Equity investors become more vigilant on downside risk: an interview with Emma Winning

Q: How does the equity market compare to the debt market?

Trends in the equity market tend to mirror those across the debt market and this remains true at present. Equity will be the first loss piece on any investment, making vigilance around underwriting and stress testing more critical than ever in uncertain times.

Q: What should investors be doing to protect their investments?

Ensuring equity investments are protected from downside risk is key: requiring careful review of business plans, models and stress testing.

Q: What trends are you currently seeing which are expected to continue into 2023?

Where investors are able to price investments and there is a positive growth angle (such as in the rental sector) there is still investment activity, with a drive for higher returns. We are seeing more interest in newer asset classes from investors diversifying their residential investments into specialist sectors such as seniors housing for that increased return.

There is still demand from APAC/Middle Eastern investors for trophy assets: quality assets in prime locations, assisted by the weak pound and potential for repricing already seen in some markets in the UK.

Demand continues for assets with strong ESG credentials, with an increased focus on the social aspect.

"Ensuring equity investments are protected from downside risk is key requiring careful review of business plans, models and stress testing."

The evolving ESG landscape remains vital. With longer-term holds, investors must ensure assets comply with upcoming environmental legislation requirements, but we have also noted opportunities to acquire non-compliant stock and refurb to future standards across the UK and Europe.

Q: Are there opportunities for equity?

The increase in all-in debt costs provides opportunities for equity to plug any funding gaps and both asset owners and investors are being creative in structuring transactions to achieve this.

In previous times of dislocation, deal opportunities have been created, and that’s currently the case.

A surge of M&A activity in the housebuilder space has seen new market entrants seeking to capitalise on cheap sterling and land banking of housebuilders, including overseas housebuilders looking for a foothold in the UK market.

You can read more about the financing outlook for 2023 in an interview with Lisa Attenborough, Head of Debt Advisory at Knight Frank.