Professional investors do not invest in open-ended funds, so that change would be the end of these funds.
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Let’s then next take on Titanium’s strategy, which was published at the end of November (readable here).
The strategy relies on four cornerstones, and my comments follow each point:
1. Products and services
Titanium expands its high-quality and distinctive product and service offering with innovative investment solutions that combine high quality and risk management to meet customer needs.
This is quite obvious. Titanium needs to expand its product/service portfolio. The idea of a “distinctive offering” also makes sense, as it’s difficult to see Titanium succeeding with bulk products (bulk requires even stronger distribution power and a large scale). If one had to guess based on current information, some kind of fund of PE funds (cf. what Alexandria launched in the summer) could be next. This would be indicated by the CEO’s comments in the H2 info and the profile of recent recruits. If you want to create distinctive products, you practically have to operate on the alternative side (differentiation in traditional products comes through track record and portfolio managers’ names).
2. Customers
Titanium strengthens its position as a strategic partner by offering more personalized service and expanding its customer base, especially among professional and international investors.
More personalized service is easy to endorse. It would be very logical for Titanium to shift from a product house to more of an asset manager (I’ve been talking about this for years). This would enable an increase in share of wallet, which in turn would support growth and improve customer retention. UB is an excellent example of the success of this transformation. There is an abundance of market available, and the fact that the company has not historically gotten everything out of its sales machine is due to the company itself (in 23-24, of course, also the real estate market), not the market in Finland.
Expanding the customer base to institutions and international investors, on the other hand, is something I find difficult to understand. Titanium, in terms of its machinery and product offering, is a house focused on private investors, and changing this into an institutional house is difficult. Of course, a small institutional team can be established, and it can be tested how new products fly among institutions. However, I am skeptical that it would be worth putting significant effort into this, while you have a perfectly reasonable position, an established customer base, and excellent pricing power among private clients. Titanium is starting institutional operations from a very small base (e.g., Titanium has not historically performed well in SFR surveys https://www.sfr-group.com/awards). Focus on the segment where you are good.
I cannot understand the yearning for the international side. There are a limited number of successful domestic players internationally, and succeeding in the international game is very different from at home. Typically, domestic houses operate in the international market with a very narrow product focus, with a product that truly differentiates you from the mass (Niemesvirta explained this very well yesterday in an interview around the 12-minute mark: https://www.inderes.fi/videos/mandatum-q424-osinkoyllatys). In addition, you usually also need your own local distribution power. In fact, Evli and Aktia are the only ones who have been able to operate successfully with an agent model (Aktia’s success ended when the EMD team defected to another employer). I find it very difficult to see that it would make sense for Titanium to put its limited resources here.
3. Personnel
Titanium invests in professional leadership, employee skill development, and creating an inspiring work environment to be the most attractive employer in the financial sector.
No further comments on this.
4. Operations
Titanium utilizes technological innovations to streamline processes, improve customer experience, and support the company’s position as a reliable investment industry expert.
Titanium’s efficiency has already been at an incredibly high level, and in recent years, the company has competed with eQ for the title of the sector’s most profitable company. Of course, a company must always improve its processes, but I do not consider it realistic that Titanium could become much more efficient, or that efficiency is the path to salvation. This whole thing relies on strategy points 1 & 2.
(Source: eQ’s comprehensive report)
Then the financial targets
- Average growth in fee income at least 10–15% per year
The targets were given at the end of November, so we can certainly assume that the beginning of the strategy period is January 1, 2025. Thus, the baseline revenue is 20.7 MEUR. From this, 10-15% growth is 2-3 MEUR/year. If the average fee level for new capital were, say, ~1.5-2%, then 100-200 MEUR of new capital would be needed per year. This is a realistic goal and achievable with Titanium’s +40 sales personnel. Of course, there need to be more products than currently, and certainly some changes need to be made in the sales structures.
- Operating profit margin averaging over 40%
I think it was smart that Titanium lowered the target from 50%. Firstly, this is more realistic, and secondly, it gives management more leeway to make the investments required by the growth strategy. I note that the 40% level is still very good in the industry context, especially if it is achieved without excessively high performance fees.
