Ross Hollyman, Investment Manager of Sabre Global Value & Income Fund comments on the latest news of the Trump victory…

“Trump victory? Probably bad for risk assets and risk-premia everywhere will need to rise, as there is significant uncertainty as to how much of Trump’s xenophobic, ignorant, protectionist rhetoric becomes reality.

Trump has tapped in to a rich vein of disgruntlement at the lower end of the wealth distribution in western economies that also partly fuelled the Brexit vote.

Although there exists very valid economic and social concerns relating to historically extreme disparity of wealth between the ‘haves’ and ‘have nots’, protectionism and xenophobia are not the answer. Such policies have ever and always made things worse, most notably for the very members of society who call for them most vocally. Trump’s broad brush statements on economic policy along these lines verge on the economically illiterate, and if implemented could be very damaging. We will have to see what he actually does, and how much was just a ‘blast of hot air’.

Given that we are already at rock bottom in terms of interest rates and it will be difficult for central banks to provide significantly a more accommodative policy, which is worrying. A time for caution for investors.”

Ross Hollyman

Investment Manager



Friedman and the Helicopter Spies: A case for GEM or direct Monetary Stimuli?

man-from-uncleGrowing up I was an avid fan of the ‘Man from U.N.C.L.E.’ show portraying CIA agent Napoleon Solo and KGB agent Illya Kuryakin. The Helicopter Spies is a 1968 feature-length film version of the show. The episodes were originally broadcast in the United States on October 2, 1967, and October 9, 1967, on NBC and like the television series, it starred Robert Vaughn and David McCallum. The modern remake isn’t so bad. The evil organisation was unfortunately coined THRUSH.

It’s then coincidental (or not) that American economist Milton Friedman published his ‘Helicopter Money’ proposal in 1969, later reinforced in contemporary times by former Federal Reserve Chairman Ben Bernanke.  Nobel winning economist Milton Friedman is known to be the one who coined the term ‘Helicopter Money’ in the now famous paper The Optimum Quantity of Money”, where he included the following parable:helicopter

“Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community.”

A good critique of his paper can be found here: Article

Originally offered by Friedman to illustrate the effects of monetary policy on inflation and money in circulation, ‘Helicopter Money’ has been increasingly discussed by policy advisers and economists, as a serious alternative to Quantitative Easing (QE). A way to increase aggregate demand when central banks have hit the so-called ‘zero lower bound‘.

It’s all about growth, then, the foundation of productivity and expansion of a country’s monetary base (Inflation). The U.K.’s latest forecast is 1.5%; China at 6.6%, the US only 1.1%! Even if emerging markets are slowing (maturing) then they still outpace the growth rates of the West. This fact had been side-lined for 4 years by the reported recovery of the US (still the world’s largest economy by outright GDP) aided by repatriated capital out of emerging markets. Structural unemployment in the US is at historic lows, domestic debt down, productivity is up, core inflation remains stubbornly subdued, housing market in rally, ‘buy US’ consumer spending rising, Autos remain strong and payroll inflation has been slow. The stats are a healthy recipe for the US internally but not necessarily enough to provide global growth leadership without further stimulus.

What about emerging markets? Putting aside more recent volatility across equity markets, investors poured $50 billion into emerging markets funds last year according to EPFR Global. The Russian Micex stock index also hit an all-time high this year. It is about 2 years since the Russian market and Ruble plunged, as oil prices fell and Western sanctions fuelled an investor retreat. The Russian index was the sixth-best performer among 23 emerging countries in 2016, aided by a Ruble up against the Dollar this year. Russia’s local-currency bonds rank third this year in performance out of 15 countries tracked by J.P. Morgan Chase & Co. However the best performing emerging market countries this year include: China, South Korea, Thailand, Peru and Czech Republic, according to Bloomberg.

Growth leadership is needed according to the IMF. Despite a recovery post financial crisis, G20 emlagardeerging market growth has declined in the past five years according to the IMF. The IMF forecasts suggest that 2016 will be the fifth consecutive year where GDP growth falls below 3.7%, which was the average rate of growth in the 17 years to 2007. In response the IMF issued a warning to the G20 summit: “The political pendulum threatens to swing against economic openness, and without forceful policy actions, the world could suffer from disappointing growth for a long time,” Christine Lagarde blog post.

The US appeared to be left disappointed by Japan’s latest September stimulus package, which was devoid of hoped for helicopter money proposals. There still remains scope for the US to undertake helicopter money given the presidential race for populist policies between Trump and Clinton camps.

The IMF appears to be encouraging ‘forceful policies’ which has an air of helicopter money about it or further (QE). QE has been broadly criticised; lauded as the saviour of the financial system, but together with falling rates criticised for stagnating growth!

The question however still remains as to whether it makes sense for emerging markets that, even with an infrastructure slowdown, have better demographics and levers for growth? Probably not, albeit China with its opaque debt problem may be a candidate; however most GEM countries have higher base rates, inflation and soft currencies already. The world is looking for growth leadership but few are prepared to pay for it. The best case for helicopter money (unlike QE) is to generate growth within a low inflation Western economy through consumer spending. Is this a case for helicopters or just a bad case of THRUSH? Ouch!!

Have a great week!


Jon “JB” Beckett

Consulting CIO



“If you want loyalty, get a Dog!”

I was talking recently with an old colleague who has gone on to have a successful career managing a sales team for one of the larger asset managers and we were ruminating over the dilemma about sales people in the asset management industry these days. His issue was the lack of activity and sales process from certain “old-timPoacher turned Gamekeeperers” and he was questioning how to change that. A tough one but it led me to think about how fund sales has changed over the years.

There has been much debate in very recent days about the
remuneration of fund managers and their bonus schemes with one famous manager, having pocketed millions over the years in bonuses, now saying no one in his business will get a bonus. Smacks of Poacher turning into a Gamekeeper if you ask me!

