How can a non-core investor choose a real estate mutual fund?

At the end of 2023, the real estate market recorded a record influx of investments from closed mutual investment funds (closed mutual investment funds) into real estate. The funds also acquire real estate of foreign companies that have left Russia. Experts say the key factor in the growth of fund activity is the growing interest on the part of shareholders.

In 2023, real estate closed-end mutual funds invested 30-35 billion rubles in the acquisition of new assets, a year earlier – 20-25 billion rubles, NF Group estimated. And although the share of funds in the total volume of investments in the real estate market is still small – IBC Real Estate estimated the figure at 833 billion rubles – this instrument is attracting more and more private investors.

According to Parus Asset Management, the volume of funds from unqualified investors in real estate funds reached 143.9 billion rubles, or 44% of the total assets of closed-end mutual funds. The average investment bill at the end of 2023 was 912 thousand rubles. per shareholder. Qualified investors invested RUB 79.6 billion in closed-end mutual funds. with an average bill of 8 million rubles. The Management Company “Modern Real Estate Funds” noted that the growth in attracting clients to the company’s funds year-on-year exceeded 30%. At the same time, every second client makes additional purchases of shares.

In general, the growth in popularity of closed-end mutual funds is associated with several factors, consultants say. Including the opportunity for small investors to participate in the acquisition of high-quality and large real estate properties, as well as to receive higher returns compared to alternative instruments.

How the market developed

In Russia, closed-end real estate mutual funds began to actively attract private investors not so long ago, although the legislative framework for funds began to take shape back in the 1990s and, in fact, was copied from the American market, says managing partner of NF Group and co-founder of Parus Asset Management Alexey Novikov.

At first, the closed-end mutual fund mechanism was used mainly by large real estate owners to optimize the tax burden and structuring assets.

One of the systemic pioneers in attracting collective investments were the companies Concordia Asset Management, Renaissance Capital and Troika Dialog, but for many shareholders this experience was unsuccessful: during the 2008 crisis, the situation in the real estate market became significantly more complicated and shareholders lost most of their shares. invested funds, recalls Mr. Novikov.

In 2012, after Sberbank purchased Troika Dialog, Sberbank Asset Management began operating on the basis of Troika Asset Management, which managed to attract a wide audience of bank clients to closed-end mutual funds by creating funds focused on commercial real estate. And already in 2020, real estate-oriented business lines were separated from Sberbank Asset Management. This is how the management company “Modern Real Estate Funds” (SRF) appeared – today the largest player in the segment, numbering about 80 thousand shareholders with an average volume of initial investments at the level of 1.5 million to 5 million. “Our goal is to introduce shares focused on real estate, to a wide range of the population,” says Ekaterina Vasilchenko, project director of the SFN Management Company.

In addition to SFS, the consultants name the largest players in the market as Parus Asset Management (founded by shareholders of the developer Central Properties and the consulting NF Group), as well as Savings Plus, created by VTB.

Where do closed-end mutual funds invest?

Mostly warehouse real estate objects are purchased through closed mutual funds. This interest is due to a significant increase in rental rates since 2018 and record low vacancy rates due to increased demand. However, in 2023, about half of the investment volume of closed-end mutual funds was in retail real estate. The change in NF Group is associated with the entry of foreign investment funds and owners into the market of previously unavailable for purchase trading assets. For example, Central Properties acquired the Yarmarka shopping center in Astrakhan from the Czech PPF Group – one of the Parus funds was created for this object.

In addition to purchasing commercial real estate, closed-end mutual funds began to actively attract investor funds for the purchase of housing and apartments.

Thus, since the end of 2022, Tinkoff has already launched three such funds, which purchased lots in premium apartment complexes at the initial stage of construction. After the houses are delivered, the property will be sold and the money will be paid to shareholders, as indicated in the description of the funds.

Clear asset

Tinkoff explains its desire to enter the segment of collective investments in residential real estate by the fact that “it is most understandable for investors of any level: every person has come across residential real estate in one way or another.” “Real estate has historically been one of the most attractive assets for investment. People buy apartments for themselves and understand that it is more profitable to do this at the construction stage: as the projects are built, their price increases. We have created funds with a similar logic – only by buying shares of the fund, people invest in several apartments at once. The main strategy of our real estate funds is the acquisition of real estate at the construction stage and its sale at a higher price after commissioning,” says Ruslan Muchipov, CEO of Tinkoff Capital Management Company.

Today, Tinkoff’s existing real estate funds include about 5 thousand sq. m. m and 60 thousand shareholders. “In the near future, it is planned to expand the portfolio, including through apartments in one of the new residential complexes in the north of Moscow; it is also possible to diversify the portfolio with projects in other segments: economy, comfort and business,” adds Mr. Muchipov.

Other market participants are still cautious about including residential real estate in the portfolio of closed-end mutual funds. “Currently, residential real estate is not included in the investment strategy of retail funds,” the Federal Tax Service reported. Alexey Novikov is confident that in the current situation, the annual return of such funds will not exceed the deposit, while commercial real estate has higher potential. For comparison: in Parus funds, which own warehouse real estate, the declared return is from 21.8% to 24% per annum.

Mr. Novikov agrees that the main motivation of shareholders in this case may be the conservative desire to own residential real estate and the traditional attitude towards housing as a simple and understandable way not to lose money.

Not only closed mutual funds

In any case, the experts interviewed unanimously say that closed-end mutual fund units should not become the only means of investment. “It is important to understand that our product should be only part of the client’s investment portfolio, designed to reduce risks and volatility,” says the Financial Supervision Authority. “Investing in real estate is less risky than the stock market because it historically has lower volatility and there is a backup in the form of a physical asset. Taking this into account, closed real estate mutual funds can be used to diversify the portfolio,” agrees Mr. Muchipov.

When choosing a closed-end mutual fund for purchasing shares, you must first of all focus on the availability and openness of information, including on the composition of the fund and the valuation of the object, the volume of funds raised, profitability and its dynamics, the size of the management company’s commission, lists Alexey Novikov. According to him, another important indicator is the listing of shares on the stock exchange, which increases their liquidity in the event of an investor’s decision to exit the asset.

Elizaveta Makarova