Edinburgh

So I've been spending the last week and a half in Edinburgh and I thought that I'd jot down a few observations.

I have quite a bit of business going on in Scotland and need to travel here for the next few years. So, I decided to arrange for a flat -- a small two-bedroom flat. It is the sort that is favoured by most of our professional tenants. Folks that commute to Edinburgh, like me.

I was in the UK a fair amount in 2005 setting up my new business. While here I was living with my business partner. That worked well to keep overheads down but now that we're funded, I figured that it would be best for the longer term if I moved out on my own.

My flat is in the 'New Town' of Edinburgh -- as a Canadian there is something entertaining about the 'New Town' being older than my country. Historically, the New Town is the main area where we've invested -- about 2/3rds of our capital is tied up in this one part of the World. The neighbourhood is about 170-200 years old, very nice period buildings and well located. Ten coffee shops, four bookstores, three supermarkets and a few dozen pubs/restaurants are all within a ten minute walk of my wee flat. As a bonus, I am less than 3KM from my pool.

The flat is owned by one of the businesses that I advise so it was interesting to try our product from the other side of the landlord:tenant relationship. Things went very smoothly. Probably the toughest part was getting my gear unpacked when I moved in. At the end of last week I found myself sitting in the middle of a batchelor pad but I managed to get back on top of things over the weekend.

Seeing as I'm based in a new part of town, it's thrown my standard running routes up in the air. Being a fan of routine, I had developed a 10K loop and a 10M loop. At first, I tried to recreate my existing loops but I'm not as well placed for those runs. So, I purchased myself a bike map of the city. I smiled when I bought it -- even in the early stages of my triathlon 'comeback' I still choose my runs based on cycling routes. Go G!

Over the weekend, I spent my time exploring the city as well as a series of sites that we've identified for development/refurbishment (that's what the JV does). We focus on the high end of the residential market so the main question I ask myself is 'would I want to live here'. I also wandered around George and Princes Streets listening to the crowds and asking myself 'would I want my economic livelihood to depend on these people'.

What struck me the most during my journeys around the City Centre was the number of different languages I heard. I consider that a very good thing for the long term health of a city -- historically one wouldn't think about the end of January in Scotland being a particularly international time. We had heard anecdotal evidence from a friend that is a serviced apt operator (he's been booming through the winter with weekend visitors).

Top all this off with ten-year swap rates recently hitting something like a 50-year low in the UK and all we need to make my 2006 perfect is some unexpected property market volatility. A well-funded investor loves short term adversity once the fundraising is closed.

One of the strange things about private equity/direct investment is that the best time to go fundraising is nearly always the worst time to be investing. Investors 'know' this in their hearts but it is still a real slog to raise capital is a countercyclical manner. I remember when I joined Schroders in the early 90s -- we lost out on a ton of deals (which can be frustrating) then we did a stack and made great returns as the market swung in our favour.

Fortunately our main joint venture partners see us as a countercyclical play -- choose good teams, establish relationships when the market could be a little toppy, set high standards for deal terms and wait... if the market keeps rolling along then everyone continues to make (relatively) easy money... if the market tightens then the combination of motivated managers and funding lets the venture lock up some attractive deals.

Over a seven to ten year time horizon, it is a great model -- espcially when the lead institution takes higher than standard margins across its entire investment. Nine months ago, I couldn't quite see the larger strategy for the bank, now that they have funded us (and three other teams) I can see the larger game that they are positioning themselves to play.

That's all for now.

g