The same issue could be said for fund sales people and I have seen on Twitter one “Consultant” linking sales bonuses in the sa3 Psme sentence. Bit harsh but I get his point. So how do you reward staff in sales and also how do you recruit and retain these people. I call it the 3 “Ps”. Passion, Performance, Package. They need to have Passion, a deep centred hunger for success; they need to Perform with activity that is relevant to the job and they need to be incentivised with a Package that is commensurate with the role.

It is a truism that the sales environment has changed dramatically over the last 25 years. The industry has basically grown up when it comes to giving advice. Early on the industry knowledge was just beginning and there weren’t that many fund managers out there. Over time fund buyers have become more sophisticated with many heading down the CFA route, which can make some meetings challenging for an unprepared fund manager and an even bigger nightmare for an ill-informed sales person! Gone are the days when a decent fact sheet/presentation with top quartile performance would suffice. Today fund buyers want to know how fund managers actually get their performance; not just attribution analysis but complete portfolio and process analysis to a level that makes it impossible to cover up weaknesses in their process or questions the strategy. So whilst performance can open the door, it will quickly shut if you cannot explain it satisfactorily.

So where does this leave the sales person? Some would argue that sales people do not add value anymore. Wrong! They are invaluable and cannot be overlooked but what are you looking for in a sales person and how do you pay them. Sales is about relationship FCAmanagement and early on it was pretty much little else. (Oh, I used to love those days!) But even that has become more difficult as FCA rules on entertainment mean that it becomes difficult to even buy a coffee, never mind lunch, for a client and thus build a rapport but you still have to try!. So what do sales people actually do for fund managers these days? In short, a lot. They open doors, they monitor the marketplace by keeping up with the constant moves of personnel, they get to understand how fund buyers CRMactually review funds such as what is needed for the fund to be considered, they will give feedback to the business about the funds you are competing against and how you can differentiate your fund and ultimately they can get you closer to the fund buyer, so an element of trust is built. Many funds struggle to grow assets because they just don’t know the market and who to talk to. Equally fund managers don’t make the best sales people. Some do but many lack the basic requirements including time. You need sales people!

So how can you tell which sales person is the right one for you? eenieMany look to the big houses and assume the best must work there. Wrong! The best are the ones who demonstrate a strong sales process with diligence and a dynamic work ethic and they can work for either large or small houses. The decision has to be based on them demonstrating how they go about getting business in, their activity, their reporting and their industry wide knowledge. The biggest shock here is not to judge a sales person based on the amount of sales they have made. I know that sounds counter intuitive but consider that the toughest sales effort is demonstrated by getting funds from $5m to $50m and not from $500m to $5bn. Momentum, marketing and, hopefully by then, a long period of performance gets funds to the mega millions. Sales people then add value by maintaining the relationship, informing fund buyers as to changes in the portfolio and setting up regular reviews etc. They are the connectivity between the business and the client, in short, the glue.

RemunerationRemuneration is where we started this blog and it is certainly the toughest one to cover. Fund managers want to have the best sales people and as mentioned are often governed by looking at the industry leaders and undoubtedly head-hunters whose motives are not always aligned. Naturally if you pay top whack you will be able to attract most people but are they the sort you want? A good sales person should be able to demonstrate their skills set and a bonus scheme that is linked to KPIs that show them going beyond the norm. Some years ago it was a case of “x” per £ millions of gross sales but that is far too subjective and these days it is better to have an alignment of interest based on profitability and activity. It is important to ensure the salary is commensurate with the role but that the bonus is such that there is appetite to over-achieve. Revenue share is often cited and one that should be considered, as at least there is an alignment of interests should assets walk and it can galvanise a sales person to retain assets. It is a fine balance and contentious with many firms but it is vital to motivate people with the right package that recognises asset sales but also activity around that, in the same way rewarding fund managers is not just on their performance but how they got the performance.

Retaining sales people can be the biggest challenge as with all staff. Culture, package, ownership and ultimately mutual respect for each other’s role are vital. I have worked with fund managers who have no idea about what sales people do and equally I have worked with sales people who fail to fully grasp the investment process and as a consequence know what exactly the manager is doing with the portfolio on a day to day basis. Fund managers and sales people are aligned in everything and one cannot exist without the other.

If you get all of the above wrong then the relationship between sales and fund management goes out of alignment and the loyalty of one to another is lost and as the title says this is the time when if you want loyalty, get a dog!

Loyal Dog

Enjoy the sunshine!


Stuart Alexander


gemini investment management london-1024

MegaCity Lon: Are Sky Cities Sustainable in 2000AD?

For three decades the UK has become obsessed with the ‘right to buy’ and a desire to climb the property ladder upwards, a capitalist proxy for long term saving. For years mortgaged properties have been the largest asset and liability of many UK investors. That dream was accelerated by Thatcherism and fostered by New Labour, a post American ideal of house + garden + car + 2.5 kids. It is an economic philosophy which has seen council housing stock diminished and tower blocks torn down. Now the UK’s cities face over-population, overheating property prices, lack of base land supply and unsustainable rental yields. After the tower blocks of the 1940s-1960s were demolished, the U.K. is set to return to mass vertical living in the 2020s in response to an increasing population, urbanisation and mega city concentration. Building towers change the supply-demand curve because they need less land cost to build upon per capita. With a future of Amazonian drones dropping goods, just in time, from the skies, what economic benefits and challenges do Sky Cities provide and how might they change the UK residential property market’s supply demand curve?

