In London’s “extremely expensive” property market, offshore investors need to be increasingly wary of currency volatility.
ATP, Denmark’s biggest pension fund, last week invested in two hotels in central London. But generally, ATP says it prefers euro-based property transactions. “The currency risk and the cost of hedging currencies is related to the interest rate, so with the current, very unusual levels that we have in many countries, it’s very expensive to hedge,” said Michael Nielsen, a director at the real estate investment unit of ATP. Volatility term structures moved higher this week, with the one-week euro-pound contract hitting its highest since late August on an intraday basis. Nielsen says that “especially the U.S. dollar, the Swedish krona and the sterling” are proving costly hedges these days.