According to a recent report, Goldman Sachs pulls the plug on 9-year-old BRIC fund after years of losses. The bank announced that the fund would merge with a larger emerging-market fund, since analysts couldn’t predict any ‘significant asset growth’ in the near future.
BRIC fund was a high-yielding fund that heavily invested in China, India, Brazil and Russia for nine years. The term BRIC was first coined 14 years ago by the bank’s former economist Jim O’Neill, but the fund was first rolled out in 2006. Back then, emerging markets lead to unprecedented investment boom.
Nowadays, however, situation has changed. Russia and Brazil struggle to get out of recession, while China’s economic prospects are among the weakest since 1990. This is why BRIC investors flocked to other funds in the last five years.
Since 2010, when the fund recorded its highest results, it lost 88 percent of its assets. The fund’s fate shows that mixing different economies within the same investment plan may not be a good idea in our time.
“The promise of BRIC’s rapid and sustainable growth has been challenged very much for the last five years or so,”
noted CIO Jorge Mariscal of UBS Wealth Management.
Mariscal added that the fund had its share of glory but nothing was ‘eternal.’
BRIC will become part of a broader fund called the Emerging Markets Equity Fund in an effort from Goldman Sachs to remove ‘overlapping products.’ While the bank could have opted for liquidation, it chose to merge the funds for the sake of investors. Goldman hopes that its clients would have more options to choose from when planning to invest in developing countries.
The bank underscored that the larger fund outperformed in the last one to five years.
Since 2010, the BRIC fund lost 21 percent, while its assets collapsed from $842 million in 2010 to $98 million at the end of September. The last trading day for the fund was Oct. 23.
Andrew Williams of Goldman Sachs explained that investing in developing countries was a ‘strategic part’ of the bank’s asset management plans. Although emerging economies currently falter, the firm still recommends investors to allocate assets into that direction.
Since its creation, the BRIC fund helped Goldman Sachs collect 40 percent of all the world’s foreign reserves. But in the meantime, the four developing countries eyed by the fund saw their growth prospects diminished.
For instance, Brazil is battling against its worst recession in the last 25 years, while Russian companies must now stay out of international arena because of political sanctions. The Chinese economy was badly shaken by this summer’s huge stock market crash, while India is struggling with reforms though growth prospects are excellent.
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