Agglomeration: ‘a mass or collection of things, economies of agglomeration are the benefits that firms obtain by locating near each other (‘agglomerating’). The existence of agglomeration economies is central to the explanation of how cities increase in size and population, which places this phenomenon on a larger scale. This concentration of economic activity in cities is the reason for their existence, and they can persist and grow throughout time only if their advantages outweigh the disadvantages.’futuristic tower blockGrowing up I was a huge 2000AD fan, it portrayed a futurist view of society beleaguered by over-population and lack of resources. Now we are here, it’s nearly 2020. The star character was Judge Dredd who policed the streets of a 800 million Metropolis: MegaCity One. His story traced the infrastructure, civil and sustainability pressures of people leviathans. Within MegaCity One existed towering 200 Floor arcology housing projects. man with gunEssentially a self-contained city, each block is home to in excess of 75,000 citizens, renowned for their crime rates, reputation for slums and unemployment at 96%. The crime and despair of massive social engineering set in a post-apocalyptic near future. As in the comic, so we to appear to be living in an ever-urbanised world. As a result we appear to be returning into a pseudo 60’s social engineering re-run of high rise blocks, albeit privately not state funded this time. As the value of air space is only now becoming understood, is building up into the air better than creeping further into green field or recycled brown site living? Is vertical a solution to the UK’s mass flooding and urbanisation problem?

Indeed, as my think tank Long Finance notes: “Cities are faced with the huge challenge of providing infrastructure that meets the needs of a rising urban population, with limited public resources. Decisions and investments in urban infrastructure must be urgently leveraged to achieve sustainable economic growth within the carrying capacity of the planet’s systems and resources.”

Long Finance


1940s-1960s: Brutal Social Engineering:

Tower blocks were built extensively in the UK after the Second World War. The first residential tower block, “The Lawn” was constructed in Harlow, Essex in 1951; it is now a Grade II listed building. In many cases tower blocks were seen as a permanent response to infrastructure problems caused by crumbling and unsanitary 19th-century dwellings or to replace buildings destroyed by the WW2 Blitz. Post war many people found themselves in supposedly temporary pre-fabricated (pre-fabs). As James Miller, Director, and Tom Shaw, Residential Project Director, Ramboll wrote for the Public Sector Build Journal in September 2015:

“The development of new building technology in the form of pre-cast concrete frames meant that high-rises were seen as a quick and affordable way to provide much needed public housing. It is this period of construction that led to the term ‘concrete jungle’, as complex and interconnected towers with a myriad of enclosed corridors grew up to house a booming population.”

The vision was that towers could provide better quality of life and population density than traditional housing, offering larger rooms and improved views whilst being cheaper to build. Initially, they were welcomed, and their excellent views made them popular living places. Later, as the buildings themselves deteriorated due to lack of funding, crime and poor maintenance they became undesirable low cost housing. Many tower blocks saw rising crime levels, increasing their undesirability. Initial responses included an increase in council housing estates, which in turn brought their own problems. In the UK, tower blocks also suffered poor publicity following the partial collapse of Ronan Point (in east London in 1968). Glasgow was believed to contain the highest concentration of tower blocks in the UK: examples include the Hutchesontown C blocks in the Gorbals and the 20-storey blocks in Sighthill. However, on the whole, London has the largest number of high-rise residential buildings in the UK.

Post-war Britain was the stage for a tower block “building boom”; from the 1950s to the late 1970s there was a dramatic increase in tower block construction. During this time, local authorities desired to impress their voters by building futuristic and imposing tower blocks, which would signify post-war progress. Architects and planners were influenced by Le Corbusier’s promotion of high-rise architecture. The modern tower blocks were to include features that would foster desired forms of resident interaction, an example being the inclusion of Le Corbusier’s streets in the sky in some estates. The first and most famous of these buildings, also known as Cité radieuse (Radiant City) and, informally, as La Maison du Fada (“The Nutter’s House”), is located in Marseille and built between 1947 and 1952. It proved enormously influential and is often cited as the initial inspiration of the Brutalist architectural style and philosophy.

sketch of barbican

Barbican Estate, 1968. A sketch by Norah Glover of the London estate

As well as inspiring residents, local authority planners believed that the way tower blocks were constructed would save money. Generally, the tower blocks were built on cheap greenfield land skirting established cities. Although the property prices for these periphery sites were markedly cheaper than their inner city counterparts, they often had little access to public amenities, such as public transport. It was thought that the implementation of industrialised building techniques would lower costs too, as similar tower blocks would be replicated over many sites. Uniform and standardised parts, such as toilet fittings and door handles, would be fitted throughout many tower blocks; planners deemed that buying in bulk would reduce overall costs.  Another key aspect of the tower block vision was the Brutalist architectural method, popular with architects and planners at the time. The Brutalist emphasis led to the construction of stark and striking tower blocks with large sections of exposed concrete. Concrete was to be an integral part of the tower block designs; it could be poured on site, offering boundless flexibility to the building designers. To the planners, concrete was a silver bullet for the construction process – it was economical, and “was vaunted as being long-lasting, if not indestructible”.
However the vision for sky cities had crumbled (literally) by the 1980s. The collapse of Ronan Point marked a U-turn in public attitude towards the tower-block, as well as a significant shift in design and building regulations (including against disproportionate collapse). Finally, the 1972 oil crisis led to a further change in building regulation and the thermal regulation of tower-blocks. Concrete cladding now also had to insulate and tower facades created to essentially wrap the buildings and regulate heat loss. The towers of the 60s quickly became out-dated and ill favoured, plagued as they were by cold, damp, and draughts. Consequently a lack of desirability led to tower blocks being used among lower social classes. This is turn meant a concentration of unemployment, social issues and crime.


