The influx of new funds into market closed-end real estate mutual funds has seriously slowed down at the beginning of 2024

At the beginning of 2024, the growth rate of assets of market closed-end real estate mutual funds seriously slowed down, primarily due to a decrease in the rate of inflow of new capital. Against the backdrop of high deposit rates, it is difficult for management companies to compete with banking products. At the same time, such closed-end mutual funds themselves increase the share of funds invested specifically in real estate, and not in other instruments – it already exceeds 90%. Investments in warehouses remain the most popular, and the share in the total portfolio of retail real estate is falling.

According to Parus Asset Management Management Company, the total assets of market closed-end real estate mutual funds in the first quarter of 2024 reached 346 billion rubles. This is only 7% higher than the end of 2023, of which 3% of the growth was provided by the revaluation of assets and only 4% by the influx of new investments. A quarter earlier, assets grew by 10%, of which revaluation accounted for 1.2%, and 8.3% was provided by new capital.

The strongest decline in growth rates occurred in the area of ​​closed-end mutual funds available to qualified investors.

Their assets have increased since the beginning of the year by only 3%, to 185.1 billion rubles. In the fourth quarter they grew by 7%. The assets of funds available to unqualified investors increased by 11.7% at the beginning of 2024 (1 percentage point (pp) lower than the previous quarter) and reached almost RUB 161 billion.

The slowdown in growth rates is associated both with an increase in the calculation base and with an increase in the attractiveness of bank deposits as an alternative to such investments. At the end of the first quarter, the average maximum rate on deposits was 14.83% per annum.

According to the head of marketing research and analytics at Parus Asset Management, Elena Mikhailova, the internal rate of return of mutual funds for warehouse real estate amounted to 20–27% per annum in the first quarter, for office real estate – 13–17% per annum, for retail real estate — 9–15% per annum. However, unlike insured deposits, investments in real estate are associated with the risks of negative revaluation of assets and a decrease in rental flows.

At the same time, mutual funds themselves, officially oriented towards real estate, increase core investments.

If at the end of 2023 its share accounted for less than 85% of all assets of such funds, then at the end of the first quarter the figure exceeded 90%. As a result, the share of the liquid part of the funds (cash, deposits, OFZ) decreased from 15.6% to 9.5%.

Project director of the SFS Management Company (funds managed by the company occupy almost two-thirds of the market) Ekaterina Vasilchenko explained that during the reporting period, large transactions planned and agreed upon back in 2022 were closed. In addition, Ms. Vasilchenko clarifies, the speed of approval of transactions between developers and management companies has increased.

The highest growth rates are maintained by funds investing in warehouse real estate. Their investments during the reporting period increased by 34.5 billion rubles, to 211.2 billion rubles, and the segment’s share increased from 54.6% to 61.1%. The share of residential real estate funds increased from 1.8% to 2.3%. Office real estate funds maintained their positions (12.3%). The outsiders were retail real estate, which, despite an increase in investments by 0.7 billion rubles, to 51.3 billion rubles, reduced its share by 1.1 percentage points, to 14.8%.

Investment Director of Tethys Capital Management Company Andrey Arzhanukhin notes that previously popular investments in business centers, shopping and entertainment complexes and street retail have lost ground against the backdrop of weak results in the retail real estate segment.

“The basic driver of warehouse real estate, also known as the anti-driver in shopping centers, is the growth of e-commerce services and the development of new transport hubs,” adds Vladimir Stolnikov, head of the alternative investment management directorate at Alfa Capital Management Company.

In the coming months, market participants do not expect a recovery in the growth of attractions to real estate funds, but they are looking with hope at the second half of the year, counting on the easing of the Central Bank’s monetary policy. Sovcombank analysts admit that by the end of the year the key rate will drop from the current 16% to 12%. This will reduce the attractiveness of deposits and money market instruments and increase the attractiveness of real estate investments.

Elena Mikhailova predicts investments in closed real estate mutual funds in the second half of the year in the amount of 80–100 billion rubles. “Warehouse complexes are the flagship of growth among real estate segments, so we fully expect a flow of funds from the money market into this segment,” notes Dmitry Osipov, CEO of Veles Trust Management Company. “The volume of money for investment is growing, but there are not so many investment instruments, and closed-end mutual funds real estate is one of the best.”

Vitaly Gaidaev