Whether the uncertain political climate in the US and UK, or the diplomatic challenges with North Korea, geopolitical risks are a global reality, but they have not spooked institutional investors so far.
“There are a lot of things to worry about geopolitically, but investors have a little bit of a fatigue sentiment,” said Peter Hayes, global head of investment research at global investment manager PGIM Real Estate.
Hayes, who was speaking at a panel at PERE’s annual real estate conference in Hong Kong this week, said many investors believe their portfolios are in a position that would help them manage the uncertainty they are faced with.
“Investors have been risk-off for so many years that the geopolitical climate does not worry them so much, because they have been preparing for it so long,” he added.
More than the broader geopolitical threat, Hayes said that investors have been more concerned about specific risks in the countries where they have fund investments.
Citing one example, John Slade, chairman at London-headquartered private equity real estate business Evans Randall, said that one could sense the pessimism in the days leading up to the election in France. In his words the “relief in the walls of BNB Paribas [his former employer] when [Emmanuel] Macron emerged as the winner was huge.”
He agreed with Hayes that investors are more interested in the fundamentals of the real estate market than political gesturing and positioning.
Others US-based managers like Peter Sotoloff, chief investment officer and managing partner at Mack Real Estate Credit Strategies, and Michael Zanolli, managing director at Natixis Securities America, were more concerned about the warning signs that the industry might not be taking seriously right now.
Zanolli said he fears President Trump’s 3am tweet storms, in response to an audience question about the biggest red flags that the industry needs to be cognizant of.
“Everyone in this room says things are good – this is an equity driven cycle, there is not a lot of supply, bank fuel or leverage,” Sotoloff said at another panel discussion. “[But] there are things that people don’t see coming. The US President really needs a war right now, there is tremendous amount of stimulation but what will happen when the Federal Reserve starts normalizing? These things will, over time, cause an end to the cycle.”