1980-1990s: The Right to Buy Revolution:

Thatcher brought in a new direction, a pseudo-US focus on home ownership and the right to buy one’s council house. Privatisation was in full effect and the old council towers tumbled. After Margaret Thatcher became Prime Minister in May 1979, the legislation to implement the Right to Buy was passed in the Housing Act 1980. Some six million people were affected; about one in three actually purchased their unit. Heseltine noted that, “no single piece of legislation has enabled the transfer of so much capital wealth from the state to the people.” He said the right to buy had two main objectives: to give people what they wanted, and to reverse the trend of ever increasing dominance of the state over the life of the individual. 200,000 council houses were sold to their tenants in 1982, and by 1987, more than 1,000,000 council houses in Britain had been sold to their tenants, although the number of council houses purchased by tenants declined during the 1990s. There is also a Right to Acquire for assured tenants of housing association homes built with public subsidy after 1997, at a smaller discount. About 1.5 million homes in the UK have been sold in this manner since 1980. This new Conservative homeowner dream was one of conventional housing not high rise. Tower blocks became targets for demolition and regeneration: a downward cycle. In 2015 the Guardian wrote:

“Demolition is familiar to Glaswegians. In the previous round of mass demolition in the 1960s and 70s, tens of thousands of Glaswegians were decanted from slums into new schemes and high-rise flat developments. These represented a utopian vision for social housing – complete with kitchen and indoor bathroom, central heating and mixer taps, they were seen as a solution to some of the worst slum conditions in Europe at that time. By the turn of the 21st century, many of these high-rise flats were the solution that had become the problem. The simple wrecking ball was replaced with multimillion pound demolition contracts, explosives developed by Nasa, half-mile exclusion zones and demolition spectacles for all the community to watch. But the simple ethos of “knock-em-down and build-em-back-up-again” remained the same. Glasgow has the highest concentration of residential flats in the UK and, since 2006, a quarter of the city’s high-rise housing has been demolished. Councillors, officials and local media celebrate the death of a high-rise as progress. There is little time for contemplation or nostalgia in a city that markets its renaissance through trendy bars, bistros and shops, servicing a booming and diverse cultural scene.”


2000s: The Return of the Sky Cities:

By 2000AD, brutal concrete had given way to even larger structures made from steel and glass. In March 2016 it was reported that over 100 new tall buildings had been proposed for London in the last year alone. We find ourselves again in an upward cycle. A report released by New London Architecture (NLA) reveals that, despite a widely publicised campaign to prevent the proliferation of skyscrapers in London, the number of planned high-rises has significantly increased. A total of 119 buildings of 20 storeys or over have been proposed for the capital since this time last year, and the number of tall buildings under construction has risen from 70 to 89. According to Steve Watts and Neal Kalita of Davis Langdon, most “commercial towers (more than 30 storeys) being developed are in London, perhaps because commercial rents in the regions would not support office towers and land values are lower.”

Globally the trend ‘up’ is also accelerating. The Council on Tall Buildings and Urban Habitat has determined that 106 buildings of 200 meters’ height or greater were completed around the world in 2015 – setting a new record for annual tall building completions. The tallest building to complete in 2015 was Shanghai Tower, now the tallest building in China and the second-tallest in the world at 632 meters. This pushed the 442-meter Willis Tower (once Sears Tower) off the top 10 list for the first time in its 41-year history. Also the average height of skyscrapers is accelerating.

“As we come on the heels of another record- breaking year, 2016 doesn’t seem like it will be any different. We currently project the completion of between 110 and 135 buildings of 200 meter’s height or greater. Perhaps even more staggering is the fact that 18 to 27 of these buildings are expected to be in the supertall range. If true, 2016 alone would see the global total of supertalls increase by 18% to 27%. Unsurprisingly perhaps, the majority of these will be located in Asia and the Middle East.”

Since the 2000s, mega-cities are cropping up around the world. This time privately funded for the private residential market, often built in conjunction with or appended to commercial offices, as developers again explore the concept of co-habitation working spaces. With population density and scarce land to accommodate it, building up is again the profit-fuelled option of choice. This policy is gradually stripping out populations from less urbanised areas.

Tall buildings 200 meters or taller completed in 2015: By Region. Tall buildings and skyscraper sketch

  • Central America – (4%)
  • Europe – (8%)
  • Middle East – (8%)
  • North America – (3%)
  • Australia – (1%)
  • Asia – (76%)


Tall buildings 200 meters or taller completed in 2015: By Function.

  • Hotel – (4%)
  • Residential – (19%)
  • Mixed-Use – (28%)
  • Office – (49%)

The UN’s Department of Economic Social Affairs published its 2014 World Urbanisation Prospects report and noted: “Globally, more people live in urban areas than in rural areas, with 54 per cent of the world’s population residing in urban areas in 2014. In 1950, 30 per cent of the world’s population was urban, and by 2050, 66 per cent of the world’s population is projected to be urban. Today, the most urbanised regions include Northern America (82 per cent living in urban areas in 2014), Latin America and the Caribbean (80 per cent), and Europe (73 per cent). In contrast, Africa and Asia remain mostly rural, with 40 and 48 per cent of their respective populations living in ur- ban areas. All regions are expected to urbanise further over the coming decades. Africa and Asia are urbanising faster than the other regions and are projected to become 56 and 64 per cent urban, respectively, by 2050.”


The first MegaCity? Tokyo or Bust?

Tokyo is the world’s largest city with an agglomeration of 38 million inhabitants, followed by Delhi with 25 million, Shanghai with 23 million, and Mexico City, Mumbai and São Paulo, each with around 21 million inhabitants. By 2030, the world is projected to have 41 mega-cities with more than 10 million inhabitants. Tokyo is projected to re- main the world’s largest city in 2030 with 37 million inhabitants, followed closely by Delhi where the population is projected to rise swiftly to 36 million. Several decades ago most of the world’s largest urban agglomerations were found in the more developed regions, but today’s large cities are concentrated in the global South. The fastest growing urban agglomerations are medium-sized cities and cities with less than 1 million inhabitants located in Asia and Africa.

futuristic tower block 2

Does vertical living change the supply-demand curve?

