The first thing we have to understand about capital markets is that they like ‘stability.’ Countries that offer capital stability, obtain it. Countries that don’t, invariably, lose it.
What Britain’s decision to leave the EU may have done to its commercial capital markets is destabilise them.
The referendum will have raised 4 key questions in the minds of investors:
- The impact on labour – the referendum could well lower the supply of labour from other parts of Europe which could impact the country’s competitiveness in products and services and thereby reduce demand for them.
- The impact on commercial property values – given the political uncertainty the vote brings with it, and the diminished role London may play in providing capital access for Europe, businesses could exit Britain. If business exits, the current value of commercial property could well too. This is a situation that investors will want to safeguard and hedge against and it could see them seek alternative avenues of investment.
- The impact on currency – Britain’s pound has dropped to its lowest levels since 1985. And while the currency has since rallied, its movements have largely been downward. A fall in currency may well be accompanied by a fall in commercial capital investment; a reason why investors in this sector may draw their money out of Britain.
- The impacts of BREXIT on commercial property funds have started to hit home
The truth about funds investing in commercial property – they had started to show vulnerability in the months before Britain’s June 23 referendum.
Last week, however, BREXIT’s full impacts started to hit home.
Standard Life, shut down its $2.9 billion commercial capital fund citing ‘exceptional marketing circumstances’ – following the rush of BREXIT withdrawals.
The £2.9bn fund, which invests in commercial properties including shopping centres, warehouses and offices, is thought to be the first UK property fund to suspend trading since the 2007-2009 financial crisis, when some of the biggest names in investment management stopped withdrawals because they did not have the money to repay investors.
Two days later, on July 7th, the Financial Times reported that Henderson Global Investors had also suspended its fund in response to client redemptions.
The FTSE 250-listed asset manager said in a statement: “Despite a strong underlying portfolio, the decision was taken to exceptional pressures on the funds as a result of uncertainty to the EU referendum and the recent suspension of other direct property funds.”
M&G and Aviva have also confirmed decisions to suspend their funds to prevent redemptions.
Investors want their investments redeemed not reallocated
Challis Capital reminds its readers of this key point.
The decision to redeem funds is not a decision to reallocate them – just yet.
However, while we are quite confident that Australia’s commercial capital market will not be negatively impacted by BREXIT (our market vulnerabilities skew to political, social and economic events in China and the US), we feel the commercial property market here could benefit once the investor action to redeem stabilises.
When this occurs, the major funds will likely want to redeploy capital to both Britain and other parts of the world including Australia where political and economic certainty is relatively more stable.
Australia, despite the election result where the Liberal party regained power with a slim majority, promises good stability and certainty relative to many other nations who compete for commercial capital.
With business growth and other economic factors pointing in the right direction, commercial activity, particularly in property development and construction finance should continue unabated.
If you would like to enquire about project finance, do get in touch with us for a private and confidential discussion. You can call us direct on 1300 010 171
Challis Capital Partners is a private capital, equity and debt advisory. What we do is offer unparalleled access to end-to-end expertise in the area of capital, debt and equity acquisition, management and review. To learn more, visit us at https://www.challiscapital.com.au