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BRICs Finally Broke: Goldman Pulls The Plug On "Revolutionary" Acronym Fund After 88% Loss

Tyler Durden's picture




 

Back in February 2013, 12 years after coining the term BRIC (Brazil, Russia, India and China) as an acronym for the world's strongest source of emerging market growth, Goldman's Jim O'Neill retired, but not before some very (traditionally) optimistic words of parting, namely that there is "clear evidence things are doing better economically."

This is what Goldman said in his retirement announcement:

Jim is an influential economist and thought leader, and is regarded as an expert in the world’s foreign exchange and bond markets. Importantly, he has identified revolutionary economic trends, defining the concept of the BRICs which has become synonymous with the emergence of Brazil, Russia, India and China as growth opportunities of the future. Jim’s BRIC thesis has challenged conventional thinking about emerging markets and, as a result, has had a significant economic and social impact.

Nearly three years later, things are not only not doing better economically, with the entire world now engaged in outright, or quasi QE (with helicopter money to follow as Adair Turner infamous warned) just to support global asset prices, but the very emerging markets that made up the BRICs, have devolved to a state of economic freefall. And nowhere is this more obvious than in Goldman's decision to pull the plug on the infamous fund that bears the name of Goldman's most bullish acronym in history.

According to Bloomberg, Goldman's bank’s asset-management unit folded its money-losing BRIC fund, which invests in Brazil, Russia, India and China, and merged it last month with a broader emerging-market fund. Goldman Sachs pulled the plug on the nine-year-old product because it doesn’t expect “significant asset growth in the foreseeable future,” according to a filing to the U.S. Securities and Exchange Commission.

The BRIC fund lost 21% in the five years through Oct. 23, the last trading day before the merger. Its assets declined to $98 million at the end of September after peaking at $842 million in 2010, according to data compiled by Bloomberg.

As Bloomberg reports, "the downfall of the BRIC fund, which had lost 88 percent of its assets since a 2010 peak, also underscores how the strategy of bundling disparate countries into a single investment theme is losing its appeal among investors."

Perhaps it has sentimental value, but instead of liquidating the BRIC fund outright, Goldman will instead let it be merged into its larger EM Equity Fund:

The BRIC fund is being swallowed up by the Emerging Markets Equity Fund as part of Goldman Sachs’s efforts to “optimize” its assets and “eliminate overlapping products,” the New York-based bank said in the Sept. 17 filing.

 

Instead of liquidating the fund, Goldman Sachs opted for the merger because it will give investors access to “a more diversified universe” of developing nations. The bank pointed out that the emerging-market fund has outperformed in the one-, three- and five-year periods.

As it turns out, the BRICs was nothing more than investing in flow momentum, because while it worked for many years...

In the decade following the creation of the BRIC moniker, the group surged as a global economic power, amassing 40 percent of the world’s foreign reserves. MSCI Inc.’s BRIC Index returned 308 percent in the 10 years through 2010, compared with a 15 percent gain in the Standard & Poor’s 500 index.

While the four countries still account for more than one fifth of the global economy, their growth prospects have dimmed. In a December 2011 report, Dominic Wilson, then chief markets economist at Goldman Sachs, said the economic potential for BRICs probably peaked because of a smaller supply of new workers.

The predicament has become even more striking this year. Brazil is reeling from a corruption scandal and the worst recession ina quarter century, while Russian companies are locked out of global capital markets because of international sanctions. In China, the government was caught off guard by a stock crash this year that wiped out $5 trillion in market value. Even in India, where growth accelerated, Prime Minister Narendra Modi is struggling to push through reforms.

... All it took was the end of the Petrodollar and China's hard(ish) landing to kill all the wind in the sails of the BRICs - something nobody noticed (as we duly noted) a year ago, and which ultimately manifested itself in the EM debt crisis of the late summer, precipitated by the soaring dollar and leading to China's devaluation and record capital outflows.

