Before a cent of client money reaches a fund, a huge investment has already been made. The time, energy and financial cost of creating a new strategy has only increased over the years. The ‘see what sticks’ approach is gone.

But launch is only the start. Funds have a couple of short years to hit a viable size. And established funds face a fight too, as selectors seem to be moving the asset threshold further and further up. Amplify will combine data on global fund launches and closures with insight from Citywire’s editors and investment researchers around the globe, to get beneath the surface.

Location: Finland

Asset manager: Schroders

Name: SISF Nordic Smaller Companies & SISF Nordic Micro Cap

Citywire sector: Equity – Nordic

Managers: Jan Brännback, Janne Lähdesmäki

Launch date: 2 March

What the company says: The SISF Nordic Smaller Companies will target a median market cap of €800m and will invest in a concentrated portfolio of about 45 companies. The SISF Nordic Micro Cap will target a median market cap of €200m in a portfolio of about 60 companies. ‘We have seen a very high level of IPO activity in the Nordic region in recent years with more than 350 alone in the last three years,’ says Henrik Jonsson, Schroders’ head of the Nordic region.

Why it’s interesting: ‘The top five of 178 countries ranked for sustainability risk are Nordic,’ says Nisha Long, Citywire’s head of ESG and cross-border investment research. ‘They provide political stability, small domestic markets and diverse natural resources. But the region is largely under-researched, especially within the small-cap space. So far this year, Schroders has been joined by two other small-cap funds, Ericsson and Partners Edge, whose biggest holding is in a Swedish company simulating surgical procedures, and long-only fund Origo Seleqt, both from local boutique fund houses.’

Location: Switzerland

Asset manager: Unigestion

Name: Unigestion Global Climate Transition

Citywire sector: Equity – Ecology

Managers: Sara Razmpa, Edward Gladwyn

Launch date: 28 February

What the company says: ‘We followed the SFDR about how a climate transition portfolio should look: what sort of companies you address, the enablers, mitigators, and substantial contributors,’ manager Sara Razmpa told Amplify. ‘We are not trying to take advantage of a return over the next couple of months. We have a long-term view, and we believe the financial and social returns will converge.’ 

Unigestion describes the Ucits fund as high conviction and compliant with Article 9 of the Sustainable Finance Disclosure Regulation and the recommendations of the Task Force on Climate-Related Financial Disclosures. The fund seeks to contribute to UN Sustainable Development Goals 7 (affordable and clean energy) and 13 (climate action). As an Article 9 fund, it must have an explicit sustainability objective. ‘If we believe climate change is an issue, and if we believe that there is no way we can proceed other than thinking about transition, then what we are doing is actually identifying companies that are doing the transition faster or more efficiently than the other ones.’

Why it’s interesting: Having launched its first sustainable mandate in 2005, Unigestion may seem late joining others in Citywire’s Ecology sector, 13 of which reached their three-year anniversaries in the past year. But Unigestion has followed EU Article 9 disclosure rules, launched at the start of 2021, which require funds to have an explicit sustainability objective. Of its sector peers, 43 follow Article 8 and 80 follow Article 9. The firm anticipates its main investors will be pension funds able to take a long-term view, and which often have their own written-in sustainability objectives.

It is worth noting how important the climate transition is to the fund’s stock-picking strategy, and that it does not hold any electric vehicle companies. ‘When you’re driving an electrical car, you’re still charging it with the energy that is coming from brown energy [fossil fuels],’ says Razmpa. ‘As long as the process works like that, there is no huge positive outcome of driving an electrical vehicle.’

Fund closures

From the chilly winds of Northern Europe to the sweltering heat of Brazil and a market that looks every bit as vibrant and deadly as its jungle.

Citywire’s data has examined global fund closures over the past two years. To the end of April, the Equity – Brazil sector saw 359 launches, making it the third-most-popular sector. But it also had 125 closures over the same period; for every three launches, an existing fund closed. So far this year, Brazil equity has had the second-highest number of closures among sectors tracked by Citywire.

You might conclude that the sector had been dealt a heavy performance blow, but quite the opposite is true. When Citywire analysed the best-performing funds of 2022 so far, four Brazilian funds made the top 10.

BNP Paribas Brazil Equity, managed by Gilberto Nagai and Gilberto Kfouri, was the second-best performer, followed by JPM Brazil Equity, managed by Luis Carrillo and Rachel Rodrigues, DWS Invest Brazilian Equities, and HSBC GIF Brazil Equity, managed by Victor Benavides.

Citywire’s head of cross-border research, Nisha Long, noted recently that Brazil’s financial and commodities sector have lifted its Bovespa index (still up 1.3% year-to-date, though sliding since April). Illustrating that is Nubank, a Brazilian digital bank that was listed on the Nasdaq in December 2021, and that has since soared to a market value of $41bn. Brazilian markets also experienced a commodity rally following Russia’s invasion of Ukraine.

So why all the closures? ‘There is a huge rate of new funds,’ explains Citywire Brasil editor Patricia Valle. ‘The fund mortality rate exceeds 50% after five years.’

But closing funds may be linked with a lot of new firms as well.

‘New assets management firms are appearing more and more,’ Valle tells Amplify. ‘Last year, we saw 128 new asset managers up to October, and 35 folded; in total, Brazil has around 800 asset management firms. Often it is senior managers wanting to build something independent. Some get successful; others die. 50% of the Brazilian fund management market is still with the biggest banks. But 10 years ago it was more like 65%. So, a change is happening!’

But, as Valle points out, there has been a huge outflow from equity in Brazil in the past 12 months because of the country’s soaring interest rates. In an attempt to get a grip on inflation, now above 10%, rates have risen from 2% to 12%. Brazilians are now pouring back into fixed income.

Allocators have told Citywire as much recently. Stephane Monier, Lombard Odier’s chief investment officer, said in April his firm favoured Brazilian sovereign debt ‘given its commodity exposure and a rate cycle close to peaking at double-digit levels’.

If, on the flip side, this means allocators were avoiding Brazilian equities, they will have missed out.  The MSCI EM Latin America 10/40 index is up 10% for the year to 29 April.

Closures from January to May 2022