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Prestige's Reeves Offers Thoughts On Market In 2018

Prestige Funds, a credit fund which invests in the farming sector, celebrated its 10 year anniversary last year, and Founder Craig Reeves offered his thoughts on the areas of the economy which will affect his firm in 2018.

UK ECONOMY

“The UK economy will continue to run with ‘elevated’ levels of inflation in 2018, but we expect little or no rate rises. Unemployment will remain low, at close to the 40-year lows we have seen recently. UK economic growth is likely to under perform versus continental European countries, such as Germany. The British Pound may drift moderately higher in 2018 and rising costs will impose an enhanced level of strain on the UK’s critical SME sector (representing almost 5.5 million companies). This will lead to a demand to borrow on the part of many companies that want to increase their productivity and efficiency. At the same time, banks will continue to close branches and scale back on their non-commoditised lending activity, ‘M4 Money’ will almost certainly remain below 2017 levels and Brexit will continue to create uncertainty.”

PRIVATE LENDING MARKET

“In 2018 professional investors will be increasing their allocations to Private Debt and alternative direct lending funds as the asset class becomes more widely recognised, attaining new levels of maturity. Private Credit is going to become increasingly more relevant in modern investment portfolios: indeed, over the longer term we expect it will rank second among non-traditional strategies after long/short equity. This year will see Private Debt becoming more accepted as an asset class in its own right. On balance rising interest rates may hurt high yield bonds and should be positive for Private Debt.”

NEW INTERNATIONAL ACCOUNTING RULES

“This year sees the introduction of new international accounting rules under IFRS9. Coming into force on 1 January 2018, this forces banks to make further advanced provisions for credit losses. The loan-loss provisions banks will need to make will be much higher than previously, and we expect this to lead to less loan making activity in some segments of the economy, such as SMEs. The combination of higher Tier One regulatory requirements, increased regulatory scrutiny and accounting changes will continue to impede lending activity outside of traditional consumer and real estate ‘commoditised’ lending activity.”

BREXIT

“Uncertainty over Brexit will be an ongoing tale for the UK economy in 2018 and beyond - while political uncertainty remains, the British Pound has seen the worst of the post-Brexit sell-off. Brexit will create winners and losers in many different areas but the UK will continue to be a top destination for Foreign Direct Investment (FDI) and a weaker British Pound reinforces this position. We have seen considerable overseas interest in investing in UK, Sterling denominated private credit since the Brexit vote, and we expect that will continue in 2018. The prospects for certain sectors of the UK economy remain solid post-Brexit and international investors see Private Debt as a route into that story that is not correlated to public markets.”

END OF SUBSIDIES FOR UK FARMING SECTOR

“There is an opportunity to replace the EU subsidies with a domestic regime that will make sense for both farmers and investors. While the current regime rewards large landholders, a new subsidies regime should focus on making farming more efficient. Any new regime also has to address the waste issue, as the UK must honour its commitments under the Paris Climate Change Agreement. Food security will also be a top priority in a post-Brexit environment. We would like to see more recognition from the UK government of the value that private investment – both from within the UK and from abroad – is adding to the UK farming sector.”

BITCOIN & CRYPTO CURRENCIES

“The mania for anything cryptocurrency will continue in 2018 although investors will be faced with a greater reality of downside volatility. Current pricing assumes ‘mass adoption’ which is unlikely to happen and we expect significantly greater regulation and government intervention.”