Closed real estate mutual funds increased assets by 21% in nine months

The growth rate of assets of market closed-end real estate mutual funds has slowed down compared to last year, but remains quite high. At the end of nine months of 2023, they increased by 21%, to RUB 295.3 billion. Management companies increase the attractiveness of such investments by organizing secondary circulation of shares and paying regular income. However, by the end of the year, market growth may slow down significantly due to a decrease in demand from private investors against the backdrop of rising deposit rates.

According to Kommersant’s assessment, based on data from the management company PARUS Asset Management, the total assets of market closed-end real estate mutual funds increased in the third quarter of 2023 by 7%, to 295.3 billion rubles. Since the beginning of the year, the figure has increased by 21%, which is half the growth rate a year earlier. The slowdown in market growth is due to both the high base effect and the increased supply of alternative investment products. The main increase in assets comes from funds available to unqualified investors. Since the beginning of the year, their assets have increased by more than 36%, to RUB 127.6 billion. Funds available to qualified investors grew by 11.6% to RUB 167.7 billion.

As Elena Mikhailova, head of marketing research and analytics at PARUS Asset Management, notes, closed-end mutual funds for commercial real estate show returns of up to 15–20% per annum in warehouse real estate and up to 10–15% per annum in retail real estate, which is higher than inflation and income from investment in residential apartments. Investors are also attracted by regular income payments, primarily in rental real estate funds. “The total volume of investment income payments exceeded 10 billion rubles—6.2 billion rubles. for non-qualifying investor funds and RUB 5.67 billion. for funds for qualified investors,” estimates project director of the management company “Modern Real Estate Funds” Ekaterina Vasilchenko.

To increase the attractiveness of such investments, management companies are bringing shares of closed mutual funds to the organized market. According to PARUS Asset Management, the total trading volume on the Moscow Exchange in market closed-end real estate mutual funds for the three quarters of 2023 exceeded 10 billion rubles, which is twice as high as the same period in 2022. “Management companies are bringing fund shares to the stock exchange, increasing the availability and liquidity of closed-end real estate mutual funds for private investors,” notes Elena Mikhailova. To increase liquidity, management companies can resort to the services of market makers and introduce the exchange of shares for square meters (see “Kommersant” dated October 22).

However, in the context of rising interest rates, market participants do not rule out a slowdown in the growth rate of assets of closed-end real estate mutual funds in the coming months, primarily due to a decrease in inflows of funds from shareholders against the backdrop of the growing attractiveness of classic deposits. According to the Central Bank, the average maximum rate on deposits of the largest banks amounted to 10.18% per annum in the second ten days of October, having increased by 2.35 percentage points over three months. At the same time, deposit rates in the largest banks exceed 13% per annum, and for some – 15% per annum.

However, market participants are counting on new opportunities in the current conditions. New funds will appear, since at the peak of the growth of the key rate, the cost of real estate should tend to a minimum value, notes the general director of Veles Trust Management Company Dmitry Osipov. In particular, he does not rule out the emergence of closed-end mutual funds that buy debt-ridden but well-located shopping centers, which, given the high interest rates, will go to the banks. At the same time, he sees the greatest growth potential in investments in class A office centers located in established business districts of Moscow. Against the backdrop of the continued growth of e-commerce, the market sees high growth potential in warehouse real estate, although growth is expected in other segments. “We definitely need an increase in recreational infrastructure – hotels, glampings, recreation centers; this is the next promising direction for the development of closed-end mutual funds,” says Vyacheslav Ismailov, general director of KSP Capital Asset Management.

Vitaly Gaidaev