abrdn Shuts Down Global Risk Mitigation Fund Due to Poor Performance and Lack of Investor Interest

abrdn has decided to close its Global Risk Mitigation Fund, citing disappointing returns and a lack of investor interest. The hedge fund, which has struggled with negative performance since its launch, officially shut down operations on 30 August, according to a report by the Financial Standard.

In a statement, abrdn explained that shifts in investor demand had contributed to a decreasing fund size, with limited prospects for future growth. “The fund size has reduced over time, and we do not anticipate growth in the foreseeable future,” the company stated.

Launched on 6 October 2021, the fund aimed to generate positive returns during periods of market instability, especially when developed market equities experienced substantial declines. It employed a strategy involving a diversified set of hedging techniques designed to improve returns as equity markets dropped. Despite these intentions, the fund failed to meet expectations, posting an annualized return of -10.5% since its inception and -12% over the past year.

The fund’s exposure primarily came through a total return swap provided by BNP Paribas, granting synthetic exposure to the ASI Global Risk Mitigation 3x Index. It also occasionally utilized derivative instruments to enhance returns.

In a message to investors, abrdn explained that the fund’s closure was in the best interests of its unitholders, noting that maintaining such a small fund would result in high operational costs and inefficiencies. As of 31 July, the fund had just $2.65 million in assets under management and levied a management fee of 1.29%.

The closure reflects a broader challenge for niche funds that are unable to scale and attract sufficient capital to offset high management costs. It also highlights the difficulties in achieving the expected returns from risk-mitigation strategies during periods of market volatility.