Slide in fundraising could be offset by strengthening the endowment with immovable property

The subject matter of strengthening a special-purpose capital (endowment) with immovable property is topical nowadays, and the community is being increasingly interested in this for the reason of having to seek for and develop so called alternative investment.

This is particularly topical in times of crisis, when funds run short of fundraising and have less return on assets. Strengthening an endowment with immovable property items could compensate an organization for the decline in fundraising.

Notwithstanding that the applicable legislation on endowment provides for the possibility to use immovable property for the purpose of strengthening endowments, this practice hasn't become frequent in Russia (two of such cases are credibly known to have occurred). Regretfully, the foregoing legislation allows immovable property to be transferred to an endowment fund, provided that the endowment has already been formed.

The same is true with investment of endowment's monetary resources in immovable property items. This type of assets is generally regarded as not readily obtainable in the market (outdated infrastructure, high maintenance costs, etc.). Additionally, legal restrictions prevent the foregoing practice from being widespread in Russia.
At the same time, most of those endowment funds which would obtain such an immovable property item would most probably sell it in order to turn the same into an asset which could be readily obtainable.

An economic contraction isn't supposed to be insurmountable barrier for fundraising in endowment funds. Such funds should seek for an optimum equilibrium based on a given situation in the economy.

Cooperation with government authorities should be continued in terms of supporting endowment funds; a possibility of introducing a property tax allowance in cases of strengthening an endowment with immovable property (above all, buildings, facilities, land plots) should be considered; the endowment law should be updated, first of all with regard to the term of placing the obtained immovable property under trust management.

Irina Tolmacheva, Head of Gaidar Institute's Legal Department