- A significant portion of the assets under service is directed to new products, services, and customer segments
In practice, AUM should at least double, and all from new investors. If all the “soft” AUM is removed and only the AUM generating proper fees is left, Titanium has roughly 700 MEUR, meaning this amount should be scraped from new investors. This sounds like a very challenging goal, especially since current customers would, in my opinion, be the most logical route for new sales. From the investors’ perspective, it is, of course, all the same where the new AUM comes from, as long as it comes. Presumably, the purpose of this goal is to describe the company’s growth aspirations in new target groups and products, which is, of course, the right direction. It is probably wise to view this goal more as a vision than a set-in-stone target.
The company aims to distribute at least 70 percent of the financial year’s profit as dividends, taking into account, among other things, the Group’s solvency position.
The target is practically the same as before, but without the words “growing dividend.” These had to be dropped because they already knew in November that this spring’s dividend would decrease significantly from the previous year. I do not believe the company’s dividend policy will change much. The company will likely continue to distribute almost all capital as dividends, as potential acquisitions will primarily be handled with its own shares.
Overall, Titanium’s strategy leaves a somewhat contradictory feeling. At the core of the strategy is, of course, growth, and expanding the product offering and moving towards an asset manager are entirely correct cornerstones for the strategy. Talking about institutions and especially international investors raises questions and even certain concerns (justifications above). I note that these are only preliminary thoughts, and I have not, for example, had time to discuss them with management. The intention is to update the comprehensive report this spring, and in this context, I will certainly gain more visibility into these themes.
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Thank you, thank you! Nice to be serving you again 
Now, to corporate acquisitions. Generally, regarding the market, it seems that there are still many “tire-kickers” around, and we will certainly see arrangements in the industry again over the next 12 months.
Regarding Titanium, I find it difficult to see it as an acquisition target. Although its market value has come down significantly, the price tag relative to AUM is still quite high. This is further emphasized when the buyer doesn’t know how much AUM they will actually get (the final amount of redemptions). Of course, with the current market value, I even consider it possible that some firm would want to buy Titanium’s real estate funds and extensive distribution network, whereas 18 months ago this was practically impossible due to its exorbitant market value.
It is significantly more likely that Titanium would act as a buyer/merger party itself. Although the market value has come down, the stock is still very much a viable commodity from the owners’ perspective. Furthermore, the real estate ‘hangover’ (note, not a crisis but a hangover! ) has led to a situation where Titanium needs to more actively seek new avenues to accelerate growth outside of real estate (for 18 months, there was no need to do anything but count banknotes). M&A would be an excellent route for this, and the new CEO’s background is also in investment banking. It’s also worth noting that Titanium’s Chairman of the Board is an ex-investment banker who has been involved in corporate arrangements his entire life. In this sense, I’m even a little surprised that the strategy doesn’t talk more about M&A 
When considering potential targets, Titanium is quite a “chameleon” in this regard. At least on paper, I could see a product house, a traditional asset manager, or a distribution-driven firm suiting Titanium. This is, of course, positive, as often the lack of potential “dance partners” limits arrangements for many industry players. In any case, the target would most likely be unlisted and smaller than Titanium. For example, a player like Korkia could be a quite interesting partner. Ultimately, in a potential merger, cultural aspects and views on pricing will be at least as important as the product portfolios, and these are, of course, very difficult to assess from the outside.
Have a nice weekend everyone! 
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In the video, Heikkilä highlights Kojamo, whose price to book is 0.6. As I understand it, this means that Kojamo’s stock market value is about 40% below the net value of the apartments owned by Kojamo. In other words, the housing market values Kojamo’s apartments significantly higher than the securities market. There is quite a discrepancy in market pricing.
Heikkilä discusses the correct price of Kojamo’s apartments in the video. As I understand it, he considers the price determined by the stock market to be more correct, compared to the price determined by the housing market. The main reason is that trading takes place on the stock market, but not on the housing market. And therefore, the stock market prices Kojamo’s apartments at least more correctly.
As is well known, the only theoretically correct way to determine the value of an investment is to discount the investment’s future cash flows to the present and sum them up. This is what stock prices should at least be based on. But just as well known as the definition of the correct theoretical value of an investment, it is known that calculating the value of a stock defined in this way is invariably impossible in real life. For many reasons.
