The Goldman Sachs Group Inc. has ended years of incurring losses on its BRIC fund. The fund once invested heavily in Russia, India, Brazil, and China, but the group’s asset management unit merged it with a wider-scoped emerging–market fund. According to a filing with the United States Securities and Exchange Commission, Goldman Sachs ended its association with the nine-year-old product due to a lack of expectation of significant future asset growth.
The largest emerging markets are now failing. This occurs fourteen years after Goldman Sachs’s former economist Jim O’Neill conceived the acronym that signaled the start of an unparalleled era of booming investment. Today, Brazilian and Russian economies have slid into recession. After years of being instrumental in the world’s growth, China too is heading towards a period of its lowest expansion since 1990.
Since it peaked in 2010, the BRIC fund has lost 88 percent of its assets. Its downfall just goes to show that a strategy which bundles various disparate countries into a single investment entity no longer holds any appeal to potential investors. In fact, according to Jorge Mariscal (who is the chief investment officer of emerging markets at UBS Wealth Management), over the last five years, many have challenged BRIC’s predicted rapid sustainable growth. While the concept was popular, it was not something that could last forever.
The Emerging Markets Equity Fund seems, in fact, to be taking over the BRIC fund. According to Goldman Sachs’s September 17 filing, it is a part of the organization’s initiative of optimizing its assets as well as removing any products that are currently overlapping each other.
While Goldman Sachs could have liquidated the fund, it chose, instead to merge the two funds so that investors can have a diversity of developing nations to choose from. The emerging-market fund has successfully outperformed BRIC in the one-, three-, and five-year time periods, and this fact was highlighted by the bank. In contrast, the BRIC fund has lost 21 percent in five years up until the Oct. 23 date, the last trading day prior to the merger. By September’s end, BRIC fund’s assets had also decreased to $98 million. In 2010, it had peaked at $842 million. This is according to the data compiled by Bloomberg.
According to Andrew Williams, who is a spokesman for Goldman Sachs, in the last ten years, investment in emerging markets has developed into a strategic part of almost all asset allocation decisions. In fact, Andrew Williams also stated, “We continue to recommend that our clients have exposure to emerging markets across asset classes as part of their strategic asset allocation.”
The BRIC brand became a global economic power and accumulated up to 40 percent of global foreign reserves during the ten years following the brand’s creation. Also, in the 10 years since its inception, MSCI Inc.’s BRIC Index returned 308 percent, compared with a 15 percent rise in the Standard & Poor’s 500 index. The MSCI BRIC Index fell 0.1 percent in a third day of losses at 1:08 p.m. in Hong Kong.
Although the four countries remain accountable for more than one fifth of the world’s economy, their prospects for growth have significantly declined. Dominic Wilson, who was once chief markets economist at Goldman Sachs, said in a 2011 report that BRIC’s economic potential most likely peaked due to a reduction in the supply of new workers.
The situation has become highlighted further this year by the situation prevalent in key player countries. Brazil is having to navigate its way around a corruption scandal as well as its worst recession in 25 years. Russia has to contend with its companies being blocked from global capital markets due to its international sanctions. China’s government was taken by surprise this year when a stock crash eroded $5 trillion in market value. While in India too, where growth once boomed, the Prime Minister now must struggle to push reforms through.
Investors have now taken away $1.4 billion from funds that were previously investing in BRIC countries this year through Nov. 4. According to EPFR Global, this extends the outflow to above $15 billion since 2010. That is more than undoing all the inflows from 2005.
The BRIC investing strategy has come under increasing fire for being flawed, according to Xavier Hovasse of Carmignac Gestion, who looks over $2.3 billion in emerging market assets. This is due to the fact that markets are now much more influenced by specific country-related factors rather than worldwide trends. This, in turn, has led to the divergence of performance.