BlackRock fund bets on Russia and loses

A team of hedge funds at BlackRock Inc. saw Vladimir Putin’s invasion of Ukraine as an opportunity to buy more shares in the country. The decision was wrong.

BlackRock’s Emerging Frontiers Fund plunged more than 10% in February, suffering its worst trading setback since it began more than a decade ago, according to people with knowledge of the matter and an investor briefing seen by Bloomberg.

The fund, which managed $960 million at the end of January, is now down 7% this year, said the people, who asked not to be identified because details are private.

Russia was one of the biggest bets for the hedge fund in early February, with 9% of its gross assets invested in the country’s shares, following a research trip in January, the document shows.

Sam Vecht, head of the team that manages the fund, told investors he had upped the ante even further when the invasion began, one of the people said. The fund currently has zero positions in Russia, after writing them all off, two people said.

A spokesman for the world’s largest asset manager declined to comment.

The hedge fund is the latest investor to suffer huge losses following the invasion and subsequent sanctions designed to financially isolate Russia. BlackRock halted its purchases of Russian securities through its actively managed and index funds as of February 28.

Despite Russian stocks being the fund’s biggest loser in January, exposures were held and then increased.

“We believe the risk reward of holding Russian long positions is favorable relative to the risk we see of conflict”, the team said in the letter. The Emerging Frontiers fund has never lost money in a full year since its launch in September 2011, according to the letter.

A BlackRock veteran, Vecht is Head of the Emerging Europe and Frontiers team within the Active Equity Core Division of BlackRock’s Active Equity Group. He manages both long and short money funds.