The 2002 film L’Auberge Espagnole, a delightful movie by Cedric Klapisch that features actors like Romain Duris and Audrey Tautou and spawned a trilogy, vividly portrays the lives of diverse European college students sharing a bustling apartment while studying in Barcelona. This shared living situation highlights a rather modern trend in Spanish higher education.
As Raphael Minder of The New York Times recently noted, attending university away from one’s family home is a relatively new phenomenon in Southern Europe. Minder reports that only about 17% of students pursue higher education outside their home region. This explains a significant imbalance: Spain’s universities enroll approximately 1.6 million students, yet there are only around 100,000 beds available in student dormitories.
This considerable gap between demand and supply—with investors estimating a need for about 450,000 more beds—is attracting substantial foreign investment. For instance, Toronto-based Brookfield Asset Management is a key player in Spain’s booming dorm market. Spanish developer Grupo Moraval is partnering with Sweden’s EQT Exeter, planning to invest $568 million in student housing, and in 2017, Spain’s largest student housing operator, Resa, was acquired by France-based AXA and U.S.-based CBRE. This surge of international capital undeniably underscores that the evolution and enhancement of Spain’s educational infrastructure are truly a global undertaking.
This situation serves as a powerful reminder of a fundamental truth championed by the late economist Robert Mundell: “the only closed economy is the world economy.” In this interconnected global economy, capital disregards national boundaries. Instead, it swiftly flows to regions offering the most promising opportunities that align with investors’ risk and return objectives.
When a client first meets with a financial advisor, it’s not just about listing financial objectives. While understanding goals is certainly part of it, a truly effective advisor will prioritize deeply comprehending the client’s risk aversion. This crucial insight into their comfort level with financial risk is paramount, guiding all subsequent advice and strategy more intimately than just knowing what they want to achieve.
During initial consultations with prospective private clients, representatives at Goldman Sachs often make it clear from the outset that these individuals aren’t coming to the firm to become wealthy; their presence at the meeting itself is testament to their existing affluence. This subtly conveys a key aspect of Goldman Sachs’s approach to managing their clients’ fortunes: they aren’t pursuing high-risk, speculative gains. Instead, because their clients have already achieved substantial wealth, the focus is on sophisticated management and preservation, rather than “swinging for the fences.”
Despite their shared affluence, wealthy individuals possess distinct financial objectives, just like anyone else. This leads to a fundamental question financial advisors often pose: What is your true pain threshold? Specifically, of the capital you’d entrust to a firm like Goldman Sachs, what percentage would you be comfortable seeing as a paper loss? Since responses to this vary widely, it logically follows that no two client investment plans within Goldman Sachs, or indeed at any other bespoke private bank or investment advisory, are ever identical. These firms pride themselves on providing highly customized financial consulting.
This brief diversion, hopefully, sheds light on the often-overheated reactions that follow pronouncements from Federal Reserve officials. Some economists, commentators, and politicians meticulously dissect every word from the Fed, believing it offers a precise gauge of whether future credit conditions will be “tight,” “loose,” or somewhere in between. In my view, this intense scrutiny is utterly pointless.
To understand why central bank pronouncements are often over-analyzed, let’s revisit the substantial global capital pouring into Spain to revitalize and modernize its university student accommodation. Even if Spain’s central bank, Banco de España, were to “tighten” its policies and restrict domestic credit, any resulting shortfall would swiftly be addressed by this readily available international capital.
Consider, for example, the clients of Goldman Sachs. Their responses to questions about risk tolerance, loss thresholds, and asset diversification are all foundational steps in designing a comprehensive investment strategy that often includes deploying their considerable wealth across a diverse range of global opportunities. If a client’s wealth is heavily concentrated in the U.S., it’s entirely logical for firms like Goldman Sachs to advocate for diversifying that wealth internationally and across various risk factors.
Applying this principle to Spain, it becomes clear why investment sources from far beyond its borders are keen to gain exposure to the country. This isn’t just for diversification; it’s also driven by the prospect of higher returns. Investing in Spanish student housing, for instance, likely carries more risk than a comparable investment in College Station, Texas. Consequently, investors seeking greater yields are willing to accept this elevated risk in pursuit of potentially larger rewards.
Keep this dynamic in mind when central banks like the Federal Reserve issue statements. Their perceived influence is vastly overstated precisely because the demand for approximately 450,000 additional student beds in Spain represents a compelling diversification and return opportunity for investors located well outside Spain’s borders. In a world where global capital fluidly chases a wide spectrum of returns, any attempts by central banks to “fiddle” with interest rates become, quite frankly, inconsequential.
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