As an example, we can ask whether Nvidia’s stock market value five years ago was “correct”? Or were Kojamo’s or Neste’s stock prices five years ago correct? Trading in stocks certainly took place.
Now the good question is, will Kojamo’s price to book gap close through a 40% decrease in the value of Kojamo’s apartments on the housing market? Does the Heikkilä & Vilen Show, believing in functioning stock markets, largely assume this?
In the stock market, stocks have hardly any anchor or price outside of daily trading. (Even Bitcoin has the cost of mining as an anchor.) The stock market mainly consists of assumptions about future cash flows and discount rates. And the belief that in a large group, the market works and the price is always right. Trading on the stock market is also fast and extremely cost-effective. In such a situation, someone might sell their shares “too cheaply” if a better deal is available.
The situation is different for apartments. Apartments fulfill people’s daily needs, and needs change. Usually, needs also increase. That’s why old apartments are demolished and new ones are built. It is said that up to 30,000 new apartments should be built annually in Finland. It is assumed that in Finland, as in Western countries in general, apartments and properties will continue to be built.
And when apartments are built, the price of apartments, both old and new, is determined not only by supply and demand, but also by the construction and repair costs of apartments. Construction costs act as an effective drag anchor, preventing rapid market fluctuations in apartment prices. Every owner of a new and old apartment can compare the value of their apartment to the value of a new apartment and construction costs.
It is also quite difficult to trade apartments quickly. Where someone decides to sell their apartment with financial gain in mind, because in the seller’s opinion, a better apartment deal is available. The transfer tax alone is a considerable obstacle to engaging in such activity.
I consider it highly unlikely that Kojamo, ordinary private apartment owners, or funds would widely start selling their apartments and properties, for example, 40% below the current price level, completely disregarding the construction and repair costs of buildings. That would simply be very foolish. For such a scenario to materialize, it would require a prolonged period of high real interest rates. Or some other extremely massive change in people’s and society’s behavior and circumstances.
It is likely that in the near future, sellers’ and buyers’ views on the values of apartments and properties will remain far apart for the time being. As they have for the past three years. And trading will continue to be sluggish. Until at some point, a common view on price levels begins to emerge, where the construction and repair costs of properties guide them. We will not see any massive property sales by funds, nor by Kojamo, tens of percent below the current level.
Nor do I believe that the price of construction would significantly decrease. For the price level of properties, at which trade takes place and goods move, to be found at a lower level than the current price level. On the contrary. For example, the world experienced almost 15 years of even zero interest rates. Driven by this, not only apartments but also many other things have been built in Finland. It is strange that despite even massive demand, at least large construction companies have performed worse and worse. One would assume that at some point, the construction industry will learn from its mistakes, and zero-margin construction would not be done. If so, at least regarding construction margins, construction costs have only one direction, and that is upwards.
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As a side note, one essential point regarding your chain of reasoning. Price to book is specifically the share price relative to the book value, not “market value”. In this context, the book value is primarily determined by third-party (consulting firms’) valuations of Kojamo’s properties, which in turn are based on available market data (comparable transactions) and/or a cash flow model. That is, exactly the same way, for example, Inderes values the companies it follows. Thus, I would compare Kojamo’s book value more to a collection of “target prices” from third parties. And as we know from the stock market, you can sell your shares above or below the target price depending on the current market price of the share, which is only determined by trading 
So, in summary, the stock markets do not currently believe that Kojamo’s book value (i.e., “target prices”) reflects the true market value.
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Yes, this is also the case with Kojamo, regarding property valuations on the balance sheet. Kojamo actually started appealing to illiquid markets and thus unreliable market prices long before the fund closures. With this, Kojamo long delayed write-downs of property values, but nothing prevented the company from making revaluations when the market was overheated.
According to the financial statements, Kojamo’s property portfolio’s net rental yield is 4.51%, and at that price, it would be impossible to realize Kojamo’s properties at the moment. A realistic yield requirement for Kojamo’s portfolio did not go that low even during zero interest rates, considering the portfolio’s composition.
