Market UpdateOctober 18 2019

Fortnightly Thoughts from our Senior Management Team

3 mins read

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.

Investment Management

StJohn Gardner

Another week of Brexit-related turmoil, but it does at least feel as if the end is in sight. In just three months Boris Johnson has torn up the rule book (illegally proroguing Parliament) and set unwanted records (in losing almost every Parliamentary vote), yet arguably his star has never been brighter, polling ahead of Jeremy Corbyn, his Prime Ministerial contender, in every age group.

UK equities still trade at a glaring 20% price earnings discount to the global index, having achieved parity in the heady months after Cameron’s 2015 majority (of just 12), and before the referendum on EU membership.

A resolution of political deadlock would be good for UK and European markets, as at heart Johnson is unashamedly pro-business. However the outlook is not without challenges – global growth is slowing, the timing of a general election is not in his hands and the Brexit drama will roll on until terms on a trade deal are agreed.

Private Equity

Michael Mowlem

The BVCA Summit that took place in London last week attracted more than 850 people, including representatives from Sandaire. The mood was positive and many presentations appeared to include a discussion of the social impact the industry is seeking to make. Meanwhile the most recent update by the leading industry provider of alternative assets data Preqin, published last week, makes some interesting observations. Fundraising continues apace with $417bn secured in the first three quarters in 2019, up from $345bn in the same period in 2018. With evidence that the pace of exits has reduced, this would suggest that industry AUM will enjoy its 11th consecutive annual increase. Investors are attracted by continued IRR outperformance and their data suggests that median performing private equity vehicles of vintages 2010 onwards have produced net IRRs above 14%.

Real Estate

Robert Stokely

Sandaire Real Estate Director, Robert Stokely, attended the MIPIM UK property summit at the Old Billingsgate market aside the River Thames earlier this week.

More than 2,300 delegates from 1,000 companies in 40 countries attended the summit to hear industry experts and politicians discuss the future for UK and Global Real Estate.

One of the key points that we took away from the summit is that the property industry now appears to be on the cusp of a sea-change in thinking about sustainability and social impact whereupon such matters will no longer be regarded as optional extras and additional burdensome costs in the development process but rather as an essential part of sustainable design in the new decade and an opportunity to enhance the attractiveness, lettability, rental and capital value of the asset over the long term.

With the UK government now committed to net zero greenhouse gas emissions by 2050 it is essential that property investors and developers rise to the challenge now as the property stock we build today, whether it is homes, offices or industrial/warehouse units, will almost certainly still be in economic use in 30 years’ time.

Families of wealth with strategic allocations to Real Estate, and their advisors, should be at the forefront of this movement and the protagonists of responsible property investment as unlike many other players in the market they can afford to take, and benefit from taking, a longer term view and for most the key objective of the development process does not have to be maximising returns irrespective of the environmental cost.

Sandaire Real Estate intend to be thought-leaders in this process and this summit enabled us to develop our thinking as well as our network of ‘best in class’ consultants and advisors in this field.

Corporate Finance

Paul Staples

It was interesting to see third quarter data this week from China that showed the world’s second largest economy expanding at its slowest pace for almost three decades. Whilst close to market consensus, this may well reignite market interest in the future outlook for economic growth. Against this background, it will be intriguing to see whether a re-calibration of growth expectations at global and regional level have any flow-through effects to company valuations that remain at historically high levels. Not least given recent commentary regarding expectations that (US) corporate earnings will decline this quarter, maintaining a theme that has been visible during the first half of the year.