Stockholm (HedgeNordic) – Fixed-income markets experienced heightened volatility towards the end of October, as higher than expected inflation readings in a number of wealthy economies led to an explosion in interest rate volatility and repricing of central banks’ path of expected future policy rates. The heightened volatility has claimed a few victims, including Brummer & Partners-backed Frost.
Launched on January 2 last year, Frost Asset Management’s Scandinavian-focused fixed-income relative value fund is closing down after incurring a loss of 17.6 percent in October. “Frost’s concentrated portfolio was hit hard by the extreme turbulence in money markets in October,” writes Brummer & Partners in an update to investors. “The NAV per unit fell during the month by 17.6 percent, where the majority of losses occurred in the last few days, despite extensive work to reduce risk in particular during the last week,” continues the update. “Without the reduction in risk in the portfolio, losses would have been greater in magnitude and resulted in a high degree of risk remaining in the fund in a turbulent market environment.”
“Without the reduction in risk in the portfolio, losses would have been greater in magnitude and resulted in a high degree of risk remaining in the fund in a turbulent market environment.”
Frost incurred additional losses month-to-date, with the year-to-date decline through mid-November reaching an estimated 22 percent. “The current estimate for November shows additional losses, and it is likely that the NAV per unit as of end-November will have fallen by more than 20 percent year-to-date, which according to the fund rules means that the active risk taking shall be discontinued and existing positions closed,” says the update to investors. “The portfolio management team have come to the conclusion that the most responsible thing to do for the fund’s investors is to discontinue the risk taking in full as it is not possible to keep taking risk.”
“The portfolio management team have come to the conclusion that the most responsible thing to do for the fund’s investors is to discontinue the risk taking in full as it is not possible to keep taking risk.”
As a result, Brummer & Partners-backed Frost Asset Management has decided to cease the management of the Frost fund. Frost was launched at the beginning of last year by former employees at Sweden’s oldest hedge fund – Nektar, which closed its doors in May 2019 after 21 years of operations. Some of Nektar’s team led by Martin Larsén, Anders Augusén and Johanna Ahlgren (pictured) got back together to launch Frost, managing to raise more than SEK 4.5 billion in assets under management. The fund gained 10.6 percent in 2020, its first year of operations.