Has the company been with you for two months, for what purposes did you become the head of Diófa Alapkezelő? What is the mandate of your appointment?
Since its founding in 2009, Diófa Fund Management has become one of the key players in the fund management market. The total value of the investment portfolio managed by Diófa Alapkezelő exceeds HUF 460 billion. It also provides asset management services to private pension funds, insurance companies and other institutional investors in mutual funds. Diófa Alapkezelő manages the 3rd largest retail real estate fund in Hungary, the Magyar Posta Takarék Ingatlan Fefektetési Alap. Since 2014, it has also been providing premium asset management services to its clients.
In addition to these results, the new owner of Diófa sees further strong growth potential in the company. I have been given a mandate to do this. The goal of Diófa Alapkezelő is to become a dominant player in the market and to further diversify its product and service range with innovative solutions.
Our goal is to double the amount of assets under management within three years.
Building on the experience of our existing team of professionals and new entrants, we want to build a knowledge-based company that provides new perspectives and even higher returns for customers. In addition to a strong real estate and securities focus, we also focus our resources on strengthening venture and private equity investments. My goal is to contribute to this as effectively as possible, during which I can also rely on the experience of my nearly 30-year career in the capital market.
There was also a significant change in the ownership structure, as in March of this year BDPST Capital Zrt. Signed a share purchase agreement for the acquisition of Tarragona Holding Zrt., Which owns Diófa Alapkezelő. But what changes with that?
Nothing has changed at Diófa that the fund manager will make its investment decisions on the basis of investment policies that continue to be defined, following a professional assessment of the available returns and potential risks. Thus, the presence of the new owner, BDPST Capital Zrt., Has no direct impact on the day-to-day operations, customer service and existing contractual relations of Diófa Fund Management. The fund manager continues to be managed by an independent professional management with unique domestic and regional market experience, which always puts the interests of the clients first. We want to continue to strengthen professionally while maintaining the changes we started last year. Continuing to work together with board members plays a big role in this and ensures continuity in the life of the company.
At the same time, the change also opens up new opportunities for us, as BDPST Capital Zrt. Also has a majority stake in Gránit Bank, which opens up new synergies for both parties in terms of our product portfolio and sales channels.
The goal is clear, we want to make even more investment products available to our clients with the highest possible returns.
What type of cooperation is expected between Diófa Alapkezelő and Granite Bank? Will it affect both fund management and premium asset management?
Comparing the activities of the two financial service providers, we are taking advantage of the opportunities for cooperation in the field of fund management and premium asset management. In addition, it is hardly surprising to say that we are intensively looking at what additional sales channels Granite Bank can offer to Walnut Fund Management and working to surprise the market with positive news later this year.
According to Márton Nagy, this year we will see an annual average inflation of around 10% in Hungary. Are there any benefits of high inflation in real estate fund performance?
Galloping inflation above 10 percent makes business processes unpredictable, unpredictable while amortizing available margins on all sides. In times of such challenges, when the investment environment is uncertain, assets and investment products with intrinsic value that can perform well even in an extremely unpredictable environment become particularly important. For example, real estate funds are an inflation-resistant product in terms of their longer-term returns, which may give them an advantage over other types of investment. One reason for this is that leases are tied to inflation, so the main source of revenue is inflation-tracking. The real estate market also operates on a euro basis, which is currently providing a gradual increase in value.
77% of the assets managed by mutual funds can be attributed to a single fund, MPT Real Estate (240 out of 310 billion). Would they maintain this high real estate exposure or are there already plans to restructure their investment portfolio?
The mentioned fund is the 3rd largest retail real estate fund in Hungary, which has already won the trust of tens of thousands of small investors with its diversified real estate portfolio and competitive performance. The analysis prepared by Portfolio.hu, published in the first days of May, shows that in the current overheated, turbulent economic environment, Magyar Posta Takarék Ingatlan A series performed the best among the largest retail funds. The 1-year retrospective return at the end of May was 6.6% for that series, ahead of its competitors. It is no coincidence that the Series A of the MPT Real Estate Fund won first place in the Best Real Estate Fund category at this year’s Private Banking Class Award Ceremony. All this proves to us that the fund is heading in the right direction.
Furthermore, Diófa Alapkezelő has one of the widest real estate-based investment product offerings on the domestic market. This is also important because, with the right expertise, real estate funds are able to generate stable and predictable returns for investors even in the current uncertain external market conditions, which have a negative impact on the functioning of the capital market.
