Liquidating a fund

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Dear Fund Director,

If you are liquidating a fund which was under your mandate, you are not alone. Fund industry has its own trends and fashions. And trends and fashions have always a maturity date.

Last week we were informed about the end of the Goldman Sachs BRIC fund. The fund was swallowed up by the GS Emerging Markets Equity Fund. The underlying cause was that the BRIC acronym is not in vogue any longer but formally GS stated reasons were to “optimize” its assets and “eliminate overlapping products”.

Indeepfd - BRIC fund liquidation

(Source: Bloomberg)

This story can also happen to us. Some reasons to liquidate a fund could be:

  • The fund assets are low, we couldn’t reach our asset expectations 3 years after launch.
  • The fund assets are low, the asset class is no longer in fashion.
  • The fund performance was poor in comparison to the benchmark.
  • The fund manager was an “investment star” and decided to leave the company. Then we faced big redemption flows.
  • The fund is doing something very similar to another of our funds. In the end, we are duplicating the strategy and confusing the investors.
  • The investment strategy didn’t work as it was supposed to.

However, in all this cases please think about a nice wording when you inform the regulator and your investors. GS did it very well.

If possible, also as GS did, try to merge the fund you would like to liquidate with another company fund with a similar investment strategy and risk profile and inform properly your investors about the new fund (however, you should sportsmanslikely accept losing part of the investors during or just after the change).

Remember: 1 – Merging sounds much better than liquidating, specially in the headlines. 2 – Offering investors a solution is always better than simply kick them out. 3 – Cash is also a solution. In some cases, probably the best.

I hope this GS example helps you with your next fund “liquidation”.

Yours faithfully,

The Indeep Fund Director

 

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