Those who have followed the markets a bit longer know that real estate investment companies are rarely paid prices close to P/B 1, and they weren’t paid even before the adoption of IFRS.
PS: We are already quite far from Titanium; perhaps these previous posts could be moved to the coffee thread?
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Between 2018 and 2024, the value per square meter of Hoiva’s properties has increased by 12%.
The construction cost index has risen by 20%.
Although construction costs are not directly related to the property valuation process, I doubt there is much enthusiasm to sell Hoiva’s properties at a price significantly lower than current values.
If building a new property cost tens of percent more than an existing 5-10 year old one, it would simply be foolish to sell the current property. This is regardless of the fact that in a frozen housing market, property transactions are infrequent and at discounted prices.
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In EQ’s real estate funds, though this time in closed-end ones, there’s significant turmoil. The fund’s value plummeted by 59% in a month, and unitholders are being asked for additional capitalization to stabilize the situation. The sharp change in the fund unit’s value seems to crystallize in the method used for real estate valuation:
The new value has been derived using the income approach. In its proposal sent to investors, EQ justifies that the fund’s investment properties can currently only be realized and financed at their income value.
…
Existing investors in the funds are offered the opportunity to inject more money proportionally to their original investments. For someone who invested one million in the EQ Asunnot fund, the additional capital would be 390,000 euros; for eQ Asunnot II, it would be 440,000 euros. That is, more than the current calculated value of the fund investments.
Double or nothing? That’s quite a question for the unitholder…
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It’s really shaking hard, and to stabilize the situation?
However, the CEO stated:
- Financing was already originally intended to be arranged at this point.
- Obtaining a more affordable loan requires that some money is raised in any case.
Some amount evidently does not mean anything massive.
An alternative valuation method affects the ownership ratios of the shareholders. And not much even to that.
So, no one has lost anything massive yet. The financing interest rate might be a bit higher than planned. But no drama here. (Kojamo refinanced its loans in June 2024, and according to the financial statements, the company’s current interest rate on its loan portfolio is approximately 2.5%)
The purpose of the arrangement is likely, besides arranging financing as originally agreed, to facilitate or develop the fund’s operations in this market situation. If the shareholders consider it reasonable. They buy more apartments, perhaps?
Eventually, the apartments will be sold. When the markets have normalized and when the shareholders consider the time appropriate. Individually or in bulk, as has been agreed or will be agreed. I assume that then the transaction value and the yield value will be close to each other.
Just to make sure everyone has understood correctly. The problems of eQ’s housing funds have very little in common with Titanium’s. eQ’s closed housing funds have operated with very high leverage (the world looked different during zero interest rates) and now apparently have refinancing problems (with current interest rates, rental yields, high leverage, and fund management fees, it’s quite difficult to make a housing fund cash-flow positive). In closed funds, that debt leverage can indeed be hundreds of percent, whereas in open-ended real estate funds, it is limited to 50%. For Titanium’s Hoiva, the debt leverage was about 30% as of 1/25. Of course, financing has also tightened for open-ended funds, and in theory, an open-ended fund could also run into problems with this. This is what happened a little over a year ago with eQ’s Commercial Real Estate fund.
Personally, I am not particularly concerned about refinancing in Hoiva, and the company renewed its package last summer (Sisäpiiritieto: Erikoissijoitusrahasto Titanium Hoivakiinteistö on tehnyt uuden rahoitussopimuksen - Titanium OyjTitanium Oyj). Regarding Hoiva, I am most concerned about the number of redemptions
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If we delve into these commonalities, then of course Titanium’s Hoiva and these closed real estate funds of EQ are very different animals from each other, even though both invest in real estate. However, I see at least three commonalities between this EQ case and Titanium’s Hoiva at a slightly higher level.
The first is that defining the value of assets owned by the fund involves risk. In the case of EQ’s housing funds, this risk now appears to be largely materializing through the availability of financing. Also, in Titanium’s case, an external party might determine that your valuation method is incorrect, as a result of which the value of the fund unit could fluctuate significantly downwards. In EQ’s case, this external party was a bank; in Titanium’s case, it could be the Financial Supervisory Authority (Finanssivalvonta), which is currently investigating real estate funds’ valuation practices.
