Our fortnightly market commentary from members of our Senior Management team provides valuable insight into the latest trends, opportunities, and views on the current marketplace. Read about recent events within private equity, corporate finance, investment management, and real estate.
Most people will be aware of the American serviced office operator ‘WeWork’ and some may be aware that it issued an IPO prospectus in August from which it hopes to raise $3.5bn. Those of us in the property industry cannot fail to have noticed how WeWork has become Central London’s largest office tenant in less than 10 years and reportedly occupies 808 offices in 124 cities worldwide whilst also losing $1.9bn on turnover of $1.8bn in the 2018 financial year. Curious to find out what is driving the growth of this American behemoth? Click here for Robert’s full length article on WeWork.
Private Equity continues to prove its attractions to markets as a serious asset class. The announcement that EQT, a long-established private equity firm with its base in Stockholm is planning to float is another example of the professionalisation of the industry and illustrative of institutional attitude towards the long term success of the industry. With €40bn of assets under management across 19 funds, EQT is as big as many longer term established multi-asset fund management businesses. Growth in AUM in private markets funds was 15% between 2012-2016 and expected to continue increasing in the coming years. The trend to float private equity firms commenced more than a decade ago with firms like Blackstone and KKR listing on the New York Stock Exchange either side of the credit crunch. Investors are attracted by the long term nature of the committed fee income with upside through performance fees. Opportunities to acquire into the ownership of private equity managers not large enough to justify a listing are available through specialist funds. These managers are looking to raise money to fund expansion into new geographies or product areas, or to fund the purchase of shares from retiring partners to manage succession. External investment is a sign of the increasing maturity of the industry and supports the evolution of firms which can only be a positive development for underlying investors in their long term funds.
The decision by Parliament to take the first step to delay Brexit until 31st January 2020 could reduce some of the downward pressure that resulted in the pound weakening to $1.19 and 10-year gilt yields falling to 0.34%. However the prospect of an election and a Corbyn government, (even though Tories appear ahead in the polls), combined with ongoing uncertainty over the Brexit date and outcome, means sterling volatility will continue for the time being and businesses will continue to hold back on much needed investment. Nevertheless, it is at uncertain times like these that the best investment opportunities can arise for those prepared to take a long term view. Whilst sterling will undoubtedly fall below its existing levels at some point in the short term, sterling and the UK market have nonetheless been shunned by international investors for some while now and will ultimately revert to mean making this potentially a good entry point for those prepared to wait for the returns and bear the medium term volatility.
The level of short term uncertainty regarding the outcome of the Brexit negotiations has increased in recent weeks, with the effect being more pronounced within the foreign currency market through further sterling weakness. It remains to be seen the extent to which the attitude of investors and the level of short term investment activity will be further affected. A snap general election, were it to be called, would lead to a period of reassessment as the implications of a new political landscape become progressively clearer. In addition, it remains unclear what an election result will resolve given the firmness of the EU negotiating position. Finer judgements will be required on asset pricing and deal structuring within a somewhat volatile environment.