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.
I was invited to attend the Real Estate Investors Summit in Amsterdam for the first three days of this week. This gave me the opportunity to speak with other family offices and institutional investors from around Europe about their Real Estate investment plans for the coming year as well as to take the temperature of the market in both the UK and Europe.
Once again the topic of sustainability, climate change and ESG were high on the agenda and I believe that 2019 will be regarded as the tipping point when these considerations became an integral part of the investment process, at least for responsible professional investors.
It is clear that these factors are ignored at our peril as the pace of change, driven by public opinion and ever tighter regulation, is such that there will be many ‘stranded’ assets – rendered completely unsaleable – over the course of the next decade where the blame will be placed on inadequate consideration being given at the time of purchase or during the asset management process to these three inter-related matters.
There are now a number of different benchmarks for ESG performance in property and we at Sandaire Real Estate are keen to allow our client’s commercial property investments, and our performance as investment advisors and asset managers, to be benchmarked in this way. One such benchmark is the GRESB index which we will be explaining in a future communication.
As we have previously said, families of wealth have a unique opportunity and arguably a responsibility to be thought-leaders in this field and we at Sandaire Real Estate are well placed to advise them in this respect.
In a well telegraphed move, Jerome Powell, Chairman of the US Federal Reserve, has reduced interest rates once more to a target range of 1.5%-1.75% – the third cut in 2019.
In his statement he noted that inflation is near its 2% target, the labour market is strong, but weakness in global growth and trade developments are cooling the economy. Looking ahead he said, “We see the current stance of monetary policy as likely to remain appropriate, as long as incoming information about the economy remains broadly consistent with our outlook… if developments emerge that cause a material reassessment of our outlook, we would respond accordingly”.
The S&P 500 hit a new high, but it’s fair to say that the bond market is sceptical; interest rate futures are already pricing in a 45% probability of another cut by the 29 January meeting. Whilst the recent rate adjustments will take time to filter through to the real economy, our outlook for now sides more closely with the equity market.
An interesting fortnight, as so often seems to be the case, within the UK political landscape. Despite the latest polling data, we expect to see a more cautious mood permeate the M&A market for the duration of what may feel quite a long election campaign. Specifically, there is concern regarding the possibility and implications of a hung parliament. Deal processes and timetables may become even more extended as counterparties seek further clarification. Another reason to be prudent regarding the short term outlook for dealmaking confidence.
In my previous Fortnightly Thoughts pieces I have assiduously avoided mention of the political environment. With the UK finishing this politically turbulent year with a 6-week General Election campaign, I note this will be the 9th Election I will have voted in over almost a third of a century, yet the 4th in just the past 9 years. No party has won a suitable working majority for approaching 15 years, either reflecting or causing political instability. I have considered what this means for the UK private equity industry. London continues to be the main European centre for private equity investment, supported by a strong ecosystem of advisers, limited partners and legal environment. According to research published by Pitchbook covering the period to the end of Q3, across a European private equity market showing signs of strain, the UK is maintaining or even increasing its share of European private equity activity both by volume and value. The latter has been helped by a small number of large deals, including the largest buyout in Europe in the third quarter – the €2.2bn buyout of Advanced Computer Software (ACS), a software platform for healthcare companies and NHS walk-in centres. The UK & Ireland holds a share of about a third of European deals, but there is evidence to suggest that in spite of record ‘dry powder’, firms are being cautious and reigning in on the pace of new investment. Europe as a whole appears likely to end the year below last year for both deal volume and value and potentially by volume, the lowest in five years with volume YTD down by over 10% on prior year.