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. Last Updated: 07/27/2016

Hundreds Invest in 'Real Estate' Voucher Fund

Lured by advertisements extolling the high value of Moscow real estate and the chance to win an apartment, hundreds of small investors lined up along Tsvetnoi Bulvar in central Moscow last week to buy shares in the investment fund Moskovskaya Nedvizhimost.

The fund launched a media blitz in the middle of December that promised to raffle off 5,000 prizes, including apartments, to those who purchased shares before the new year. One privatization voucher, or its equivalent in cash, buys 10 shares in the fund.

The ads included an enticing quote from Izvestia saying that "in the opinion of Western auditors working in Moscow, one ruble invested in Moscow real estate is worth no less than five dollars."

Ironically, Moskovskaya Nedvizhimost, which literally translates as "Moscow Real Estate," does not directly own any real estate in Moscow.

The company is among the largest voucher investment funds, legalized by a presidential decree in October 1992, that have dominated auctions for Russian privatized firms over the past year.

The funds, rather like mutual funds, can sell their shares to the public either for cash or for privatization vouchers, the security issued to each Russian citizen to buy shares in privatized companies. Moskovskaya Nedvizhimost says it has gathered over 2 million vouchers from the public.

Under the 1992 decree, funds like Moskovskaya Nedvizhimost are allowed to invest only in the shares of privatized state companies. The decree limits a voucher fund's stake in any one company to 10 percent.

Nikolai Lozonovsky, the fund's director of investments, said the fund has used its vouchers and cash to buy shares in companies that own or hold long-term leases over valuable property, especially in Moscow. Its portfolio includes big stakes in the GUM and TsUM department stores and the Kosmos and Globus hotels.

Lozonovsky said that he expects the government to repeal the restrictions on voucher investment funds in the first quarter of 1994, after which he plans to invest about 15 percent of the fund's portfolio into direct purchases of Moscow buildings.

Moskovskaya Nedvizhimost is not alone in believing that the best strategy for investing in privatized state firms is to choose firms that control prime property.

For example, two small Moscow service firms, Stankobiznes and ITKOR, recently fetched near-record prices at privatization auctions, largely because they own buildings in Moscow, where rents rank among the highest in the world.

But to Ira, 38, a housewife who had waited more than three hours in the sub-zero cold to buy 30 shares in Moskovskaya Nedvizhimost, anonymous Western auditors' opinions and the nuances of property ownership were of little consequence.

"I'm hoping to win an apartment," she said. "As a rule, all Muscovites need apartments."

The fund's advertisements did not specify exactly how many lucky Muscovites would win apartments at the Jan. 14 drawing, but rumors ran among the people in line that as many as 5,000 would be up for grabs.

Galina Polyakova, 60, a pensioner who stood observing the crowd, suspected foul play. "Look at how many people want to win an apartment," she said. "It's probably a scam."

The fund's director, Pavel Vasilyev, said that actually only two apartments, a one-room and a two-room in the outer suburb of Mitino, would be given away. The fact that so many people would wait hours in the cold to win two apartments, he said, merely testifies to the value of Moscow real estate.

Vasilyev said that all shareholders would receive equal dividends in April of next year, independent of how they fare in the sweepstakes.

The promise of dividends alone, rather than the chance to win a new home or turn a ruble into five dollars, was enough for some of those who came to buy shares.

"On these shares at least there is some income," said Viktoria, 26, a doctor who had braved the wait with her son Alexander, 3. "I'm far from understanding economics. I just want there to be something left for my son."