Until now, the fund management profession has had to compete with MÁP’s + 5% annual return, but now more and more investors are choosing the inflation-tracking premium government security. Can the PMÁP pose a more serious “threat” to the demand of domestic investment funds?
We noticed an increase in the inflation risk early enough, and we re-weighted the government securities investments of the portfolios we managed from the previous fixed-rate assets to the premium Hungarian government securities after inflation. It also happens several times that we replace the previous PMÁP series with newer ones if there is a rational reason for this.
In an environment of rising yields and declining inflation, we can choose nothing but a floating-rate government security that follows inflation.
At Diófa Fund Management, we have had investment funds for years (typically private equity funds) for which double-digit annual returns are not uncommon. In addition, these products can deliver even higher returns in a rising inflation environment thanks to indexed leases. It is important to emphasize, however, that these funds are nowhere to be bought directly by private investors; leveraged real estate funds were almost without exception originally issued to large institutional clients. An exception to this is the Premium Asset Management Business Unit of Diófa Fund Management, as investors who choose the service can benefit from the higher return potential of premium products.
All in all, in a rising inflation environment, investment instruments must also be such as to yield rising returns in the event of rising inflation, as this allows our investors to realize real returns in addition to preserving the real value of their assets.
According to them, can they even compete with PMÁP?
It is true that the interest rate of the latest PMÁP is currently 6.6%, but if someone wants to get out of this investment in a year, for example, the net selling price will not be 100%, they will typically buy it at a net price of 99%. . Thus, the coupon yield will be approximately 5.6%.
Even if the client keeps the bonds until maturity (for 5 years), they will be able to run their investment at a 100% net price, but how the bond will yield interest in a year’s time – as it is always linked to the previous year’s inflation – , we no longer know. It is not ruled out that next year, say from the middle of the year, this new PMÁP interest rate will be above 10%, but we cannot know the interest rate for the next few years, as we can only expect whether inflation will remain at the current high levels or at some point again. “Takes it south”.
Because of the above, it is not entirely fair to say that the 6.6% return can be safely considered a benchmark for this year. At the same time, the walnut real estate funds mentioned in several places above seem quite competitive even in contrast to this 6.6%.
What are the investments that may also be considered when it comes to protecting inflation?
Although stock markets have been going through a very difficult period since the beginning of the year due to the rising interest rate environment and rising inflation, I can say that it may be worth paying attention to this segment in the coming months as well. As a result of the fall in the stock market since the beginning of the year, the pricing of several sectors previously considered overvalued has normalized. Although the end of the rise in inflation is yet to be seen, it is expected that it will not be so far away in time, and the market may have already heavily priced in the US Federal Reserve’s tightening cycle. In light of this, situations may arise in the coming months where the market can react with even the slightest good news.
Nevertheless, there is still a need to be extremely cautious about equity investments and to pay special attention to selecting the right sector. Agricultural and energy companies, for example, may be able to profit in the current economic environment, while a further fall cannot be ruled out in the case of tech companies, which have long been considered invincible. It is also important to emphasize that, in addition to raising central bank interest rates, one of the most important questions is whether large economies will be able to avoid a recession. Until we get reassuring answers to this question, it would be premature to wait for a sustained, trendy rise.
In this challenging, uncertain macro environment, entrusting assets to professionals is now a key strategic decision, perhaps more important than ever. Fund managers can offer their clients services and investment tools that are crisis-proof, adaptable to turbulent macro-environmental impacts and, last but not least, reliable. In fact, we also offer extensive experience and references for this, as well as an excellent professional staff.
How next, where can the market go? For example, how much scope can the application of the ESG approach gain in the field of real estate funds?
There can be no doubt that the ESG approach will become an unavoidable factor in the sector. True, interest from institutional investors is still limited today, with more proactive players waiting or testing to see how this can be translated into the level of day-to-day business operations. This topic is also becoming more and more important for the population, however, surveys show that the consideration of ESG aspects has not yet been integrated into the investment decisions of the residents.
Integrating the ESG approach, of course, requires significant investment, it is enough to think about consulting costs, reporting, and the associated human resources. However, this is the direction of the future, and the issue of sustainability is extremely important to us as well. Intensive thinking and product development takes place to ensure that all of this is incorporated into the services available to customers as soon as possible, offering a kind of optimal combination of sustainability and business considerations.
Cover image: Walnut Fund Manager
Source: Portfolio.hu – Befektetés by www.portfolio.hu.
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