Nearly 1,200 billion euros in assets is tied up in newly launched funds that need at least 100 million euros to break even, according to research by the data consultancy Broadridge. Almost six in ten Luxembourg-domiciled funds have less than 100 million euros in assets.
The news was first reported by the Financial Times. According to the data, more than two thirds of new funds globally fail to raise 100 million euros from investors. These so-called zombie funds are especially common in Europe: in Luxembourg alone, there are about 6,000 of them, Broadridge researcher Chris Councellor told Investment Officer. That’s 57% of the total number of funds domiciled in the Grand Duchy.
In total, about 424 billion euros is invested in European zombie funds, compared to ‹only› 179 billion euros in the US. According to the study, the average size of a Europe-domiciled funds is 245 million euros, compared to 1.6 billion euros in the US. The average size of a Luxembourg-domiciled fund is 321 million euros.
Pressure on fund houses
Councellor believes the main cause for the existence of so many zombie funds are the business models of asset managers. ‹New funds sell so there is huge pressure to launch new products, but it is much harder to close funds with sub-par assets,› he told the FT. ‹The problem is a lot of investor money is tied up in funds that are effectively languishing on the back list, that are expensive to run and arguably do not attract prime manager focus.›
According to the data, Vanguard and Russell are most successful in raising at least a 100 million euros for new funds, with a success rate of 90%. BlackRock has attracted the largest assets to new funds over the past five years, the period covered by the research.