Can prisons be profitable real estate?

Prisons are assets with huge demand and consume a large portion of public capital

- Ash Müller

Notorious: Mangaung Correctional Centre in Bloemfontein was accused of multiple human rights violations, violent unrest and allegations of abuse. Photo: G4S Correction Services

(G4S Correction Services)

here are few topics that make people as uncomfortable as prisons. And even fewer when you introduce a second layer of discomfort: prisons for profit.

We like to believe incarceration sits outside the logic of markets. That punishment, justice and rehabilitation exist in a moral economy, not a financial one. And yet, somewhere in the world, prisons are performing extremely well as real estate assets.

GEO Group owns and operates detention facilities on behalf of governments. Their facilities are predominantly in the US and elsewhere around the globe, with nearly 100 facilities and roughly 80 000 beds. A straightforward business model in which the state pays a fixed fee per inmate per day.

Beyond the physical prisons themselves, they also provide halfway houses, parole and probation supervision, electronic ankle monitoring and rehabilitation programmes. It's pretty much a full turnkey service when it comes to the prison itself, as well as the community reentry and monitoring process once the inmate is released from prison.

I recently spoke to Joe Bassett, the portfolio manager of the Renegade Fund at AG Capital, who explained why their hedge fund took a positive view of the stock in the run-up to Donald Trump's previous election. The stock jumped by close to 50% very quickly after they invested a well-timed call backed by an original perspective.

What interested Joe was not ideology, but rather the narrative.