A Dutch institutional investor recently decided against a commitment to a US real estate fund because the board disapproved of Trump’s social policies. Isolated incident or indicative of a trend? Shocking or totally intelligible? Robin Marriott comments.
Without betraying confidentialities, I am led to believe that a Dutch institutional investor recently decided against a commitment to a US real estate fund because the board disapproved of Trump’s social policies. The shock factor is not that anyone should disapprove of some of Trump’s social policies. After all, the bigger shock would be if any Europeans supported them. No, the shock is that here is an ostensible business decision governed by a view of domestic policies in a foreign country renowned as a place where ‘business is business’ and where your view on social policies wouldn’t normally make it onto a list of investment considerations.
‘Normally’ doesn’t apply anymore though. No reader needs to be told there is no normal anymore. So, we are left to analyse the situation as described above in those terms.
There is admittedly a risk of exaggerating the example. It could be that this is isolated and there are no other instances of European institutional investors hitting the pause button on US investments. I have heard it said this is typically ‘Dutch’ as it fits with a national psyche. It is also very possible that this is temporary. Who is to say that in 30 days’ time, the investor won’t hit the play button again?
However, isn’t it equally possible there are further examples that have not reached PropertyEU yet? I am told that Nordic investors have similar strong views on Trump as he tries to rush through action following electioneering promises. So, it is not unreasonable to suppose similar decisions to suspend US investments have been taken at boardroom tables. Obviously, should this become a trend, it would be an important one. The impact of Trump’s social policies could be to reduce investment in US real estate. That would be doubly impactful as it is inconsistent with what people generally expect.
For example, CBRE said recently it expected the long-term trend for foreign investment into the US to show an increase. In January, the Association of Foreign Investors in Real Estate (AFIRE) published its annual survey, showing that 95% of respondents planned to maintain or increase investment in the US this year. The relative health of the economy and FIRPTA repeal are helping.
Then again, of course its members would say that. If they didn’t intend to continue investing they wouldn’t be members of AFIRE, would they? Anyway, these views were expressed in the last quarter of 2016, so before Trump took office.
It should also be noted that the previous year AFIRE was slightly more bullish, talking about 64% of respondents expecting modest or major increases. The time around, AFIRE said its survey results indicated more investors felt pessimistic about US property markets, but that seems more to do with the point in the cycle and interest rates.
Obviously, no-one has a crystal ball, so we shall have to wait to see what transpires. In the meantime, the second question should be tackled. Shocking decision or intelligible?
Probably both would be my answer. It is certainly a shock to hear social policies in the US putting off an investor from committing to a US fund. Yet is it also defensible from a real estate investment perspective? Investors are required to assess not only the potential return of an investment but also the risk. A new president that could be regarded as unpredictable is a risk by itself that can impact investment decisions. It is an allowable factor. Bear in mind Dutch institutions are certainly very hot on Socially Responsible Investing. SRI usually affects decision-making at company level, not whole countries. But then again, these are unusual times.
The Trump issue is of course just one geopolitical issue contributing to up to half of discussions taking place between fund managers and investors. This is the geopolitics tail wagging the investment dog. Could we witness this in France next if a certain far-right candidate sweeps to power in a few weeks’ time? What would that mean for French property funds with international investors?
Robin Marriott is editor of PropertyEU's CapitalWatch publication
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