Financial sector as an investment

Stocks
,
803

When liquid turns illiquid, the saga continues! Kauppalehti also spotted that Ålandsbanken slammed its “open” wind power fund shut in July. Tuhansien suomalaisten rahat jumissa 240 miljoonan tuulivoimarahastossa | Kauppalehti

He states that the connection between the Wind Power Fund and the electricity market is explained by the fact that when electricity prices are high, investor sentiment in energy funds is better, and the transaction market for potential sales of wind farms becomes more active. According to Känkänen, higher electricity prices would improve the liquidity situation of the wind power fund.

This comment is, in my opinion, even a bit amusing. I somewhat doubt that customers were told during sales situations that if electricity prices are low, they won’t be able to withdraw money from the fund. :man_shrugging:

The fund owns only 5 assets, one of which is 100%.

image

Selling those assets in the current market is really difficult (electricity prices are too low), and furthermore, those minority holdings complicate sales even more (fewer interested buyers for minority stakes). If the electricity market does not recover, this might have to postpone redemptions for a very long time.

As I’ve said before, I consider it quite likely that some forest fund will postpone redemptions next. :evergreen_tree:

36 Likes
804

There are also several projects in the development phase, as stated in the fund report:

The fund and the Finnish
renewable energy company Myrsky Energia Oy entered into a collaboration
regarding the development and ownership of certain wind
power projects in 2021. This collaboration ended in June 2025, and as part
of the termination of the collaboration, the parties agreed on an arrangement
where the ownership of six wind power projects was transferred entirely to the fund.
All six projects are in the zoning phase, and they are intended
to reach construction readiness within the next few years. Myrsky will continue
as the project developer for the transferred projects for a transition period, after which
the fund will continue project development with a new cooperation partner
of its choice.

Talouselämä also reported on this Myrsky Energia collaboration in August (paywall):

The 15 million euro dividends raised from those project companies went into the pockets of Korpi Capital and another Myrsky Energia shareholder. The wind power fund demanded large damages from Myrsky’s owners, but the dispute was settled quietly in June of this year. I have no information about any compensation the fund may have received.

However, a new partner has now been found for these projects:

Ålandsbanken Wind Power Special Investment Fund initiates project development cooperation with ABO Energy

6 Likes
805

In open-ended funds, there is a generally overlooked risk: what if the fund is committed to project developments and capital starts flowing out. In residential property funds, this risk was absolutely insane during those crazy years when everyone was building frantically, trusting that their own equity would remain and debt would be available. I don’t know what on earth would have happened if cash flows had turned away from open-ended residential property funds a couple of years earlier and banks’ loan taps had dried up. :detective:

12 Likes
806

Can someone smarter reason why these “special” funds from brick-and-mortar banks are so popular? Still, even though they have already been closed for redemptions. I don’t know on an absolute level how big they are, but significant sums of money are stuck in them for private individuals.

With just a minute of searching, Nordnet offers all kinds of investment options for wind power, forests, and real estate. In all of these, the costs are significantly lower than bank funds, diversification is greater, and I would bet the liquidity is also considerably better. Quite certainly, there are all kinds of offerings elsewhere too. If I myself were investing, for example, €50,000 in wind power, I would want to own much more than just a few wind farms in Finland.

Or are the largest private clients of these funds elderly people just above the guardianship threshold, who trust the bank like a believer trusts their god? From them, the bank then extracts everything it dares to ask for.

Is it easier to sell when the customer can concretely go and see the wind turbines or properties they own? Does there need to be something physical, when even securities are no longer in tangible paper form?

4 Likes
807

They are sold to bank customers with a diversification story. To customers who know nothing about Nordnet and who do not choose their own investments but rely on the bank’s recommendations. And there are many more such investors in Finland than those who dig up comparisons from Nordnet or even know that this could be done.

11 Likes
808

I can’t help but bring up my own, surprisingly much-noticed article on open-ended real estate funds:

What caused the gold rush?

Before we delve into the fix, let’s consider for a moment why open-ended real estate funds have been so popular. The era of zero interest rates caused a massive real estate boom in Finland (also seen as a bubble in the housing market), and real estate investing became a hobby for everyone. The zero interest rate era led to a situation where risk-free interest became an unproductive risk, and real estate investments came to fill this void of interest-bearing investments (for both institutions and private investors). When the return curves of these open-ended funds were drawn as if with a ruler, risk categories were very low, and the products were still in liquid form, they sold like free buckets at an opening. Naturally, the industry also had a huge desire to respond to the demand, as the fee levels of open-ended real estate funds are truly attractive compared to traditional asset management.

This same explanation, spiced with the diversification angle raised by @Lisko1, applies to all alternative investments (forest, wind, real estate, etc.).