London faces a huge under-supply in available homes, one reason why the supply-demand curve has been steepening steadily over recent years. However according to the Policy Exchange there is not an under-supply in land, which wrote in February 2016 that: supply and demand graph“At its simplest, just three things are needed to build homes: land, funding and demand. What is needed is a new way of building homes which could provide the first two in abundance. London does not need any help with the third.. One issue then with London’s supply is a lack of contingency of land identified and earmarked for development. When producing a local development plan, Local Planning Authorities are required to identify only sufficient land for the homes that need to be built in their area and no more – i.e. the quantum of land identified in London is for 420,000 over 10 years – whereas we probably need far more than that to ensure that 420,000 actually get built.. London is not full. It remains a relatively low density city with plenty of land suitable for increased housing provision. Just look on Google Maps in or around central London and you won’t fail to be struck by the vast swathes of vacant or under-used land, used for surface car-parking, storage or warehousing. Industrial land could, over time, make a significant contribution. There are 6,899 hectares of industrial land in London and some of this land could be used for housing through a change of land use. As a start, there are 543.5 hectares of vacant industrial land, enough for nearly 70,000 homes. London continues to deindustrialise – according to a report produced for the GLA, the amount of industrial land declined by 9.4% in the 10 years to 2011 alone.” Chris Walker, Head of Housing, Planning and Urban Policy, Policy Exchange.

If there is abundant substitute excess land then does building up create a disinflationary pressure on property prices? Unlikely, given there is a disparity between abundant land supply and a lack of property. Building up is still one solution to building out when there is limited property supply. The experience of Australia may give us some indication of how a ‘high rise’ boom might change the supply-demand curve for residential property.

“Australia is in the midst of an unprecedented high rise residential construction boom. The skylines of Sydney, Melbourne and Brisbane – the three main capitals along Australia’s eastern seaboard – are currently littered with cranes, particularly in inner city locations. While residential construction is taking off, the increase in new apartments has lead to a slowdown in house price growth, particularly for higher density units. Increased supply, coming at a time when demand is softening on the back of affordability constraints, slowing migration, record-low wages growth and a crackdown on lending to housing investors, is putting pressure on prices. Supply is now potentially outstripping demand in some locations, leading to price declines in what were previously boom areas.”

Therefore because more land is available as a substitute (subject to local government approval) then building up or out may have similar effects on the supply-demand curve give or take the relative value of locations and cost of land versus the cost of constructing complex and tall towers. Steve Watts and Neal Kalita of Davis Langdon considered the challenges of building towers in London and noted:

“Structural frame, cores and upper floors amount to 15-25% of the construction cost in a commercial tower and 10-15% in a residential one. The design of the building (shape, massing and height) determines the weight and therefore the quantity of material required, which affects cost.”

Steve Watts and Neal Kalita also noted that, “the “average” above-ground benchmark cost for residential towers in London is considered to be £2,960/m2 with a range of ± £800.” With this in mind, the cost to build a 100m2 conventional timber-built 3 bedroom residential home is much lower at £1,751 per m/2 in central London compared to £1,644 for outer London. Certain areas of London (like Westminster, Kensington and Mayfair) prevent or restrict tower builds due to heritage and planning regulations. However where a tower is possible then it is logical that once the cost of build becomes proportionally similar or less than the cost of land then the potential investment return of a residential tower becomes attractive. Here then we can make an easy connection with Glasgow which has some of the country’s lowest cost per square metre. Accordingly Glasgow is building more conventional homes to replace old legacy tower blocks while London boroughs are building new tower blocks. Take the following London boroughs:


Town/Borogh Price Ft2 (£) Price per M2 (£) Price of Bedroom 3.4x3m
Kensington and Chelsea 1,052 11,321 118,874
Westminister 980 10,552 110,800
Camden 837 9,012 94,626
Hammersmith and Fulham 802 8,635 90,666
Islington 740 7,964 83,621
Wandsworth 647 6,959 73,074
Hackney 637 6,860 72,029
Southwark 602 6,484 68,083
Richmond Upon Thames 599 6,446 67,684
Tower Hamlets 598 6,432 67,541

Source: Halifax – 12 months to April 2016

London street


As the cost per square metre rises then, all other things being equal, high rise buildings become more attractive versus conventional low storey homes. These numbers are skewed by the utility or premium of owning a conventional home in a desirable inner city area. However in this instance the total value relies on the utility of one owner whereas the cost of a tower can be distributed across many investors or offset by significantly greater rental yield per square metre. Although the costs of building the tower are much greater, the cost of air above the land is effectively free (ignoring any regulatory, construction or architect costs). Given many property investors in London are not necessarily full time residents then the investment premium and objective of profit and rental income will often overtake the investors’ personal utility of home ownership. In conclusion, the attraction to build up; versus out, will increase where London prices remain elevated or continue to rise. Demand will remain strong so long as the Metropolis remains a hub for jobs and investment.

Conversely if values per square metre fall below an invisible threshold, relative to the cost of build, then it’s likely that the pipeline for new towers will slow. This is especially so given the fragile nature of funding for towers via Acquisition, Development and Construction (‘ADAC’) loans. These loans are often supplied by non UK banks and financial institutions. Therefore, based on the above figures, vertical living can and has been changing the supply-demand equilibrium in central London property but does so within a fairly narrow bound of supportive prices, easy ADAC borrowing and healthy foreign investment. We were able to see from the Brexit referendum that the foreign market is sensitive to both any political changes and currency. For example Singapore-based United Overseas Bank, Southeast Asia’s third-largest bank by assets, suspended loan applications for London residential properties. The London market relies heavily on overseas investment and funding, especially among the more expensive developments. Overseas banks’ share of new lending reached 42 per cent of the market in 2015 (slightly above 2007 levels) according to a De Montfort University survey, wrote the FT. According to FT, from the same article, some “overseas banks with portfolios of UK real estate loans have been asked to stress test them before making new loans, according to three people involved in the new loans market.”