The second commonality is that the negative publicity received by EQ’s funds also affects the number of Titanium’s redemptions, as you expressed as a concern earlier. Even though the funds are different from each other, “Real Estate Fund” is the unifying factor that sticks in people’s minds from the media.
The third commonality is that even though the packages have slightly different gift wraps, in the end, both funds own the same asset class in the same northern corner. So, in my opinion, the commonalities between these two are not just an image created by the media.
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What I wonder is, if the valuation of Titanium’s funds should be lowered, would a rental yield percentage of over 10% (or some similar metric used in these cases) really be correct? It seems quite high.
Or, imagine that a new care home is built for 10 million, and it’s immediately determined that its value is only 5 million, leading to an immediate write-down of 5 million.
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One owns apartments (estimated to be even) with a yield of less than 4% relative to the acquisition price, with rental agreements made with consumers, in an oversupply situation, with 75% leverage.
The other owns nursing homes with 15-year rental agreements (estimated) with a rental yield of over 6% and 50% leverage.
The cost of financing, roughly estimated, is 4-5%.
Apples and pears are both fruits, of course, so they do have similarities.
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The leverage is probably lower, around 40% currently, and was even lower when there was more equity.
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Debt leverage is a somewhat tricky term, but it often refers to the same thing as the loan-to-value (LTV) ratio. It cannot be hundreds of percent in any type of real estate fund, which would mean that the loan would be many times the value of the collateral. In relation to equity, it can be over 100%, but that’s a different matter. If you meant the ratio to equity, then two things got mixed up in the message (I assume Titanium’s LTV ratio is 30% in relation to value, not to equity).
Even LTV ratios over 70% (at the time of drawdown) are rare even in closed-end funds. Simply because financiers do not grant them, which is likely based on banking regulations and risk management. Of course, an LTV ratio can fairly easily go over 100%, for example, by buying a property with 70% leverage and the property’s value drops >30% 
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Let’s share this review by Kasper and Sauli here, at least, because it also includes company-specific comments: Kiinteistörahastojen ongelmien vaikutukset eri varainhoitajiin - Inderes
I certainly don’t feel like investing in former star pupils eQ and Titanium, at least based on this review, even though risks have already been priced into the shares.
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Monthly reviews were already released yesterday.
Directly calculating from the figures for the beginning of the year, Hoiva’s return in 2025 would be just under 3% and Baltia’s just under 5%. However, as interest rates and thus return requirements decrease, returns are likely to increase towards the end of the year.
But even with these figures, Hoiva and Baltia are already a reasonable alternative to interest income. And in this respect, towards the end of the year, I expect the situation to develop very favorably as interest rates and interest income continue to fall, and on the other hand, Hoiva’s and Baltia’s return levels increase.
Considering the competitive situation and the future, I consider Hoiva’s and Baltia’s positions to be good. Despite everything, the funds’ returns have remained positive. Which will certainly be remembered.
Asunto has had a couple of negative years behind it. But judging by the fact that Asunto had hardly grown for years before interest rates rose and the stuff hit the fan, Titanium probably stopped the most active sales of the housing fund to its clients well in advance. Unlike perhaps many competitors.
Looking ahead, I assume that Asunto is also in a reasonably good situation. Probably the majority of Asunto Fund’s shareholders have been shareholders of the fund for a longer time. And their return from the Asunto Fund is likely still positive.
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However, investing always involves risk, and for example, the funds you mentioned carry a significant risk of value depreciation, as has been highlighted in the media and in this thread. Therefore, the approximately 3-4% nearly risk-free return offered by bond funds is by no means a comparable alternative to Titanium’s products when considering returns.
Most likely, the return requirements of the funds are still significantly low, so their decline in the market merely eases the downward pressure on the value of Titanium’s funds.
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As I understand it, bond funds are not a risk-free instrument, far from it.
Germany’s 10-year bond now yields 2.4%.
Titanium’s typical clientele can only dream of low-risk 3% interest returns.
I recommend checking out the short-term interest rate funds offered by various asset management companies and banks. You can definitely invest in these online.