What made 3,900 multimarket funds ‘disappear’ in the last four years

The industry of multimarket funds is going through the worst moment in history. The volume of withdrawals from applications imposed a complex scenario for managers, especially smaller ones. Paying the bills has become more difficult as investors flee products.

According to data from the Brazilian Association of Financial and Capital Market Entities (Anbima)in the last 27 months, from January 2022 to March 2024, the most recent data, this industry suffered R$291 billion in rescues.

Therefore, the question about whether it is worth keeping an application, or even the manager itself, “working” — or whether it is better to close activities for good — has become more common. And this is clear in the spike in the number of cancellations of multimarket funds, especially in the last four years, after the covid-19 pandemic.

In total, 3,900 multimarket funds became “history” in the period (2020 to 2024), in an industry that has just over 13,800 active vehicles. Around 63.8% of these closures occurred from 2022 onwards, when the Selic basic interest rate reached 13.75% per year, according to data collected by Einar Rivero, from Elos Ayta Consultoria.

The first major victim

The “Perfin Equity Hedge 15” application was the first major victim in a series of “deaths” of multimarket investment funds (FIMs). On April 15, 2020, the asset, which already had more than 7,700 shareholders, carried out its last deal and assumed the position of the largest vehicle in its class to close its doors that year.

At the time, the covid-19 pandemic brought historic volatility to the markets. The product of Perfin Capital it fell 22% in March 2020 alone, the worst moment of the health crisis on the Stock Exchange, and did not survive the fluctuations.

Subsequently, the number of canceled multimarket funds continued to grow. In 2020, there were 630. In 2021, another 745, an increase of 18.2% compared to the previous year.

“The volatility at the beginning of the pandemic made it more evident how exogenous factors can exacerbate distortions between asset prices and companies’ fundamentals and, as a consequence, lead investors to abrupt movements to change allocation”, explains Perfin Capital, in note. “We chose to discontinue the fund in a transparent and diligent manner. We gave the option of full redemption or the possibility of migrating to other investment strategies.”

However, it was not just the pandemic that impacted the multimarket industry. The biggest jump in cancellations occurred from 2022 onwards, when the number of closed FIMs increased by around 44% compared to the previous year, to 1,076.

At that time, the rise in the basic interest rate to a maximum of 13.75% per year raised the level for fund returns, which were unable to keep up with the boosted returns from fixed income. They then began to live with looting, which reached R$86.5 billion in 2022, according to Anbima.

In 2023, with falling interest rates, FIMs’ income took some respite. Even so, the industry lost R$176.5 billion in the period. The frequency of cancellations decreased, but remained above the average for the four years prior to the pandemic (2016 to 2020).

Around 1,222 multimarket funds were closed last year, an increase of 13.5% compared to 2022.

In the first four months of 2024, 270 applications have already been discontinued. Despite there being signs of recovery, the class has not yet picked up the pace in funding – between January and March this year, redemptions reached R$28.1 billion.

Profitability in check

Difficulties in relation to profitability and funding, for example, were two of the reasons that led to the cancellation of the “Upon Global Macro” fund, from Upon Global Capital. The multimarket was completed in November last year, when it accumulated negative profitability of 0.5% for the year.

At its peak, in February 2023, the strategy had 521 shareholders through the “Upon Global Macro Advisory” mirror fund. In August, before the closure announcement, the FIM had already lost 160 investors.

With the end of Upon Global Macro, the house also closed its activities. “Given the delicate situation of the industry and the lack of a perspective for change in the medium term, thinking about doing the best for our clients and always aiming to fulfill our fiduciary obligation, we believe that closing the project is the right decision for everyone” , stated asset in an open letter published in September 2023.

“Competing with interest rates in Brazil has become a real battle for investment managers. This led many investors to migrate to direct assets”, comments Mario Girotto, financial planner, CEO and founding partner of The Hill Capital.

Public securities of Treasury Direct and tax-exempt investments, such as Agricultural or Real Estate Receivables Certificates (CRA and CRI) and Agribusiness and Real Estate Letters of Credit (LCA and LCI), were some of the FIMs’ main competitors in recent years.

For Valter Bianchi Filho, founding partner and investment director at Fundamenta, the competitiveness with double-digit interest rates on fixed income partly explains the difficulties faced by FIMs in recent years. On the other hand, it is also not possible to remove the managers’ responsibility for the results. In the first quarter of this year, for example, only 15 multimarket funds beat the CDI.

“Unlike consumer products, which, even though they are bad, can be successful sales due to aggressive marketing actions or other aspects, funds need to deliver results to survive. Without which they have no appeal whatsoever”, says Filho.

