London or London't
Later this year, Ken Livingston and Boris Johnson will fight it out for the London mayorship, but what, if any impact, will it have on investors?
Having previously explored the impact of the London Olympics on investors, it’ll be interesting to note how the London mayoral contest will impact retail investors.
Gaining exposure to London-based companies is simple, as many call the capital home. But getting exposure to London is more difficult.
One way is through transport. London is well served by its transport infrastructure, which serves millions of people each day, bringing them to the capital and getting them about.
Among Ken Livingstone’s manifesto pledges, the Labour Party candidate has pledged to cut fares by 7% – one of the most contentious issues in the mayoral race. The mayor candidate has pledged to freeze fares through 2013, with further increases set to pegged to inflation.
However, Livingstone’s plans could impact on Transport for London’s credit rating. (FundTalk continues below)
Earlier this month, Fitch Ratings affirmed Transport for London’s AA+ rating, linking it to the UK’s AAA credit rating and highlighting the government’s support for transport.
Fare revenue accounts for 39% of total revenues – with a further 49% coming from government grants – and is expected to rise to £4.4 billion by the end of 2015.
However, rival agency Moody’s recently highlighted the “highly politicised environment, which may affect the levels at which it may set fares”.
Transport for London debt is held by several managers in the Investment Management Association’s universe of funds, and is a top 10 holding for the Architas Liquidity fund.
Johnson plans are less likely to have a meaningful impact on investments and a Tory mayor is likely to have fewer fights over this with his party leader, prime minister David Cameron.
However, a business friendly mayor is likely to be good for investors. Johnson has been a strong proponent for the City and London’s financial services sector, more recently battling plans for a financial transactions tax.
London is home, of course, to the not just the UK’s financial services industry, but also to the global financial services industry. It’s one reason why the UK capital was recently acknowledged by KPMG as the most heavily invested in city in the world.
London’s reputation as a centre of finance and the huge sums being invested is surely good for one area: property.
The capital’s property is an easier way of gaining investment direct exposure to London, with a number of funds holding London properties in their portfolios.
Source: FE Analytics
Click to view. Source: FE Analytics
The argument for London property investment is strong, as the capital outperformed the other parts of the country.
Phil Tily, managing director of UK & Ireland for the IPD, says: “Only a third of funds outperformed the IPD Benchmark return of 8.2% in 2011, as the decoupling between London and the rest of the UK market led to an increasing polarisation of returns.”
In his most recent quarterly review, Royal London Asset Management’s Stephen Elliott says the central London office market has continued to see rental growth, although the prospects for the City are more static.
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