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A recap of an exceptionally long year

When Estonian humorist Priit Aimla was once asked in a year-end television interview what he would remember from the ending year, he said: “The year is remembered primarily because it was extraordinarily long.” Indeed, to me the year 2020 feels the longest during my twenty years as CEO. In retrospect, it is hard to believe all that happening during one year: the pandemic that hit Europe in March, during the summer allowed some relief in the Baltics, to only return with an even stronger wave in the autumn – but it was like this. We always tend to overemphasize the present, forget the past and underestimate the future.

I am convinced that in the long run, this year’s pandemic is only a minor diversion in the path of human development, which will not have a long-term impact. But at the same time, in sufficient manner it shifts our daily habits, like how we work and travel, affects economic structures and at the individual attitudes to what is relevant and what is irrelevant – what can and cannot be changed.

In the spring, it became clear that companies can still successfully deliver results even when no one is in the office. But what we didn’t find out is for how long we could work successfully and motivated without seeing other colleagues physically? Depending on the field of activity and the individual, the answers are very different. I am convinced that working from home has come to stay, but clearly it is not for everyone. Especially for young people who live in a medium-sized apartment and have small children, working from home is quite impossible. For older colleagues whose children have already started own life, working from home is a pleasant alternative to the constant hustle and bustle of the office. In at least five years, we will see what the long-term downsides of homework will be. Many people say that commuting to work in the morning, and going home in the evening, is like a mental acclimatization for them. But what happens when work and private life are mixed into a 24/7 hybrid between home walls? Maintaining mental balance becomes very difficult for many, though not for all.

Today’s fascination with homework is partly reminiscent of the open office revolution a while ago. The assumption was that when colleagues are together all the time, a lot of new knowledge and ideas emerge from informal conversations, which will eventually lead to new business success. The results were different than expected. Because of my profession, I often visit different offices and the obvious rule is that the more individual work is required, the more inappropriate an open office is – like could we imagine an open office-style law firm? Several studies have shown that an open office has led to occupational escapism. The volume of e-mails within the company skyrocketed when employees did not want to disturb colleagues with their talking and sent e-mails instead. But there are definitely business formats and/or cultures where an open office is a big plus – for example, Michael Bloomberg’s open-plan newsroom, which once became the benchmark for an open office.

The judgement is still in the process, when assessing the long-term effects of the corona crisis. It will certainly accelerate the processes that were already under way – shopping centers will become community-based leisure venues, with an emphasis on services rather than shopping.  In office work, more project-based approach and hybrid solutions like home vs. office are applied. Many real estate investors are convinced that logistics is the biggest winner of the crisis. Logistics volumes will certainly grow, but at the same time logistics is not as location-sensitive real estate as, for example, retail trade: for a logistics park, a field in one municipality is as good as another field in other municipality. The winners will be those who can build as efficiently as possible (read: cheaply) and thus offer logistics companies a lower rental price.

The year certainly offered heartfelt moments. The BioNTech / Pfizer announcement at the beginning of November was a clear triumph of human knowledge, which continued to narrow the field of operations of different religions in comparison to a science-based approach – in less than a year, a usable vaccine could be developed. The BioNTech project, known as “Lightspeed,” began in January 2020, when the virus had not yet arrived in Europe. The tested vaccine was able to be launched in the market in 11 months, in a situation where, on average, six out of ten vaccine candidates do not go beyond the tests. There was a lot of pleasant undercurrents in the news, which were incompatible with the political noisemaking and pseudo-patriotism played by populist leaders – behind BioNTech is a Turkish immigrant couple living and working in Germany, and Pfizer’s leader is Greek national. At a time when anti-immigration populists in Europe are fighting hot political battles and Greece and Turkey are sending military frigates to each other in the Mediterranean, this is a particularly neat and telling example of a better side of the humanity.

The reopening of the economy will take place in the spring at the earliest

In economic terms, 2020 is best characterized by the term annus horribilis. Not so much horrible in the dry economic statistics as in the mental balance of people who are referred to as economic agents in economics. On a daily basis I communicate with the managers of many Baltic companies and, of course, even more closely with EfTEN’s team across the Baltic countries – we have offices in ten different Baltic cities. The end of the year is best characterized by the (coronavirus) fatigue and boredom. It is expected that this year will simply be over. At the same time recognizing that the first quarter of next year will be the most difficult economically, but it will be followed by the expected relief, when a significant part of the society’s risk groups have been vaccinated. Positive news from the vaccine front switched on the light at the end of tunnel. With every day the end of the tunnel becomes brighter – we will pull ourselves together and we can do it.

