Updated: Sep 20
"Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it".
The quote above is from Albert Einstein although it could easily have been said by any of the world's greatest Professional Investors; Warren Buffett, George Soros or Sir John Templeton. Without doubt consistent compounded returns (with low volatility) is the holy grail of investing. At a 5% Return your money doubles every 14 years, at 10% every 7 years and at 15% every 5 years.
When analysing returns, Professional Investors look at a variety of factors. They are interested not just in the total return but the quality, consistency and repeatability of the return. In particular they look for:
Best in class returns (total return over the period).
Compounded returns, year in year out (CAGR). A high percentage of positive vs negative years.
Low volatility (a low variability of returns as measured by Standard Deviation).
Low downside volatility (downside volatility is unwelcome)
Strong risk-adjusted returns as measured by the Sharpe Ratio (more on that later)
Strong risk-adjusted returns as defined by the Sortino Ratio (ditto)
In this article we look at how Prime Central London (PCL) has performed against these metrics and how it has performed relative to the major asset classes such as Equities, Government Bonds, Corporate Bonds, Hedge Funds, Gold and Commodities over the last 20 years.
As background the last 20 years has been highly challenging for many Asset Classes. As an Equity Fund Manger for much of the period, I recall one crisis after another; the Asian Crisis of 1997, the LTCM Crisis of 1998, the DotCom Bubble/Burst (1999/2000), The Iraq War (2003), The Financial Crisis (2007-2009) and The Eurozone Crisis (2011). For equities the period ranks as one of the worst investment periods on record. By way of an example since 1995 the FTSE 100 has doubled in value three times, halved in value twice and today it sits only 2% higher than 31st December 1999!
In this context the +407% return by Prime Central London with only 3 down years over a 20 year period is exceptional. The return is second only to Gold (+435%) although it should be noted the PCL return excludes rental income. If rental income were included, PCL returns would have beaten the major asset classes by some margin.
PCL's performance can be summarised as follows:
Figure 1. PCL is the Second Best Performer (red line) against the World's Major Asset Classes ...
Figure 2. PCL has the second best Compounded Returns …
Figure 3. 85% of PCL years have been positive …
Figure 4. PCL has been one of the least volatile asset classes ...
Figure 5. PCL has the second lowest downside volatility of the major asset classes …
Figure 6. PCL has the best risk-adjusted returns as measured by the Sharpe Ratio ...
Note: the Sharpe Ratio is used by Investors to measure the quality of returns. It analyses the excess return of the Instrument over the Risk Free rate (Government Bond Yields) in relation to volatility. (The higher the Sharpe Ratio, the better).
Figure 7. By some margin PCL has the best risk-adjusted returns as measured by the Sortino Ratio ...
Note: The Sortino Ratio is perhaps the most important measure of Returns. It analyses the excess return of the Instrument over the Risk Free rate (Government Bond Yields) in relation to downside volatility. (The higher the Sortino Ratio, the better).
Figure 8. Overall PCL Ranks in the Top 3 for Each Criteria ...
In conclusion, Prime Central London takes the crown for the best risk-adjusted returns (as measured by the Sharpe & Sortino ratios) and ranks within the top 3 across all investment criteria. This is down to PCL's strong and consistent returns with limited volatility. There have been a number of reasons for this performance and we feel many of of these will be sustained for many years to come namely burgeoning global wealth, scarce supply, safe haven status, timezone, English as the world language, London's culture, restaurants, educational institutions, the rule of law and London's position as a Global City.
In light of the above, we at Ludgrove have little doubt that PCL is a sound investment not just for HNW Homeowners but also for Family Offices and Institutional Investors. What's more, today there is a significant opportunity on offer. As the chart below demonstrates with the 18% fall in PCL Capital values and the depreciation of Sterling since the peak in 2014 there is a material discount available to Overseas Buyers:
If you have any questions on this article or would like to find out more about how we can help you access the Prime Central London market, feel free to get in touch. Ludgrove has collated a US$100m Development Portfolio and we have a number of Bulk Purchase Opportunities both suited to Investors looking for exposure to PCL. We also of course undertake bespoke searches on behalf of clients.
ANNEX & DATA SETS:
Figure 10: Annual Returns by Asset Class
Figure 11: Return Characteristics
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Biography: Fraser Slater is the CEO and Founder of Ludgrove Property. Prior to Ludgrove he spent 20 years as a Fund Manager. In the course of his career he was a Real Estate Analyst, the Fund Manager of a £6bn Equity portfolio for USS Ltd and was the Founder and CEO of WDB Capital, a London based Fund Management business. WDB Capital was one of the best performing Funds in Europe during the Financial Crisis and in 2008 was nominated for New Fund of the Year by EuroHedge. After leaving The City, Fraser developed property in Chelsea. He started Ludgrove with an ambition to be Prime London's leading Property Buying agency with an emphasis on original research and delivering a highly value added service to clients.
Disclaimer: Ludgrove Property Limited is not authorised or regulated by the Financial Conduct Authority (FCA) and we do not provide any financial or investment advice. We recommend that any property investor seeks appropriate professional advice before entering into any contract, and we would also advise that the value of any investment can go down as well as up and that you might not get back what you put in. You may have difficulty selling a property investment at a reasonable price and in some circumstances it might be difficult to sell at any price. We would urge you not to invest unless you have carefully thought about whether you can afford it and whether it is right for you, and if necessary to consult with a professional advisor in accordance with the Financial Services and Markets Act 2000. All information is provided strictly as a guide only, is subject to change without prior notice and does not constitute an offer of investment. This website should not be regarded as an offer or solicitation to conduct investment business, as defined by the Financial Services and Markets Act 2000. Investors who are resident in or citizens of countries other than the United Kingdom may be subject to local restrictions. In particular, no offer or invitation is made to any US persons (being residents of the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof), who are excluded from the services offered in this site. The information on this website has been obtained from sources which we believe to be reliable and accurate, but without further investigation this cannot be warranted.