Society and Order: The wider economic challenge?

Thinking back to Judge Dredd and real-world contemporary observations, we know that vertical living and high population density can lead to social disorder. An obvious and inconvenient challenge to agglomeration is the rising crime, social-media fuelled terrorism that deliberately focuses on concentrated conurbations. A number of research studies, globally, are finding empirical evidence to suggest that the interconnections between transport networks, land use, and population density can contribute to crime rates. The lessons of the tower blocks from the 1960s related to falling desirability, socio-economic imbalances such as unemployment. Modern high rise developments, with careful marketing, actively target desirable and convenient living. However desirability and obsolescence are closely related and can shift over time, as new developments may put pressure on older developments. Clearly high rise will continue to have a high sensitivity to perceived lifestyle and over-demand that typifies central London. As in the 1970s and 1980s, the perception of modern high rise is sensitive to a number of factors, as noted by James Miller for the Public Sector Build Journal.

“There was a growing awareness surrounding the multitude of social issues emerging within these communities in the sky – including social alienation, mental health difficulties, and rising crime levels. In what was essentially a misunderstanding of public and private space, the hidden corridors of tower blocks became hot-beds for crime and waste, leaving people without a sense of safety or enjoyment in their environment. The outcome of these mounting issues is that many early high-rise towers have since been demolished with the phrase ‘tower-block’ almost a dirty word in the residential sector. So as a multitude of multi-storey social housing buildings shoot up across the UK, what moves have been made to ensure history will not repeat itself? Fundamentally, towers need to be in the right location, look good and be built well. Amenities and local infrastructure, including particularly good public transport links, are a key component to delivering happy residents and achieving high densities. Not all early towers were universally disliked and both the Barbican and Trellick Tower continue to be regarded as design icons. Good design, like good art, sparks debate and a tower should contribute to the sky-line – tenants will be happier to live in a building they can be proud of.”

Judith Evans at the FT published an article: “Willats’ artwork, currently on display at Tate Britain, depicts a world of isolation, confinement and quiet despair. It was created at the low point of high-rise housing in Britain: an era of badly maintained council estates seen by some as catalysts for family breakdown and crime. Almost 40 years later, the idea of high-rise living is undergoing a revival. London has 436 new towers in the pipeline, of which three-quarters are wholly or mainly devoted to homes, according to the think-tank New London Architecture (NLA). In contrast with the earlier era of brutalist estates, this new crop of towers is largely made up of high-end apartment blocks, with concierges and glass façades, aimed at those wealthy enough to afford the now rare privilege of living in central London.”

Yet the debate over their value as living spaces still rages. A petition signed by a host of luminaries, including architect David Adjaye, sculptor Antony Gormley and hedge fund financier Sir Michael Hintze, argues that towers are “neither essential to meeting housing needs, nor the best way to achieve greater densities. Their purpose is more to create investments than homes or cohesive communities.”

Researching designs for high-rise living, Madelin visited London’s Barbican, a postwar estate designed for the middle classes that houses 4,000 people and an arts centre, and is increasingly in demand as a place to live. After falling out of favour in the 1980s, the Barbican’s return to popularity has mirrored the renaissance of inner cities; prices for its apartments now average almost £1m. It is one of the few residential areas in the City of London, drawing some part-time residents seeking a bolthole close to their offices, but also attracts families and retired people. The Pinnacle@Duxton, an award-winning 50-storey public housing development in Singapore, took a different approach: the seven towers are linked by “sky bridges” at the 26th and 50th floors which house a children’s playground, open-air gym and running track. Similarly, the property developer Harry Handelsman plans to incorporate three “sky gardens” in the design of his Manhattan Loft Gardens — a residential tower in Stratford, east London — the highest being 400ft above ground. Social engineering may actually work economically and sustainably if we can learn from previous mistakes.

Agglomeration? London continues to change rapidly towards vertical living, even outgoing Mayor Boris Johnson controversially proposed a scheme for building on existing low rise buildings. However the main change for London has been the growth in new high rise residential developments. Tall will get taller given the lack of cost for airspace and falling technology cost. However, the towers themselves still carry an intensive cost of development and thus most likely to be sensitive to the supply-demand equilibrium in higher cost boroughs. As housing demand continues to outstrip supply then the attraction of towers will spread outward from central into outer London. This relies on foreign investment and funding attracted by higher rental yields, accommodative currency and rising prices per square metre. Whether such agglomeration will have a sustainable economic effect for the capital, as a whole, is reliant on desirability, civil, environmental and social factors. Social dis-order is the risk. As we head furlong towards MegaCity London, where are the Judges? Dredd the thought.

Jon ‘JB’ Beckett, Consulting CIO

Gemini Investment Investment Management


 Useful links:

CTBUH Year in Review

London Skyscraper Boom Continues

Demolition Goes Wrong

The Consequences of Living in High Rise Buildings

Can High-Rise Buildings Ever Work as Cohesive Living Spaces?

Australia’s High-Rise Boom is weighing on Apartment Prices

London Housing Supply Blocked by Land Availability

The Homes London Needs

Post Brexit Housing Market Expected to Slow but Not Plummet

Cost Model: Tall Buildings

Average Cost of UK Property

Impact of Crime in High Rise Buildings

Sustaining Tower Blocks

Disappearing Glasgow

Asian Banks Suspend London Property Loans


Patriotism? The US Gorilla and the Brexit Bomb?

