US hedge fund Marathon makes Brexit bet on European property
Marathon, a $13bn US hedge fund, is building a big Brexit trade, increasing its investments in property across Ireland, France, Germany and the Netherlands, in a bet that they will be among the big beneficiaries from companies leaving London in the next few years.
These countries “have the most stable outlook and [are the] most likely to benefit from Brexit,” said Bruce Richards, co-founder and chief executive of the distressed debt and property specialist.
Hedge funds were reluctant to put on trades ahead of Britain’s referendum on EU membership in late June given the closeness of the polls. With the volatility triggered by the vote long since vanished, hedge fund managers such as Marathon, and private equity firms such as CVC, have been preparing for any opportunities created by the UK’s decision to leave.
Marathon, which acquired a cluster of European real estate this year, including a portfolio of commercial properties in the Netherlands from Credit Suisse, is planning to buy more in France, Germany, the Netherlands and Ireland.
“Many bank service sector jobs will undoubtedly move to Frankfurt and Paris as EU rules will likely require bank employees to be domiciled within the EU when serving EU clients,” Mr Richards said.
Marathon believes London will remain the centre for finance in Europe but predicts that many jobs will move elsewhere.
Although UK economic data since the vote has been mixed, there are other signs that hedge fund investors still anticipate trouble for the economy. Bets among speculators on a decline in the pound touched a record last week, according to the Commodity Futures Trading Commission.
Since the first quarter, Marathon has acquired office buildings in Amsterdam, multifamily residences in Dublin, industrial warehouse properties or logistic centres in France and shopping centres in Germany.
Investors will be handed more up-to-date information on the UK economy this week, with a snapshot of the manufacturing sector in August and a survey of house prices for the same month both scheduled for release.
The UK will likely slide into a “mild” recession next year, according to Marathon, so Mark Carney, Bank of England governor, will probably continue on a path of easy monetary policy that the central bank began at the start of this month.
In the US, the credit cycle is unlikely to present opportunities for investors in distressed assets until 2018, according to Mr Richards.
Investors have been anticipating a rising tide of distress in credit and real estate markets. Marathon expects “anaemic growth” of 1 per cent in the coming year. “Monetary policy has reached a point of diminishing returns,” Mr Richards said, adding that “lower rates are no longer simulative but rather oppressive.”
Marathon, founded almost 20 years ago, in June sold a minority stake to Blackstone Group, as the world’s biggest alternative asset manager.
In 2011, Mr Richards said Europe presented “the motherlode of distressed opportunities” as the continent grappled with its sovereign debt crisis and growth sputtered.