What Andrew Pridham learnt from 30 years of crises
Andrew Pridham at The Australian Financial review Property Summit on Monday. Photo: Peter Rae

What Andrew Pridham learnt from 30 years of crises

At the height of the global financial crisis, MA Financial co-founder Andrew Pridham started asking himself a rather existential question for an investment banker: what if the world had run out of money?

“I thought, maybe there’s no more money in the world, and it wasn’t far off. Banks couldn’t refinance, it was impossible to value things, it was impossible to do things,” Pridham recalled at The Australian Financial Review Property Summit in Sydney on Monday.

Andrew Pridham at The Australian Financial review Property Summit on Monday.
Andrew Pridham at The Australian Financial review Property Summit on Monday. Photo: Peter Rae

The Sydney Swans chairman, who was philosophically stoic following the side’s loss on Friday night, is like many property sector veterans – the scars of the GFC and the recession of the early 1990s, which also smashed Australia’s commercial property sector, are seared into his memory.

But they also informed the three key messages of reassurance he brought to the Summit.

First, Pridham says it’s important to recognise that downturns aren’t unusual. Since he entered investment markets on the eve of the 1987 crash, markets have been shaken by a crisis of some sort every three years.

“It’s very difficult to predict exactly what’s going to happen. But one thing you can predict is that there will be a crisis of some type and the only thing that you have to do is be prepared for it.”

Second, this slowdown is nothing like the GFC or the early 1990s recession. Banks are still lending, balance sheets across the property sector remain conservative, and debt markets are much deeper and more sophisticated than they were during those periods.

Muddling through

To be clear, Pridham does see some more pain ahead – at least one more rate rise in Australia, a risk of imported inflation from a weak Australian dollar, and probably 18 months before a rate cut. That is likely to equate to another 18 months of the sector muddling its way through.

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MA Financial is doing that with its unlisted Redcape pub fund, which has limited redemptions after about 5 per cent of investors requested withdrawals. Pridham says unlisted structures obviously come with pluses and minuses, with lower exposure to volatility offset by lower liquidity. He argues the underlying assets are in very good shape and MA needs to manage redemption carefully, so it can protect the 95 per cent of investors who want to stay in.

“They’re excellent assets. They’ve delivered fantastic returns over a long period of time and the investors know that they’ve had a great ride.”

This leads to Pridham’s third message, which he says has been reinforced recently by several local billionaires: from pain comes opportunity.

“These are the times when you make real money. You don’t make it when the markets are flying, you make it in these times. And the key to taking advantage of it is having the capital available at the time.”

Pridham says that’s a key focus for MA Financial across asset classes. In property, he can already see the light at the end of the tunnel. Due to soaring construction costs and rising interest rates, Pridham says the vast majority of property assets – including most homes auctioned on the weekend – are selling below replacement cost. That will eventually weigh on supply, which will eventually help markets find balance.

“And that’s why shopping centres are great assets, long term. It’s why pubs are great assets and office buildings will come back. Patience will be rewarded.”