Dear Gemini friends,

This week I’m working on a couple of detailed articles that I hope to share with you soon. Last weekend my wife Jenny (aka Mrs. JB) and I drove the ‘North Coast 500’ around the Highlands of Scotland ( It took in some of the finest driving roads in the world, and while the weather was less than optimal, it did not diminish the returns of the vistas nor the overall experience. Most of the time, I am very proud to be Scottish; chronic national health, illiteracy and drug abuse notwithstanding. TheScotland Highlands Highlands can at times be viewed as insular towards ‘incomers’; in the main they are a welcoming people, but it does feel like a different country to the lowlands of Glasgow and Edinburgh. I was proudest when Scotland voted clearly to remain part of the Economic Union and, with the many signs displaying EU funding for roads, projects and infrastructure, it was not hard to see why.

It reminded me that no country is in itself the same economically, politically or culturally, let alone the tensions that then arise between countries.  It also brought into sharp focus patriotism and nationalism following an evening’s debate in the Raichonich Hotel with a Yorkshire based ex-City accountant (and Brexiteer) who was also visiting the area. Some thoughts then about the counter-pressures of nationalism and globalisation, as well as the ‘sisters doing it for themselves’ this week…

Theresa ‘Steel’ May met Metal Merkle, and Monsieur Hollandaise ahead of a delayed Article 50, as the UK looks set to wrestle with a slow ‘Brexit’ process. Gina Miller, of SCM PMerkle Mayrivate, legally challenged Brexit this week on grounds of no exit strategy and that it would need to be ratified in law by MPs. I am sure about half the country will be appalled and half over-joyed at the prospect. The case has been petitioned to the High Court and may well go to the Supreme Court.

Meanwhile as 2018 approaches, I have written before about the (delayed) transatlantic trade agreement between the US and Europe looms. Heading into those negotiations the US looks to have the stronger hand irrespective of whether Lord Trumpet de Bouffant or Ferrous Femme Clinton takes the oval office. Trump’s Republican nomination will now invariably drag Hilary right on foreign policy, trade and crime.

Trump Clinton

The value of the US consumer is estimated by Macquarie at $13 trillion dollars or roughly the total GDP of the European Union. US unemployment is at historical lows, wages set to rise, the dollar has strengthened and household debt has fallen. The US consumer buys Make America Greatdomestic and import goods equally, a rising sense of ‘made in America’ patriotism resonates. However the US (like the UK) is deeply divided geographically and socially on issues such as racial discrimination, immigration, crime and wealth division.

Recounting my previous blog on political risk, US markets too look forward to the election as it historically predates a period of strong stock market returns, on average 18 months. Clearly these will have upward pressures on the stoic and slow inertia Federal Reserve. Any increase to rates will steepen the long end of the US Treasury curve and potential re-price more duration risk back into US and global bond markets. Politically the US looks ready to play hard with the rest of the world and with it threaten globalisation, movement of persons and investment.

Moreover, at a time when emerging markets have looked more attractive on valuation, and have been performing well in 2016; then a strengthening dollar, reducing freedom of movement and increasingly combative global trade agreements bode badly for exporters. Countries appear to be moving further apart and, within those countries, greater divides than ever. Thinking about how to try and invest through the noise.

Brexit Puzzle

Potential ideas:

  • US Equities over European Equities
  • US and global structured products
  • Long dollar versus other currencies
  • Focus on strong US domestic driven companies (e.g. US Autos, retailers, financials)
  • Quality companies importing into US that can benefit from a stronger Dollar
  • Value reversion – companies trading below or near intrinsic value
  • Overseas income producing stocks
  • Selected Emerging Markets with strong domestic stories
  • Global and US REITs recovering from recent discounts
  • Countries and companies benefitting from lower range
  • Recovering US High Yield debt following recent spread widening (if no rate rise)
  • Quality Asset-backed, and floating rate debt pegged to the Fed or related interest rate (if there is a fed rate rise)
  • Straddle options on S&P500
  • Sector/stock specific Japan


The risks: 

  • Gold price softening as flight to fear trade abates
  • US Export dependent emerging markets competing with US home brands
  • UK and European property market
  • Infrastructure and ADAC loans market
  • Fed rate risk to bond markets
  • Duration could lead to further spread widening for High Yield debt
  • Falling confidence on UK negotiation with EU
  • Export led companies leaving UK to relocate to EU
  • US asset-backed debt: especially sub-prime in the Autos sector
  • Overheating US property market (state specific)
  • Hard currency Emerging Market debt
  • China debt
  • Japan index


Go long Gorilla; short the world?

The above are just some of my own ideas. At Gemini we have a number of experienced managers who can offer a range of strategies to traverse global markets.


Have a good week,

Jon ‘JB’ Beckett

Consulting CIO, Gemini



Brexit or BAU? Property, Purchasing Manager’s Index (PMI) and Poundland

Is the UK a bargain buy? With the Pound (£) breaking through $1.30 already and $1.20s not improbable, it certainly looks like it might. Yet UK equity indices like the FTSE recovered reasonably well to the mid-6500 range after the Brexit outcome; however what is less Poundlandreported is that many stocks sensitive to the economy (like housebuilders) remain weak. Cheap is therefore not always good.

When it comes to cheap, I’m not a regular frequenter of Poundland. I am Scottish, however, so I do like a good deal but it’s the short-termism and downward price pressure created by these stores that has destroyed some of the fabric of the High Street. Those on lower incomes may well see these stores as lifelines to essentials, indicative of the state of our nation. Indeed as a Consumer-based, Service-led economy, what is bought on the High Street (and how much) is a good forward indicator for company earnings and a growing or shrinking economy. A low inflation cum anaemic growth economy was always going to be fragile to shocks. Consumer confidence is easy to herd but hard to predict and the likes of social media plays a growing influence on confidence.