In my mind, I am more concerned with the post-coronavirus economic environment. It seems that the vaccine and the large-scale subsidies from the EU will arrive in Baltic States literally on the same plane, which is fueled by government bonds with a negative yield. Whoever is in charge in the government, they would never be able to distribute subsidies according to the actual economic damage caused by the coronavirus, even when in a digital state this could be the ideal solution to look at. It is clear that large-scale public investments will create upheavals in the sectors that will be receiving investments, which will once again have a negative impact on the economic balance, in the same being somewhat inevitable. In a situation where the government’s priority is understandably public health, the economy will be in the backseat for a moment. Closing the economy is a quick decision, but opening it up is a long process that we can embark on no earlier than March next year. So far, you just have to endure.

In public finances, we are all Greeks now

After the financial crisis, when according to poker terminology central banks moved all-in on the basis of their quantitative easing policy (commonly known ​​as money printing), the post-coronavirus world would invite national governments to place their tokens in the game. The lesson after the financial crisis is the knowledge that central banks cannot manage economic activity on their own, although much of the earlier monetary theory relied on this basic assertion. The lion’s share of money has gone to financial markets, which no longer have much to do with the real economy or with the actual financial performance of companies. At the same time, the expanding fiscal deficits allow money to go directly to those in need – a striking example comes from the homeland of rough and socially insensitive capitalism, the United States, which distributed 1,200 US dollars as a lump sum to those earning less than 75,000 dollars a year. Now when central banks as money printers and governments as home delivery providers of money have begun to work in tandem, Modern Monetary Theory, or MMT (also known as the Magic Money Tree), is finding more and more uncritical supporters. In the history of economics and finance, an interested party might find many objections to that, but the facts have been created today. Today’s reality is absolutely different from the one a decade ago, when Greece was blamed for a lavish lifestyle. Today, in terms of public finances, we are all Greeks, although they have been on the path of austerity for years. In the long run, it will be like a boost to increase asset prices and widen the gap between those who possess financial or real estate assets and those who do not. This is confirmed, for example, when comparing the charts of house prices in Germany, Europe’s largest internal market, and the European Central Bank’s balance sheet – the two lines are moving to higher and higher levels at exactly the same pace.

EfTEN creates a new real estate fund for retail investors

Finally, a few words about EfTEN. In this difficult year, we were able to finalize six real estate acquisitions with a total value of 90 million euros. Very important news was the launch of the first residential rental real estate fund in the Baltic States, which in the first round raised 33 million euros in equity. In addition, we opened a new investment segment in the form of the first transaction in the field of aged care homes – it was a unique transaction in the Baltics, when a aged care home was acquired by a real estate investor and will be run by a professional operator, acting separately from the investor.

Our real estate funds performed financially much better than we could have expected in the spring – rental income decreased by less than 5% on average compared to last year. But of course this does not apply to hotels. The total value of assets managed by EfTEN will exceed 800 million euros at the end of the year. Taking into account that today our various funds have 100 million euros of uninvested equity, in a few years we will break the threshold of one billion euros of assets under management – which has been beyond the reach of any independent asset manager, excluding major banks in the Baltics. For us, volume is not the key. The most important thing is to make the most profitable investments for hundreds of our funds, for thousands of investors, following the example of EfTEN Real Estate Fund III, which is listed on the Nasdaq Baltic Main List. At EfTEN, we have a very clear sense of our personal responsibility – as the management team, we sign each transaction mentally ourselves, investing, of course, a large part of our personal money, and therefore failures are unacceptable.

Looking forward to the next year, we plan to launch a low-fee real estate investment fund for retail investors, where all people can invest money at once or on a monthly basis from their monthly salary. In addition, of course, the fund will be for people who decide to re-invest their pension savings independently. Today, of EfTEN funds, only the third fund listed on our stock exchange is available to retail investors. However, the volume of our third fund stands for about 15% of the volume of all EfTEN’s assets under management. In the form of a new fund of funds, retail investors will get part of investment opportunities, which have so far been open only to professional and institutional investors.


Wishing for Christmas good health, peace of mind and a much happier 2021!


Viljar Arakas
CEO of EfTEN Capital AS

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