The UK Treasury’s recent announcement of a consultation to simplify regulation for alternative investment fund managers signals a repositioning of the UK as a globally competitive jurisdiction for capital post-Brexit. By raising the threshold at which hedge funds and private equity funds come under full regulatory scope from €100m to £5bn in assets under management, the number of fully regulated companies could fall from 699 to just 64.
This move to streamline the AIFM regime, much of which was inherited from the EU’s Alternative Investment Fund Managers Directive, reflects a growing recognition that UK financial regulation must evolve to meet the demands of a highly mobile, sophisticated global investor base. This could have broad implications on the landscape for investment in UK real estate.
Prime Central London: a market ripe for reinvigoration
The UK, and Prime Central London in particular, has long been attractive to overseas investors due to the asset security, transparent legal framework, and long-term capital appreciation offered by high-end residential property. Even amid tax reforms, such as the scrapping of non-dom status, and broader economic headwinds, Mera Investment Management continues to see strong interest in funding opportunities in London’s most desirable postcodes, including Belgravia, Holland Park and Knightsbridge.
With PCL property values having dropped by 41% in real terms since their peak in 2014, we are seeing a notable uptick in investor appetite, particularly from US dollar-based investors who are capitalising on currency advantages amid sterling weakness. The recent purchase of a £42m mansion in Holland Park by former Google CEO Eric Schmidt, who plans to rent it out, underlines the sustained appeal of this market. US buyers in particular were the largest cohort of international investors in prime residential real estate last year. Based on the interest that we are observing among US credit funds in particular, we expect to see this trend continue.
Unlocking investment through fund structure efficiency
At the heart of the consultation lies an opportunity to create a more efficient investment environment, one that could significantly boost the ability of overseas hedge funds and private capital to allocate resources into UK real estate.
First, the easing of regulatory burdens would streamline the formation and operation of real estate investment vehicles. This would cut compliance costs, allowing capital to flow more freely and responsively.
Second, the proposed changes would enhance the capacity of these funds to partner with specialist lenders like us. Our firm brings operational expertise, deep local market knowledge and a proven track record of delivering on complex real estate projects and deals with minimal execution risk.
More capital, smarter deals
Lighter regulation will inevitably increase the appetite for more innovative and bespoke joint ventures. Within specialist lending, where funding requirements are complex, the ability to structure deals with greater flexibility – such as through blended debt-equity arrangements or preferred equity positions – is of vital importance. This not only serves borrowers, who need tailored solutions to acquire assets, but it also offers investors better risk-adjusted returns.
As global capital becomes more selective amid inflationary pressures, higher interest rates and geopolitical uncertainty, the simplification of UK fund rules sends a clear message: Britain is serious about attracting and facilitating investment. Confidence in real estate is an extremely valuable commodity. When investors have confidence in the legal and regulatory environment, they are more likely to make long-term commitments. In markets like prime residential, where holding periods can extend well beyond the typical private equity cycle, a long-term view is essential.
A pragmatic, forward-looking government shift
At a time when global capital is actively reassessing its allocation strategies in light of economic volatility, inflationary pressures and geopolitical uncertainty, it is extremely positive to see the government adopt a proactive and pragmatic position. Smarter, proportionate regulation will serve to protect investors’ interests while boosting wider economic growth.
It is clear to me that this consultation could be pivotal for the real investment landscape in the UK. For investors looking to access well-priced prime residential assets, and for lenders with the expertise to structure and capital to fund these opportunities, a more agile and efficient regulatory regime is precisely what’s needed.
If implemented with care and insight, these proposals won’t just lighten the compliance load, they will unlock a new wave of global capital into London’s high-value real estate market, reinforcing the capital’s reputation as a world-class investment destination.
Edward Matthews is chief executive officer at Mera Investment Management