And now that it's all over, the Mondey morning quarterbacking begins: "The BRIC acronym didn’t make any sense in the first place because you just randomly group four countries which are completely different,” said Xavier Hovasse, who oversees $2.3 billion emerging market assets at Carmignac Gestion. “If you restrict your investment universe too much, it’s more difficult to perform. I am not surprised that those funds are collapsing."

And to think it was only 2 years ago when not a cloud was in sight.

Andrew Williams, a spokesman for Goldman Sachs, declined to comment on the fund’s closure. O’Neill, who stepped down as the chairman of Goldman Sachs Asset Management in 2013 and became commercial secretary to the U.K. Treasury in May, also declined to comment, Bloomberg notes.

 

 

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Sun, 11/08/2015 - 21:07 | 6765654 silverer
silverer's picture

This is an interesting development for sure.  It basically states that everything sucks.  Is there any place left on earth where the population won't be forced to climb out of a hole?

Sun, 11/08/2015 - 21:11 | 6765663 Realname
Realname's picture

Goldman was sent in to destroy the BRIC nations. Theyre busy doing "Gods work"... the God of the Air, that is.

Sun, 11/08/2015 - 22:31 | 6765928 junction
junction's picture

Goldman Sach's Jim O'Neill retired at age 55.  Working until you die is reserved for muppets. 

Sun, 11/08/2015 - 21:16 | 6765679 nmewn
nmewn's picture

Jim is an influential economist and thought leader, and is regarded as an expert in the world’s foreign exchange and bond markets. Importantly, he has identifiedrevolutionary economic trends, defining the concept of the BRICs which has become synonymous with the emergence of Brazil, Russia, India and China as growth opportunities of the future. Jim’s BRIC thesis has challenged conventional thinking about emerging markets and, as a result, has had a significant economic and social impact.

In other words, he is not an "economist", he is a marketing "thought leader" who worked for a commercial bank in New York City and you dear reader...are bag holders...lol.

Sun, 11/08/2015 - 23:00 | 6766002 Colonel Klink
Colonel Klink's picture

Jim O'Neill has the smell of Gefilte cock on his breath.

Mon, 11/09/2015 - 03:22 | 6766477 bid the soldier...
bid the soldiers shoot's picture

 

+ 100 for suggestive metaphor

Sun, 11/08/2015 - 21:24 | 6765714 nosam
nosam's picture

The BRICS never belonged together as a bloc. They are differenct in every way - economically, politically, culturally, geographically... The only reason they were made into an artificial bloc, was because TPTB needed a strong enough group of countries that can potentially wage WWIII with the US,

Sun, 11/08/2015 - 22:53 | 6765971 cowdiddly
cowdiddly's picture

Who said its over? Thats just a financial war move of one fund and the close of chapter one. This brics bank is not disolved.  Chapter two.......................for all the marbles

Sun, 11/08/2015 - 21:28 | 6765725 HowdyDoody
HowdyDoody's picture

#FuckGoldmanSachs

Sun, 11/08/2015 - 21:32 | 6765736 mojojojo
mojojojo's picture

FED balance sheet: $50,000,000,000,000.00

Debt ceiling: $100,000,000,000,000.00

Unfunded liabilities, debt, it all means nothing. Can print, create, these intrinsically valueless currencies.

It will be debased and destroyed. Once USD hegemony is over, it's goodbye to the US empire.

Sun, 11/08/2015 - 22:58 | 6765998 Old Doctor
Old Doctor's picture

The US has sat up on it's high horse for more than 100 years. There are only two outcomes. The US will deflate slowly like Great Britian or there will be a violent change thru war or financial disaster. The US began its ascendancy in 1900 when President Teddy Roosevelt modernized the US Navy. Britian was at it's zenieth and then became diminished as the US grew stronger.

I believe this is the outcome that Russia and China have been working towards. There may even be some realists within State and the Pentagon who are quietly working along these lines. It's hard to imagine that there aren't two diametrically oppossed models that are being studied. I don't believe everyone is as rabid as those we see in the media.

