Emerging markets boutique 1167 Capital returns assets to investors amid Russia-Ukraine crisis

Lauren Mason
clock • 3 min read
Emerging markets boutique 1167 Capital returns assets to investors amid Russia-Ukraine crisis

Emerging market debt fund management boutique 1167 Capital is to close and return $374m of assets to investors, International Investment's sister title Investment Week has learned.

The firm, which was founded by Matthew Sethard-Wright, Michael Mabbutt, and Felix Martin in 2016, will return AUM invested across its three local currency government bond funds - the 1167 Active Funds ICAV Global High Income Bond, Total Return Bond and China Government Bond funds - following a minimum two-week notice period specified by the Bank of Ireland.

According to a letter sent to investors on Thursday (21 April), a number of factors led to the business's decision to shut shop including the impact of the Russia-Ukraine crisis, lacklustre returns from EM local currency government bonds, "disappointing" performance from the firm's funds and an increasingly challenging backdrop for boutiques.

The letter stated: "It is no secret to any of our investors that the last five years - and indeed the whole decade stretching back to 2012 - has turned out to be an absolutely dismal period for EM local currency government bonds.

"All (and slightly more) of the income consistently generated from coupons has been eroded by the depreciation of EM currencies against the US dollar, as well as to a more marginal extent by capital losses on bonds.

"Valuations - and in particular the strength of the US dollar against almost all other currencies - have simply become more and more stretched."

The directors added that the performance of 1167's funds amid the torrid backdrop for the asset class have been "too inconsistent" over the last five years, and that this was further compounded by exposure to Russian government bond positions in its Global High Income Bond and Global Total Return Bond funds.

 

"The unprecedented nature of the sanctions which have inflicted these losses may mean that it would have been difficult for any investment process to have anticipated them systematically - but that does not alter the fact that our investment process failed to protect the portfolios from losses much larger than we would have hoped," the letter said.

Finally, the directors addressed the "changing commercial realities" of operating an independent fund management boutique amid increasing regulation and soaring costs, which had meant it became "increasingly challenging" to provide returns to clients in a cost-effective and profitable manner relative to larger firms.

"The reason we opted to strike out on our own in 2016 and launch 1167 Capital as a stand-alone, specialist, fund management boutique was our conviction that this is the corporate environment most conducive both to active investment management on the one hand, and responsive and tailored client service on the other," they said.

"Notwithstanding the challenges described in the preceding sections, we still strongly believe the basic truth of this - and we hope that [investors] do too."

The partners added: "This has been an extremely difficult decision for us - without question the most difficult of our careers.

"The Russia-Ukraine crisis is an exceptionally bitter note on which to end our journey  - as well as a truly tragic and disastrous one for the world.

"But as ever, [investors'] interests have been paramount in our decision-making - and we strongly believe that returning [their] capital at this stage is the right thing to do."