Getting your sums right; Investing in education

The Swedish free school model, established in the early 90s, allows independent owners to run schools as profitable businesses in a free market-inspired environment. The state allocates funding according to a voucher system, wherein each student brings a fixed amount of tax money to whichever school he or she chooses within the local municipality. This has often attracted the interest of private equity investors. While the UK has launched its own version of free schools with its city academies programme, it may be some time before institutional investors can get involved.

The Swedish model has been embraced by secretary of state Michael Gove, who recently backed the launch of the academies programme in the UK. But Emil Gigov, responsible for Albion Venture's investment in independent school Radnor House, sees little similarity to the Swedish model. "The general mindset has not yet reached a level to allow for profits to be made in education. Politicians have made it clear that free schools will not be run for profit for the foreseeable future."

Instead, he argues, the essence of academies is added value in terms of choice, a prerequisite for competition, which in turn leads to higher quality of education. This applies equally to independent schools and academies according to Gigov: "Parents and students want to have a say in education. They want to be part of a community. Such demands are perhaps something that private investors can provide better than the government."

He refutes the idea of privately held schools sacrificing the quality of education for profits. "Radnor House is regulated and inspected by Ofsted," Gigov says, and highlights the need for strong regulation to properly police the quality of education. In addition, he adds that regulation does little to interfere with the business-side of the school, and that it would be likely to remain stable, even in the event of a new government taking over.

At the moment, independent schools seem like the only viable prospect for profit-driven educational investors. But it is not a bullet-proof investment. Gigov points to regional differences: "In London, demand remains strong and people seem to have more money to spend on education. Outside of London, however, the recession has made a mark and some independent schools are struggling."

Similarly, the varying demand reflects the nature of independent schools. "In London, there is less need for finding a niche, as there are always students looking for a place at an independent school," notes Gigov. According to him, Radnor House, which opened in September, ended up with around twice the places expected owing to local demand. Gigov describes it as being generalist in terms of education, but adds that sometimes differential quality in education is a niche per se.

Nonetheless, investing in independent schools is not for the impatient. As previously reported in unquote", Radnor House is early-stage and seen as a long-term investment. Gigov estimates a 10-year-long commitment to the school, which has been made possible by the use of an evergreen fund.

In short, the implementation of free schools in the UK has omitted the very defining aspect of its Swedish counterpart - profits. It would seem independent schools pave the only way for private investments in education, and that all roads lead to London.

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• Topics
• UK / Ireland
• Benelux
• France
• Southern Europe
• DACH
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• Nordics
• United Kingdom
• Sweden
• Albion Ventures (formerly Close Ventures)