15 Likes
809

I have been led to understand that Ålandsbanken’s fund is in any case entirely banker-driven, and unlike, for example, Taaleri Energia, it has no concrete expertise in developing or managing wind farms. In that case, one is even more completely at the mercy of the market.

The same can also be highlighted in housing funds, for example. Some funds (companies) themselves control essential parts of the value chain. For example, they own entire buildings and can make investment decisions themselves and consciously manage assets. And generally, they are market participants on a completely different level. And others just engage in speculative investing in fund form, meaning they try

4 Likes
810

@Alex_af_Heurlin1 good article on real estate valuations based on the YLVA case :abacus: :department_store: What has bothered me about the whole YLVA case is that the media has constantly talked about a “fire sale price” or “selling below fair value”. Yes, the properties were sold below book value, but that is different from fair value. The market still seems to have a strong misconception that there is some magical fair price for properties, which is clearly higher than current prices. No one says when and how this fair price will be reached, but it supposedly exists and is relied upon. This is why, for example, funds have also postponed redemptions, because they don’t want to sell properties below this mystical fair price. :man_mage:

However, the unfortunate fact is that this “exceptional situation” advertised by managers has lasted for almost three years, interest rates have stabilized, and real estate transactions are recovering. In my opinion, talking about some mystical fair value in this situation is completely foolish. The fact is that this current price is the fair price and the current market situation is the new normal. Acknowledging this hurts, because properties were often bought in the zero-interest rate euphoria of a wild market, and now the values are something completely different. After 10 years of zero-interest rate punch, the hangover is severe. However, this is the prevailing market reality. For example, in YLVA’s case, the properties have been for sale for a long time and have certainly been offered to all interested parties. That was the best price obtained. If real estate news is to be believed, an auction was even held for this (Keva voittanut tarjouskilpailun Ylvan kiinteistöistä, kaupassa kanssasijoittajina Mrec IM ja HGR - Kiinteistouutiset).

Feel free to object if the perspective is too black and white! :black_large_square: :white_large_square:

49 Likes
811

That was also a forced sale. Ylva genuinely had no option but to sell, and the buyers knew that. By definition, that is not fair value, even though it was the best price that could be obtained in this situation and with this timetable.

From the media, I have understood that there genuinely were no other buyers for the entire portfolio. For individual properties, there might have been, in which case (perhaps?) a better price could have been obtained if there had been an opportunity and time to play that card.

Still, in the big picture, I agree, the book value is definitely not fair value, and that value is probably not very far from the true market price.

8 Likes
812

For the weekend, let’s share Fundco’s Saku Sairanen’s critical blog post about PE funds and private investors. Evergreenit ja pienten sijoittajien vedätys - Fundco

Essentially, in the text, Saku warns about an ongoing trend where PE funds are sold to private investors with high return promises. The fee structure of these products is fundamentally very high, and there is undeniably a big risk that the winners are ultimately the managers, not the end investors.

Also here is my podcast from just over a month ago with Saku on the same topic:

20 Likes
813

Related to this, I came across a Kauppalehti article from a couple of weeks ago, in which Sauli

8 Likes
814

Good point - Taaleri Energia and other more robust utility scale wind and solar managers/teams cannot be compared on the same day. Furthermore, that point about apartments is absolutely true; ÅAB also has mainly partially owned apartment buildings in its housing fund (a few apartments per apartment building), where I don’t really see the point. In selling and managing, and above all in decision-making, you don’t get any institutional benefit because you are just one owner among others in the housing company.

Things are brutal in all “open” alternative funds where a “liquid” fund structure has been built on top of an illiquid asset class.

In forest funds, however, that sudden closure doesn’t come as quickly purely for the reason that in large forest entities, the manager can sell timber and exercise more discretion over time without having to sell the entire mass. I.e., harvesting or thinning is done earlier, timber/pulpwood is sold earlier.

3 Likes
815

In the morning’s Helsingin Sanomat, there’s a really good article about the housing market’s hangover and its causes. Naturally, open-ended real estate funds are also intertwined with this story, as they were one of the main organizers of the party (of course, with their end customers’ capital).

15 Likes
816

How will fund management companies be able to justify the valuations of their open-ended forest funds after Stora Enso lists its Swedish forests on the stock exchange?

It’s difficult to find an independent or even seemingly independent appraiser who would dare to let open-ended funds develop in a significantly different direction from Stora’s forests if the liquid market doesn’t give them love.

Perhaps someone will throw out a joker that the valuation of Swedish and Finnish forests is not comparable. The largest investments of Finnish forest funds are in their home country, but as I understand it, acquisitions have also been made from the other side of the bay.

I see it as quite possible that after the listing, first a financial newspaper and later a daily newspaper will publish a story about the valuation difference between forest funds and the stock exchange. Add a few redemptions into a tight market, one call to the press about how the money isn’t immediately in the account, and the snowball is ready.

