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Brexit bargains scented by Asia's rich following pound's plunge

Tuesday, July 19, 2016 - 10:53

[SINGAPORE] Stephen Diggle, whose Singapore-based hedge fund made a profit of US$2.7 billion in the depths of the global financial crisis, plans to boost his family office's investments in biotechnology companies in the UK after Brexit sent sterling tumbling to a 31-year low.

His Vulpes Investment Management is also seeking to pour money into other UK industries that can benefit from a weaker pound, Mr Diggle said in an e-mail last week from Italy's Umbrian hills, where he owns a house.

His firm, with about US$250 million, owns stakes of as much as 22 per cent in six British biotechnology firms through its life sciences fund, and more than 2,000 apartments in Germany, Mr Diggle said.

"I'm still in Italy, and I've a steady stream of shocked English people visiting," said Mr Diggle, an Oxford University graduate who worked at Lehman Brothers Holdings Inc before co-founding a hedge fund that made US$2.7 billion in 2007 and 2008.

"We are regarding this as a buying opportunity in sterling assets, especially for businesses which benefit from sterling being near a multi-decade low against the US dollar."

Mr Diggle is just one of the wealthy Asia-based investors keen to take advantage of the pound's 11 per cent decline since British voters decided June 23 to leave the European Union. UBS Group AG, the world's biggest private bank, and Stamford Management, which oversees US$250 million for Asia's rich, said some of those they advise are preparing to snare real-estate bargains.

UBS's clients have been paying back their pound mortgages following the currency's drop, said Simon Smiles, the bank's chief investment officer for ultra-high-net-worth individuals.

Its wealthiest clients are also looking to snap up assets at distressed prices as UK property funds began offering buildings for sale after investors sought withdrawals on concern Brexit would cause property prices to fall.

"Clients I have been speaking to were asking when to buy the pound post its Brexit fall, not selling it," said Mr Smiles, who is based in Zurich, via e-mail.

Sterling fetched US$1.3266 at 9 am in Tokyo on Tuesday, after reaching US$1.2798 this month, the weakest level since 1985.

The currency is set to end the year at US$1.27 before recovering to US$1.34 in 2017, according to analysts' median estimate.

Brexit hasn't dimmed the allure of owning property in London as it "remains a key financial hub and a desirable destination," said Jason Wang, chief executive officer of Stamford Management in Singapore.

Some of his larger property-investment clients see the current pound's depreciation as a "good opportunity to pick up some prime London properties," Mr Wang said.

Family offices are typically tailored to both investment and personal needs, including estate planning, philanthropy and maintaining homes.

The pound's weakness is an advantage for the biotechnology companies Vulpes plans to put more money into, Mr Diggle said.

"We have great confidence that the current low level of sterling will be a direct and significant benefit to the bottom line of these US dollar-earning companies," said Mr Diggle, who set up Vulpes in 2011.

"From there it is easy to extrapolate that other companies in the UK will have similar economic effects, so we have gone looking for bargains. UK service companies that sell to the US are the most obvious."

While options traders are more pessimistic on the pound than any of its developed-market peers, they're paying less to bet on its decline than they did last month. The premium for three-month contracts to sell sterling versus the dollar over those to buy has narrowed to 1.74 percentage points, compared with 6.39 percentage points on June 14, risk-reversal prices compiled by Bloomberg show.

Sterling gained 1.8 per cent last week, its strongest weekly performance since March, as the appointment of Theresa May as Prime Minister returned a sense of political stability to the UK and the Bank of England unexpectedly kept interest rates unchanged.

"Theresa May should provide some pragmatic leadership in steering the UK through a manageable Brexit," said Stamford Management's Mr Wang, who holds a degree from the London School of Economics and once worked as a hedge-fund manager in the British capital.

"Sterling's recent rebound reflects that confidence in her political ability."

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