Hung parliament brings uncertainty – and opportunity

By Keith Breslauer for Property Week

With no party winning an outright majority at the election and the process for Britain leaving the EU to be initiated with key meetings shortly, the country still dealing with the aftermath of its third terror attack in three months and Trump ruling the US via a series of erratic tweets, there is plenty to worry about as a father, husband, business leader and fund manager – even without an impending mountain climb to prepare for.

From snap elections, referendums and currency fluctuations to terrorist attacks and rising international tensions, foreseeing what the world will be like in a month’s time can be difficult, let alone trying to look a year or even five years down the line.

Weighing up pricing, evaluating risks and trying to predict the unpredictable are all part and parcel of being a fund manager, but it has rarely been so difficult.

The changeable nature of the world today is having a significant effect on pricing. Uncertainty is causing some would-be sellers to hold on to assets, while property –particularly in well-regarded global cities such as London – is seen as a safe haven by investors looking to park capital, gain steady incomes and hedge against inflation, meaning demand is relatively high.

This competition for a relatively small number of investments, coupled with the difficulty of pricing assets in an uncertain market, means the likelihood of a bidder overpaying and blowing sensible offers out of the water is very high.

But it is important not to get carried away. Patience, creativity and the ability to carry out due diligence and detailed calculations are critical weapons in the investor’s armoury and in the current environment, not allowing these to be skewed by what other investors might be doing is more important than ever.

Granular approach

Sometimes being too hung up on the big goal can be detrimental. When climbing a mountain, focusing on the individual stages and your own progress rather than obsessing with the overall summit and the progress of those around you can be the key to success.

This focused, smaller-scale, granular approach can help when looking for and managing investments. The best opportunities are often to be found where an investor sees value others might not. It could be an overlooked asset class or size; it might be a creative change of use that no one else has thought about; it could be an add-on to another investment that boosts value; or it could be local knowledge that helps you predict an up-and-coming location.

At the time of the global financial crisis, the focus was on ‘weathering the downturn’ with the expectation that feast would follow famine and that stability would return. Although we have successfully navigated some tricky waters and economies have, for the most part, improved, stability is still proving elusive.

Economies remain fragile, investments seem expensive and the constant barrage of shocks – from terrorism to Trump, election results to EU exits – is causing angst among investors and fund managers.

There seems little hope that stability will return soon. A hung parliament means there is less clarity as to the policies that will prevail. It also reopens the debate about what post-Brexit Britain will look like. With upcoming elections across Europe, Trump’s volatility damaging international relations and the ongoing threat of terror attacks, the world looks like a pretty challenging place.

Uncertainty brings opportunity, though, and with perseverance, imagination, due diligence and local knowledge good deals are still possible – but getting the pricing right will be more difficult than ever.

Keith Breslauer is managing director of Patron Capital