This paragraph might fit better in the pulp chain thread, but I’ll put it here for now. Generally, Stora’s forests bring an interesting comparison to the stock exchange, but it would have been even better if Tornator (Stora owns just under half) had been merged with the forests before the listing. This way, the largest forest owner in Finland and Sweden, without industry, would have been brought to the stock exchange.

6 Likes
817

A bit provocatively/speculatively, but couldn’t that be compared to the real estate market and listed real estate (REITs, etc.)? REITs are significantly more volatile than the “physical” real estate market, and prices only serve as a loose indicator for the physical market.

3 Likes
818

The pricing of the listed market has never had any effect on the unlisted one. As @Kermajeesus noted, in real estate, this difference between listed and unlisted has at its worst been around 50%. The CEO of one asset manager made a funny comment a couple of years ago, stating that a perfect arbitrage was now available: sell open-ended real estate funds at book value and buy REITs at -50%. Unfortunately, this trade couldn’t be made, as the real estate funds were just about to close.

I myself also criticized during the corona crisis how the global listed real estate market collapsed by -40% while Finnish open-ended real estate funds chugged upwards.

11 Likes
819

OP announced partnerships with JP Morgan, Goldman, and Blackrock :handshake: OP Pohjola aloittaa strategisen kumppanuuden kolmen johtavan kansainvälisen varainhoitajan kanssa - OP Pohjola

In the KL article (link below), the company’s management explains the reasons: Porkka says that the new cooperation primarily seeks better investment returns and a wider range of products for customers.

Expanding the product offering is a given, but I think it’s great that the company dares to openly highlight investment returns as well. The fact is that no one can be good at everything in this field, and for example, OP’s average fund is quite mediocre (the majority lose to the index in the long run, etc.). With these collaborations, OP brings new products to its offering, and with high probability, will replace some of its own underperforming products with those of its partners :clap:

In my opinion, this move also reflects a broader trend in the asset management market of continuously rising standards. Index funds have arrived in Europe significantly slower than in the United States due to our bank-centric distribution model, but that ‘index bogeyman’ is increasingly pushing things on this side of the Atlantic too :ghost:. If your products are mediocre, the fee pressure on the private customer side will also be even tougher over the next 10 years.

Another interesting point in the KL interview ( OP Pohjolalta liike varainhoidossa – kertoi uusista kumppanuuksista jättien kanssa | Kauppalehti ) is this customer focus: Porkka says that while the field of institutional investors is important for OP Pohjola, the biggest growth potential lies in the bank’s existing customer base, private banking clients, and ordinary savers and investors.

In institutional clients, OP’s market position has been weakening for a long time, as eQ, Evli, and Mandatum have surged past from both the right and left. But this focus on private customers is very logical, due to the company’s superior distribution network and customer reach. Naturally, the company is aware of the ongoing investment boom (trust in the pension system, inheritances, etc.) and the structural growth potential it brings to the Finnish asset management market. :chart_increasing:

A third interesting point is the M&A comments:

Porkka does not dismiss the idea that OP Pohjola could at some point acquire a smaller player in the asset management sector.

“The company to be acquired should be a player that genuinely has something new to offer us. It doesn’t necessarily make sense for us to acquire a smaller asset manager just to grow our customer base, as M&A transactions are always laborious. It also wouldn’t make sense because we already have many customers in our existing customer base whom we need to know how to activate for investing in the right way.”

This is also completely logical; it doesn’t make sense for OP to acquire customers (especially private customers). On paper, a stronger attack on institutional clients would have been justifiable through M&A (acquiring eQ or similar), but these ideas are shot down here. Instead, OP could be interested in expanding its product offering with high-quality product houses. Here, OP is in the same queue as practically all asset managers in the city. There is fierce bidding for a good product house.

18 Likes
820

Samla Asunnot buys 16 apartments in Jyväskylä from S-Bank’s housing fund:

image
image1920×1391 187 KB

I understand the desire to sell if redemptions are frozen in S-Bank’s fund. Instead, I wonder about Samla’s desire to buy; one would think that this fund also has redemptions in line based on the recent performance of the Olympic winner :melting_face:

5 Likes
821

Isn’t that a closed-end fund? Meaning redemptions cannot be made, but the fund has a fixed term like Private Equity funds?

822

Yes, the Samla fund is, as I understand it, open and “evergreen”! It’s quite wild that there isn’t a queue of redemptions in the vestibule after all this :thinking: In theory, it’s possible that the fund only has redemptions coming up, because redemption periods are long and windows are open twice a year. It would feel quite wild to commit more capital in this situation if they knew they’d have to pay redemptions in x months.

With the write-downs, the value of Samla Asunnot Ky halves from its year-end valuation level to just under 60 percent of the original invested capital. Source: Samla Capital alaskirjaa rahastojensa omistukset The Hotel Mariassa | Samla Capital Oy

7 Likes