In the Long Run- Colin Lloyd Consulting
London – third event – Technology and Emerging Market valuations, ICO’s and Real Estate
‘In the more protectionist trade environment, technology deals have been domestic rather than cross-border.’ Opus Connect Member’
Firstly, our thanks to Tom Whelan – Private Equity Partner of Hogan Lovells for hosting the Third Opus Connect London event. More than 30 delegates attended the luncheon where family offices together with other private equity and venture capital investors gathered to discuss investment opportunities in what seems to be a fast-changing investment environment.
Tom Whelan commenced the discussion with an overview of what his firm has seen in the technology arena. Credit funds continue to fill the void of bank financing, however, the rising wave of protectionism and high valuations in the technology sector have led some investors to become more cautious at this time. Cross-border activity is lower and whilst the value of deals has risen the volume is down.
Within Emerging Markets, there has been substantial interest in Africa, especially since President Zuma stepped down in South Africa. The Chinese administration has been slow to approve external investment by domestic operators which presents an opportunity for international investors to fill the gap. A member suggested, however, that this trend was not driven so much by the government as by Chinese investors examining projects domestically. He recommended sectors such as sport and entertainment, travel and tourism, financial services and, most importantly, logistics connected with the one belt one road initiative. Even without official Chinese support, these sectors should perform strongly.
Another area which members discussed was the investment environment for Oil and Gas projects: recent interest has been high. This led to a discussion of ICO’s, since many of the recent issues have included an asset backed element to the issuance of tokens. Many large corporations are looking closely at the ICO market. One member suggested that tokens are filling the gap between bank finance and venture capital for higher risk projects.
Another member asked whether ICO’s will maintain their value in the longer term? There was general consensus that more than 90% of the existing ICO’s will prove to have no real value. However, another member mentioned research suggesting that, far from disappearing, cryptocurrencies are predicted to account for 5% of all global trade transactions by 2022. Of the delegates only five out of thirty are currently actively involved in the cryptocurrency space.
One member, who recently raised Eur23mln for an ICO, cautioned about falling foul of the US SEC. He also suggested that one should identify the underlying value in any token and be comfortable with the liquidity of the secondary market, ‘Tokens need to be traded on an exchange.’ Another member commented on the deep discounts available to large buyers of ICO’s, likening the market to PIPE – Public Investment In Private Equities – investments in the US equity market.
The debate then switched to Real Estate. A member asked whether the recent weakness in Sydney and Toronto Real Estate, is a signal for investors to take a more nuanced approach. Another member countered, suggesting that, with LTV’s of 70%, bridging finance deals are still available with yields of up to 12%. One family office advisor discussed the opportunities in assisted accommodation, both in the UK and elsewhere. She pointed out that government support for such investments made them attractive, especially if an investor was prepared to engage, ‘early,’ at the project planning stage. Outside the UK, members alluded to attractive opportunities in Vietnam and Malaysia. In the US the yield on bridging finance deals has diminished from 12% towards 9% and LTVs are nearer 80%, nonetheless plentiful capital is available, even as official interest rates increase.
The discussion ended with delegates opinions as to the largest risks to the investment environment. One member suggested the unwinding of Index Tracking investment posed the greatest threat, another focussed on the reversal of institutional flows into Risk Parity strategies. Higher interest rates and a lack of bond market liquidity were regarded as further concern and, inevitably, the prospects for a fully-fledged trade war was regarded as a significant risk to the second longest bull-market in history.