The other outcome is a sudden change where the US finds itself deposed. Without a doubt this would have already happened were it not for the horrific array of weapons possesed by the US. Nuclear, chemical warfare (remember those 10,000 blackbirds dropping out of the sky five years ago?) biological warfare, EMP, controlled climate change, inner and outer space weapons........

One could make a strong arguement that the US is too dangerous to remain off the leash as it is now. There are no other countries that are nearly as insane re: foreign and domestic policy as the US. Imagine for a moment; would you feel comfortable if your next door neighbor was as maniacal as the US? Ranting and raving and threatening and quarreling with  eveyone? 

This is likely why Russia and China (and others) are stockpiling vast amounts of gold and silver, in the hope that the changing of the guard comes about thru a financial bang rather than an atomic bang.

 

Mon, 11/09/2015 - 04:30 | 6766496 mojojojo
mojojojo's picture

The financial outcome will either be; (a) a great deleveraging of debt, strengthening of the dollar, evaporation of demand, mass unemployment, debt servicing cost increase etc (b) FED balance sheet expansion, more QE, NIRP, complete fuck-up and annihilation of the USD.

First outcome isn't going to happen. Gold is getting sexier by the hour.

The financials are screwed, so the FED may as well start monetizing debt for the DOD directly at 0%

Sun, 11/08/2015 - 21:33 | 6765737 Francis Marx
Francis Marx's picture

I read this and dont hear a violin playing in the background for goldman

Sun, 11/08/2015 - 22:00 | 6765825 Joebloinvestor
Joebloinvestor's picture

GS still made money.

 

Isn't that sick?

Sun, 11/08/2015 - 22:14 | 6765870 me or you
me or you's picture

The BRICs is not dead they're  working together to create a better world without the US and the petrodollar.

Sun, 11/08/2015 - 23:01 | 6766004 hedgiex
hedgiex's picture

The C in BRICS is economically larger than all the rest. When C skids, all the other alphabets are back in the bag. 

Mon, 11/09/2015 - 01:02 | 6766188 MEFOBILLS
MEFOBILLS's picture

Goldman started BRICs but China and Russia finished it.  In other words, Goldman out and the others in.  

China, Russia, Brazil and India discovered they could work together.  In effect, Goldman started something and then lost control.  Russian and Chinese land and assets are not controlled by Goldman.  Goldman is not buried in like a tick, earning transaction fees and setting the agenda.  Not being able to set the agenda, means not being able to predict or guide markets, to then make guaranteed profits.

https://en.wikipedia.org/wiki/Shanghai_Cooperation_Organisation

https://en.wikipedia.org/wiki/Eurasian_Economic_Union

Look at timeline:

SCO 2001, BRICs  2009,  EEU 2014, Asia Infrastructure Investment Bank June 2015, Aug 2015 China rebuffed for SDR, Oct 2015 SDR greenlighted for sometime in November,

(U.S. elections November 2016)

http://www.reuters.com/article/2015/10/25/imf-china-sdr-idUSL1N12P0JE201...

China and Russia have already won many milestones.  IMF is set to greenlight SDR's for China, which means less dollar dependency on international trade.  After SDR is greenlighted expect more overt Chinese political/military activity on the world scene.

Transactions within BRIC's and EEU will be done increasingly outside of dollar.  Goldman is not buried deep within these countries as a parasite, although they want to be.

"Experts said the political winds were blowing in Beijing's favor.

 

France and the United Kingdom have backed the yuan's inclusion and countries including Germany and Italy have said they are open to the move, depending on the technical criteria.":

Note that England, France  Germany, and Italy by March of 2015 broke ranks with U.S. and joined AIIB.

http://www.nytimes.com/2015/03/18/business/france-germany-and-italy-join...

 

Mon, 11/09/2015 - 02:49 | 6766449 Free_Spirit
Free_Spirit's picture

This was very well put - if you can't rig the market you can't make the "usual" profits, so they pulled out. 

Mon, 11/09/2015 - 04:23 | 6766516 Jonas
Jonas's picture

Well, they just need to add South Africa, which is doing GREAT, and a new world bank, and they will be back on strong growth.

Right Tylers?

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