Bricks and Buying – Cue last week’s news being dominated by Sterling, hitting a 30-year low, and commercial property funds. The property showdown, I believe, would have occurred at some point Brexit or no Brexit and I wrote about that very topic only a few weeks ago ( Yet what is more indicative for the UK economy is the PMI index. This index captures the purchasing and new orders placed into and by UK companies. Perhaps two years before Brexit happens, it is a sign of business as usual (BAU). Having peaked earlier this year, the PMI index has shown signs of weakening. For example, growth in the U.K. services sector, Markit’s services purchasing managers’ indexDark Skyline has started to fall. The closely watched gauge was at its lowest level since April with growth over the second quarter at its lowest since the first quarter of 2013. The outlook for the year was the ‘darkest since  December 2012’, according to Markit, with companies reporting uncertainty linked to the referendum weighing on workloads and incoming new business.

While media noise around UK’s property market may drive worsening consumer confidence (watch for the next GFK Consumer Climate and Halifax property reports) if there is a sustained decline in the PMI index (or on the High Street) then this is a clearer sign of possible UK recession.

Munich 6 July 2016 – According to IFO (the German economic think tank), the result of the Brexit referendum will “probably only put a small damper on the German economy this year and in 2017”. IFO’s latest figures indicate that growth in Germany will be around 0.1 percent lower than previously forecast for 2016 and 0.1 – 0.2 percentage points lower in 2017. These effects are due to weaker exports and investments. “This is a small effect. It will not endanger the upswing that the German economy has been experiencing for over three years now” said Timo Wollmershäuser, Interim Director of the IFO Center for Business Cycle Analysis and Surveys, on Wednesday. “We expect an economic downturn in Britain, a depreciation of the British pound, as well as a temporary period of higher uncertainty. That will have a small negative impact on German exports and investments, but this will be short-lived”, he noted.

A U.K. recession looks more likely than a month ago; meanwhile Europe (Germany) looks set to be more bullish, which may have a bearing on EU negotiations. If this all sounds like Pocket moneyall the ingredients for 1) long-Europe/US and short-UK pair, or 2) stratagem of buying global income funds or UK companies with overseas income, then I would happily buy that 2-for-1 deal next time I am in Poundland. But for now I’m keeping my shillings in my pocket.



JB, Consulting CIO


Equity Income Post Brexit – What Next?

The result of the Brexit referendum has been known for some days and ‘Project Fear’ is becoming ‘Project Fact’. No matter what one’s view of the result, this is the new reality.

RealityThe purpose of this note is to discusses the likely economic and market impacts from the perspective of UK investors with a yield requirement and to provide an insight into how we are positioning the Sabre Global Value & Income Fund.

In summary:

  • Selectively long FTSE100
  • Avoid domestic UK, Europe. Beware UK dividend cuts (Property, Banks, Retail).
  • Long Asia – equity dividend yield a great strategy here
  • US Assets expensive, but avoid significant risk exposure (long or short) to USD / US Equities for now.


UK – Significant Slowdown in Economic Activity

This is happening now. Activity slowed in leading up to the referendum, and given the result is unlikely to re-accelerate any time soon. Businesses and individuals will inevitably put investment decisions on hold whilst the considerable uncertainties resolve themselves. Given the depth of the integration between the UK and the EUSlow Economy single market, it is a hard to overstate the magnitude of the task awaiting the UK Government and UK Business. Brexit is likely to be disruptive to business for many years. Additionally the UK’s balance of payments deficit leaves us dependent on global capital flows and sterling is likely to show further strain in our view.

Europe – Negative Impact Highly Likely

In economic terms Brexit will impact on already fragile European economies. Further significant economic, financial and political difficulties wait in Europe, probably the most pressing of which is the parlous state of the Italian Banking system.Safe money

Global Economic Impact – Limited

We would expect the economic impact of Brexit on the US and Asian economies to be limited. These areas offer some protection, at least from Brexit related uncertainty.

Companies and Markets


  • We are happy to selectively own Large Cap (FTSE) global dollar earners. Recent sterling weakness move should protect profits (and dividends) in GBP. We hold RDS, GSK, RIO and some precious metal stocks (Centamin, Polymetal).
  • Domestically focused assets (Banks, Housebuilders, Retailers) have been hit hard over the last 10 days, and represent the market’s clearest view of the likely pain in the UK economy. We avoid exposure completely.
  • We would envisage potentially significant dividend cuts in UK stocks in the retail, banking and property sectors.


  • A weaker euro will benefit some global stocks, thoughEuro Weight UK volumes are likely to be adversely impacted as the UK economy slows
  • There remain significant political, economic and financial clouds on the near horizon. Where we can find quality businesses with diversified global exposure at attractive valuations we will buy, otherwise avoid. Any crisis or significant market falls may present additional buying opportunities in such stocks.


  • We see stocks in this region as relatively immunised from Brexit impact. Attractive yields, when backed by decent cash flow, can offer good support and our research is focused in this area. Current ideas: Quantas/Air NZ, CSR, SkyCity (all Australia/NZ)
  • China related concerns have impacted valuations in the region which are now attractive in our view. China is not ‘out of the woods’, significant challenges remain and direct China exposure is for the brave.
  • Quality stocks in other Asian economies offer value however. As the fund is not hamstrung by benchmark weightings, we are able to take significant overweight positions in the region, and will do so where we find value. Dividend yield is a winning strategy in Asia and we are confident that our investment approach is more than competitive and can generate strong value added in these markets.


  • US assets do not offer value, but have generated attractive returns this year as relative safe havens in economic and currency terms. We can think of few events more deserving of a ‘flight to safety’ than the prospect of a Trump presidency, so USD currency and US Market returns may exhibit apparently ‘perverse’ behaviour in coming months. Our approach to US assets is a safety first one this year, designed to minimise risk in GBP terms.


Ross Hollyman

Sabre Fund Managers

Ross Hollyman