These suspensions, announced on New Year’s Eve, aim to protect the interests of all fundholders by avoiding forced property sales at depressed prices.
The Finnish Financial Supervisory Authority (Fiva) confirmed the closures mark an unprecedented moment for the nation’s fund market. “This is exceptional. Nothing similar has occurred in the history of Finland’s investment funds,” said Marko Hovi, head of the agency’s office.
Real estate funds have faced mounting difficulties since late 2022 due to stagnant property transactions and falling valuations. Many funds have struggled to meet redemption requests as large property sales — a necessity for liquidity — remain unviable.
“The property market has been practically frozen,” explained Juha Takala, CEO of OP-Rahastoyhtiö. He highlighted that selling high-value properties at appropriate market rates has become increasingly challenging.
Other fund managers, including Mandatum, EQ, Evli, S-Pankki, and Ålandsbanken, have implemented similar restrictions.
Experts warn the situation underscores the illiquid nature of real estate investments, even when packaged in fund form. “An illiquid product doesn’t become liquid by being put into a fund,” said Vesa Puttonen, a professor at Aalto University.
Real estate funds often operate under the assumption that assets can be sold at reasonable prices within a set timeframe. However, during market downturns, liquidity constraints can force funds to suspend redemptions entirely to avoid fire sales, said Juhana Brotherus, chief economist at the Federation of Finnish Enterprises.
“This is a stark reminder for investors to understand the risks involved in illiquid products,” Brotherus added, noting that most affected investors are private individuals.
Funds are designed to balance the interests of all participants, preventing early redemptions from draining liquidity and disadvantaging remaining investors. “The goal is to treat investors equitably and avoid destabilising the entire market,” said Puttonen.
Forced property sales during a crisis could lead to a downward spiral in valuations, further damaging fundholder equity and the broader real estate market.
While OP’s decision has drawn criticism for its timing — announced late on 31 December — the firm maintains that its move was essential to safeguard the quality of its assets and ensure fair treatment for all investors.
The timeline for resuming normal operations remains uncertain. Fund managers, including Takala, stress that the suspensions are temporary and will be lifted once market conditions stabilise. However, Brotherus warned that it could take up to a year before all funds reopen.
“Funds would not have opted for such drastic measures if they believed a market recovery was imminent,” he explained.
For private investors, the freeze presents a serious challenge, especially for those needing immediate access to their funds. “This is a blow for those who require their money now,” said Timo Rothovius, a professor of finance at the University of Vaasa.
The real estate market in Finland has shown early signs of recovery, with some increased activity in housing sales. However, structural challenges persist, including high vacancy rates in commercial properties and the precarious financial position of construction firms.
The incident also highlights the importance of transparency and trust in financial markets. “Companies offering these funds must prioritise open communication to rebuild confidence among investors,” Rothovius noted.
“Investors must recognise that returns on illiquid assets are inherently tied to market cycles,” said Puttonen. “This situation serves as a hard but valuable lesson for the future.”
HT
