Hedge fund bets millions in cheap property up north

New York, Monaco, Geneva and now, perhaps, Rotherham.

One of the UK’s leading hedge funds has begun snapping up cheap property across deprived parts of the north of England in expectation of a regional boom to put paid to the notion of London as the sole beneficiary of the post-crash recovery.

Toscafund, the London investor run by Martin Hughes – a former top rated bank analyst and protégé of the totemic hedge fund manager Julian Robertson – plans to invest hundreds of millions in undervalued commercial property in cities such as Manchester, Leeds, Liverpool and Sheffield as part of a big wager on the UK economy.

The firm, which counts Sir George Mathewson, the former chairman of RBS among its advisers, believes that in the next few years, London’s dominance will slip as other cities benefit from labour and money migrating out of the capital.

Toscafund’s bet may prove to be timely but, as yet, is anything but popular. The gap between the average price of a property in London and that in the north widened to an all-time high this week, according to data from Nationwide.

Many economists still doubt the sustainability of the recovery and inflows of foreign capital into London have also yet to show any sign of displacing domestic housebuyers.

“The received wisdom is that this country has a pronounced north-south divide,” said Savvas Savouri, chief economist at Toscafund. “But this view lags behind the data and is often based on spurious assumptions. People who say it are looking in the rear-view mirror.

“A large number of British cities outside of London possess all the foundations to grow solidly in the coming years.”

Toscafund has not always got its wagers right.

It was one of the biggest losers in 2008, when its flagship fund, which was heavily invested in banks, lost billions.

It has had some success since, however. The fund has recouped its losses and has enjoyed success playing the UK property market. After the financial crash, the hedge fund moved to snap up pools of mortgages from banks desperate to offload problem assets.

The fund believes the greatest opportunities now are in Leeds, Manchester and Liverpool, followed by cities such as Birmingham, Sheffield and Nottingham and towns such as Rotherham. It is in the process of speaking to investors to raise money for its new investment vehicle.

Toscafund has long been bullish on the outlook for the UK economy.

Continued immigration, a workforce that is more mobile than ever and developing centres of research and manufacturing excellence in regional cities will combine to boost demand for commercial property outside London, the hedge fund believes, leading to a surge in investment.

“You just have to look at the fact that rental yields are three times higher in somewhere like Nottingham than in London,” said Mr Savouri. “It’s an arbitrage that is there to be taken.”

 This article was published in The Financial Times Weekend newspaper on Saturday 27th July. Subscribers can read it here and also access the links to other FT articles embedded in this post.

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