Cutting costs (and avoiding taxes)

The flight of investors and fundraising difficulties have weighed on the closure of multimarket funds since 2020. However, there are two other major factors that explain the cancellations of these products.

Of the 3,900 multimarkets closed, at least 1,500 had just 1 shareholder. Of these, 530 (34.6%) were discontinued as of last year. For Girotto, the new taxation of exclusive fundsapproved at the end of last year, but discussed since the beginning of Lula’s third term, boosted rescues during the period.

Previously, the Income Tax (IR) deduction for these investments was only made when the capital was redeemed. Now, there will be “come-quotas”, that is, income tax will be charged twice a year. “The new taxation may affect the competitiveness of exclusive funds in relation to other investment vehicles, such as open-ended funds, managed portfolios and exempt assets, which can only be accessed directly by individuals”, says Girotto.

On the other hand, many of the non-exclusive multimarket funds that closed in recent years were incorporated by other applications. Of the 13 largest FIMs that had their CNPJs canceled in the last four years (which, at some point, had more than 10 thousand shareholders), 10 were incorporated into other funds. This is a movement that aims to reduce costs within assets, especially in a period in which there are difficulties in raising funds.

“It is much more productive to run just one fund than multiple funds. Many houses have dedicated teams per fund – so each new fund means more people, more controls, more costs”, says Filho, from Fundamenta. According to him, the incorporation of funds by others from the same manager is a common strategy to optimize the product line, reduce costs and improve operational efficiency. This movement happens when there is overlapping strategies or to concentrate investors in funds with better performance.

Cuts range from independent managers to banks

One of the most relevant cases among multimarket funds from independent managers was that of Adam Macro Strategy Advisory D60, from famous manager Adam Capital. The multimarket was incorporated by Adam Macro Strategy II last year, as part of a strategy to optimize the house’s fund structure.

The Adam D60 reached its peak of demand in October 2018, when it reached 14 thousand shareholders. At the time, the manager managed a net worth of almost R$30 billion, according to data from Anbima. Since then, the asset’s PL dropped to R$2.5 billion and, before being incorporated, Adam D60 had 964 investors.

“Over the past year we began the process of unifying the Adam Macro and Adam Macro Strategy family funds”, says Sabrina Bueno, relationship and sales manager at Adam Capital. “We believe that the process of unifying products and optimizing the structure will directly benefit our investors and partners.”

The same strategy is adopted by banks, such as Banco do Brasil. The institution highlights the incorporation of ‘BB Multimercado LP Macro 200″, which had 28.8 thousand shareholders in May 2018, by “BB Multimercado Macro LP FIC FI”.

“This movement occurred to optimize our portfolio, as the strategies were identical, with the exception of the investment value. While the BB Multimercado LP Macro 200 was R$200, the BB Multimercado Macro was R$0.01”, says the institution.

The funds actually closed were C6 Techinvest Prata FI Multimercado and Mauá Macro Advisory FICFI Multimercado. The first, from C6, was canceled after the institution decided to no longer have exposure to the asset (silver). When it was discontinued, in November last year, the product accumulated losses of 24.5% for the year.

The second, Mauá Macro Advisory, from Mauá Capital, was completed in November 2021. At the time, it accumulated a drop of 8.50% for the year. The manager decided to reduce the multimarket area after results below expectations, as reported by Broadcast.

Of the selection, the only manager to not answer the team’s questions E-Investor it was Safari Capital, whose Safari 30 Multimercado II fund was canceled in June 2022. There was also no news about the closure, but at its peak, in April 2020, the vehicle reached 25 thousand shareholders.

Cancellations in 2024

Cutting the sample by the largest funds canceled only in 2024 (which, at some point, had more than 100 shareholders), the scenario remains the same.

Of the six applications that answered the E-Investorfour were subject to incorporation and only two were effectively discontinued: CSHG Master Gold Ativo II and Azimut Vif Multimercado.

CSHG Master Gold accumulated a profitability of 11.4% from the beginning of negotiations, in July 2022, until the closing in March of this year. In other words, 30% of the CDI for the period. Azimut Vif Multimercado, owned by Azimut, was discontinued in January this year despite accumulating, since 2015, a profitability of 117% of the CDI.

“The fund was used by management in the past for allocations in credits high yield (debentures with higher returns, but with greater risks)”, says Azimut. “Over time, these investments were depleted and no longer made sense.”

In November 2021, Azimut Vif had 100 shareholders. This number was consistently falling and, before being canceled, it had 11 investors.