate profits for our shareholders or investors. The fee levels are there for a reason. When you analyse the balance sheet of any independent school you will find that any surpluses are ploughed back into the school.

Now it might be argued that schools have invested too much in recent years in new buildings and facilities - now we all have sports halls, swimming pools, theatres, art and design centres and so on. However, it should be noted that this particular arms race was fuelled by parents [advised by school guides and newspapers!] going around with a check-list to compare schools. But this world is changing - I suspect the years of infrastructure expansion are over and the age of Foundations to fund bursaries has dawned. This is not only a very positive thing for our schools, but also for the country. Whether reinvested in plant or pupils, all independent school funds go back into the organisation.

When parents send their sons and daughters to an independent school, they are benefitting from years [and, in some cases, literally centuries] of prior benefaction. When a pupil comes to Berkhamsted they benefit from literally millions of pounds worth of investment. Their parents are not paying to service a debt - the fees simply cover running costs, and an on-going maintenance and investment programme that enables us to be the best school that we can be. The same is true of most independent schools in the country.

The irony is that the same is not true of "private schools". For those not familiar with the subtlety of the terminology, I will explain. "Independent Schools" usually refers to those schools who are charities and are Governed by Trusts; as opposed "Private Schools" which are owned either by a proprietor, or, as is increasingly common, by a company. Private Schools operate for profit and their approach is driven fundamentally by an ethos of business rather than of education.

The Daily Telegraph article provides us with a fascinating case study. Ten minutes' research reveals that the 'Alpha Plus Group' comprises some thirteen schools and nurseries and five sixth form colleges. The Group was acquired by Sovereign Capital in June 2002, who developed the group and sold it in December 2007. According to Sovereign Capital, they achieved an 'Exit money multiple' of 5.5x, with which their investors were no doubt delighted. The new owners, Delancy, outline their aims on their website and will no doubt be equally successful:

We look to deliver higher returns without sacrificing security. Our approach provides the optimal balance between risk and reward and consistently delivers success. Indeed over the years our clients have seen highly competitive returns on their investments.

I have no problem with schools being run as efficient business. Indeed, it is important that those of us who run independent schools are good stewards of the inheritance that we have received from previous generations. But I am concerned that parents are sometimes unable to distinguish between those schools which are charities and those which are being run for profit. I believe that we need greater transparency. One way for this to be achieved might be for the Independent Schools Council [ISC] to distance itself from schools that are not charities.

This is not just an issue of profit versus surplus. There are other important factors at work here too. Because family wealth is often tied up in proprietorial schools, they can can simply be here one day and gone the next: Wolborough Hill School in Devon was a case in point. Worlborough , founded in 1877, was a thriving Prep School, with good numbers and a strong reputation in the area, before the owners sold up in the summer of 2004.

Parents can easily determine whether a school is a charity by consulting the Charity Commission website. Parents can access school accounts posted there and thus see how their money is spent and how much surplus is being generated each year. They can also research the financial health of a school and identify schools with significant debt, or, alas, schools that are in trouble.

So "why pay more?"
Well, as far as education is concerned, you tend to get what you pay for. I use the word 'education' advisedly. It is possible to 'school' a boy or girl of prep age for £5,000 p.a. Whole-class teaching in the younger years is much cheaper and easier to provide than secondary education, where a number of specialist teachers are required. Education becomes much more expensive when it comes to GCSE and A-level, where schools need to offer a diversity of subjects. This is why large schools are able to offer more A-level subjects than smaller schools. Independent schools are able to provide suitably qualified specialist teachers - and you get what you pay for here too. Salary levels in independent schools are higher than in maintain sector schools, but so are expectations of what is required of them.

But there is more to an 'education' than just teaching and examination results. Independent schools set out to develop the whole person, be that on the games field, in the concert hall, on the stage, in after-school clubs, in the CCF, on Duke of Edinburgh Award expeditions, on trips and tours. It is these co-curricular aspects that complete an education.

In the current economic climate, not all parents will be able to afford an independent education and it is a sad reflection on maintained sector provision that "private schools" are filling the gap.

"Private" versus "Independent"?
"No frills" Schools - perhaps; "No frills" Education - never.