Tue, Nov 10, 2015 - Page 14 News List

Goldman Sachs’ BRIC era ends


The BRIC era is coming to an end at Goldman Sachs Group Inc. The bank’s asset-management unit folded its money-losing BRIC fund, which invests in Brazil, Russia, India and China, and last month merged it with a broader emerging-market fund. Goldman Sachs pulled the plug on the nine-year-old product because it does not expect “significant asset growth in the foreseeable future,” according to a Sept. 17 filing with the US Securities and Exchange Commission.

Fourteen years after former Goldman Sachs economist Jim O’Neill coined the acronym that ushered in an unprecedented investment boom, the biggest emerging markets are now sputtering. Russia and Brazil have fallen into recessions. China, long an engine of the world’s growth, is poised for its weakest expansion since 1990.

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 nations into a single investment theme is losing its appeal among investors.

“The promise of BRIC’s rapid and sustainable growth has been challenged very much for the last five years or so,” said Jorge Mariscal, the chief investment officer of emerging markets at UBS Wealth Management, which oversees about US$1 trillion. “The BRIC concept was popular, but nothing is eternal.”

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

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

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

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 nations still account for more than one-fifth of the global economy, their growth prospects have dimmed. In a December 2011 report, then-Goldman Sachs head markets economist Dominic Wilson 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 its worst recession in a 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 US$5 trillion in market value. Even in India, where growth accelerated, Indian Prime Minister Narendra Modi is struggling to push through reforms.

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