Financial Crime World

ESTONIAN REAL ESTATE FUNDS TAKE THE LEAD IN INVESTMENT FUND MARKET

A Significant Shift in the Estonian Investment Fund Market

In a significant shift in the Estonian investment fund market, real estate funds have emerged as the dominant force, holding 57% of the market share at the end of 2022. Hedge and other funds came in second with a 39% share.

Growth in Real Estate Funds

According to data from Finantsinspektsioon, the assets under management by real estate funds have grown significantly due to new investments and the addition of new funds. The number of real estate funds has increased from eight to 12 over the past five years, with total assets reaching €921 million at the end of 2022.

Hedge Funds

Meanwhile, hedge and other funds saw their assets increase more than sevenfold in the same period, largely driven by the growth in the number of funds. Assets under management in this category reached almost €630 million at the end of 2022.

Diverse Fund Managers

Despite the relatively small size of the investment fund market in Estonia, the structure of fund managers is diverse. While licensed fund managers dominate the scene, a significant number of unlicensed small fund managers have also emerged.

  • There were 11 licensed fund managers operating in Estonia at the end of May 2023.
  • 78 unlicensed small fund managers and six licensed small fund managers were also present in the market.

Future Outlook

The growth of real estate funds is expected to continue, driven by increasing demand for alternative investment opportunities and the attractiveness of Estonian real estate as an investment destination.

ESTONIAN STOCK MARKET REMAINS SMALL BUT SHOWS SIGNS OF LIFE

A Small but Revitalizing Market

Despite remaining a relatively small part of the Estonian financial sector, the local stock market is showing signs of revival. The market capitalization of the Tallinn Stock Exchange stood at €4.5 billion or 13% of GDP at the end of 2022.

Foreign Investors

Non-residents held 19% of the stock market capitalization at the end of 2022, a decline from previous years. The majority of foreign investors were residents of the Cayman Islands, Luxembourg, and Finland.

Challenges

The local stock market has historically been small due to several factors, including:

  • The size of Estonian businesses
  • Household savings habits
  • The dominance of banking in Europe

Current obstacles to development include:

  • The small size of the market
  • The lack of large companies suitable for listing
  • Relative lack of liquidity

Signs of Life

However, the market is showing signs of life, with local investors becoming more active and new companies listing on the exchange. The shares of eight companies were listed during 2021, a significant increase from previous years.

Challenges Remain

Despite these positives, challenges remain, including:

  • The need to attract larger companies
  • Improve market liquidity