For your annual fix on how wealthy families are looking at classic asset classes, Stanhope Capital’s Family Balance Sheet event does nicely. Each speaker talks from ten minutes on a different asset class, delivering quick-fire ‘all you need to know to sound informed at dinner parties or trustee meetings’ content with serious analysis for the committed capitalist.
The speakers and audience drew a concerted sigh of relief that the general election had not delivered a Labour/SNP coalition which could have been negative for all aspects of UK real estate and for gilts (in the unlikely event that anyone in the audience was holding any).
Here is a soundbite round-up for those who couldn’t make the event.
Stanhope Capital’s chief investment officer, Jonathan Bell, highlighted the end of the bull market in bonds (a dead parrot among the asset classes?) and the decline in earnings growth in the US compared with rises elsewhere, as well as the lower market valuations in Europe and Asia compared with the US.
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James Thornton of Mayfair Capital forecast double-digit returns from commercial property in 2015, with an an uplift in rental growth compensating for the likely end of yield compression.
Sophie Chick of Savills cautioned that the election would not bring a stampede of buyers and predicted a more muted outlook for London prime property as the impact of the Mortgage Market Review and rises in stamp duty and annual taxes on property owned by companies and other entities have taken some of the heat out of the London market. Outside of London, higher returns were forecast. But at least we don’t have a mansion tax.
Fisher German’s David Merton felt the question marks over Britain’s position in the EU and the potential implications for subsidies would create uncertainty in agricultural land after prices have quadrupled over the past ten years, partly influenced by some large buyers and limited supply. While land price rises have made it more difficult for young farmers to establish themselves, David did highlight that current prices per square metre are as cheap as carpet but never wear out.
Charles Cochrane was keen to promote art for collecting rather than investment, while noting that recent auction sales had been extraordinary, with $1.7 billion of sales in one week and ten world records for artists at a recent Christie’s sale, including a world record for any work of art at auction when Pablo Picasso’s Les Femmes D’Alger sold for $180 million.
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Hampden Agencies’ Alistair Troughton highlighted the low correlation with other asset classes as an attraction of underwriting at Lloyd’s of London. While returns over the past fifteen years have been very strong, he felt the immediate future would show more modest performance as significant capital has been attracted to the sector. But the IHT exemption remains a hit with UK families.
David Kilshaw of EY cautioned against complacency following the election: the chancellor will need to find more tax in his budget today. Don’t assume that reliefs will remain or that capital gains tax will not increase: whatever you are planning to do in the next few years, do it now.
So what do we take away from all this? Each speaker focused on the challenges to their asset class, as much based on politics as valuation metrics. In conclusion, Stanhope Capital’s Guy Paterson advised the audience to diversify away from the UK (and within the UK) in the light of significant political issues on the short term agenda: will the United Kingdom break up? Will the United Kingdom leave the EU?
Guy then provided the audience with the Asset Class Reckoner, a guide to the characteristics of the asset classes, showing protection against inflation, anticipated returns, costs, liquidity, correlation with equities and taxation status: all on one page. Something to slip into the breast pocket or handbag before that tricky trustees’ meeting…
