US hedge fund Marathon targets Irish property

Marathon Asset Management, a $13 billion (€11.6 billion) 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 European Union 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 been preparing for any opportunities created by the UK’s decision to leave.

Planning purchases

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.

It has bought significantly in Ireland in recent years, purchasing a number of retail parks, a shopping centre in Tralee, loans associated with the area around Dublin’s Heuston station as well as a number of apartment investments. It now looks set to up its spending in 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 logistics 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.

Mild recession

The UK will likely slide into a "mild" recession next year, according to Marathon, so Bank of England governor Mark Carney 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.

In 2011, Mr Richards said Europe presented “the mother lode of distressed opportunities” as the continent grappled with its sovereign debt crisis and growth sputtered. – (Copyright The Financial Times Limited 2016)