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Wealth funds question UK's future as EU investment hub – Financial Times

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Sovereign wealth funds see the UK as a less attractive location for investment following Britain’s vote last year to leave the European Union, while Germany’s desirability has increased, according to a new survey.

Some funds with EU interests have questioned the future of the UK as an “investment hub” for Europe following the Brexit decision, the survey by Invesco, the fund manager, found.

Invesco’s report about the survey of 97 sovereign investors — which include sovereign wealth funds, state pension funds, central banks and government ministries collectively holding $12tn of assets — said the Brexit decision “poses a threat to the long-term attractiveness of the UK”.

However, the report also noted some sovereign investors have demonstrated a long-term commitment to the UK.

It highlighted London’s Heathrow airport, where the Qatar Investment Authority, the sovereign wealth fund, bought a 20 per cent stake in the hub’s parent company 2012.

Qatar said in March it plans to invest a further £5bn in the UK over the next three to five years, in a vote of confidence for post-Brexit Britain.

The Invesco survey sought sovereign investors’ views on the attractiveness of markets, asking them to rank countries on a scale of 1 to 10.

The UK’s rating has slipped from 7.6 in 2015 to 5.5 this year.

“Brexit is seen as a significant negative for UK investment, and investment sovereigns with European interests questioned the future of the UK as an ‘investment hub’ for Europe, given uncertainty over taxes on imports and market access,” said Invesco’s report.

By contrast, Germany’s attractiveness rating has increased from 7 in 2015 to 7.8 in 2017.

Invesco’s report said Brexit had raised sovereign investors’ awareness of the risk of a break-up of the EU, and this has caused some to focus on countries seen as stable, such as Germany.

“We have not seen a drop of this nature before,” said Alex Millar, head of European, Middle Eastern and African sovereigns at Invesco, referring to the decline in the UK’s attractiveness found in the survey.

Eight in 10 respondents to Invesco’s survey said they expected Brexit to grow in importance when it comes to future investment decisions.

The value of sovereign investors’ assets in the UK has declined this year, said Invesco’s report, but it suggested this was mainly due to the fall in the value of sterling since the Brexit vote.

Mr Millar said sovereign wealth funds and other institutional investors have adopted a “wait-and-see approach” when it comes to deciding whether to put their money in the UK.

However, he added other factors — including a challenging economic year in 2016, the prospect of higher interest in the US and volatility in commodity prices — have also played a role in investment decisions.