K2 AM to close small cap ETF

K2 Asset Management (KAM) is shutting its small cap ETF for failing to achieve sufficient scale after nearly 11 years.

The K2 Australian Small Cap Hedge Fund Complex ETF (ASX: KSM) is winding down with the last trading day set for May 15.

Incepted on 15 Dec 2015, the ETF had about $9.09 million in assets. At the end of December, the fund's portfolio included stakes in PMET Resources (4.9%), Arena REIT (3.1%), Netwealth (1.4%), Australian Ethical Investment (3.2%), NIB Holdings (3.1%), Bendigo and Adelaide Bank (1.5%) and Paladin Energy (2.8%).

"The decision to close the fund recognises that, since its launch, the fund has not achieved sufficient scale to be sustainable and is not likely to do so. On this basis, the board has formed the view that it is in the best interests of the unitholders is to close the fund," responsible entity (RE) KAM said.

KSM invests in 60 to 80 small caps in Australia and New Zealand, aiming to achieve risk adjusted returns over the medium to long term.

KAM said it will reallocate the capital and resources toward higher-growth and higher-return opportunities.

The closure of the fund will also "streamline the product suite with a focus on fund-of-fund products and CIO advisory" and "improve overall operating efficiency," KAM said.

KAM had more than $5 billion in assets under management at the end of 2025.

The lion's share comes from RE, trustee and administration services of $4.7 billion. It had about $275 million in assets from the ETF and listed fund services unit.

Within the RE, trustee and administration services business, KAM chief executive Holly Wight said the "pipeline of new mandates continues to grow".

"Several new fund appointments are scheduled to commence during FY26, with additional managers in advanced discussions to utilise K2's AFSL and operational infrastructure. Importantly, these mandates are expected to contribute recurring and scalable fee revenue, providing improved forward visibility and supporting profitability," she said.

Wight added momentum is building for the funds management and advisory business.

"The investment in recent years in a third-party fund-of-fund model is performing well with strong alignment with high calibre and good performing external global and domestic managers," she said.

"Further, the market continues to show strong demand for outsourced CIO services, particularly from managers seeking enhanced governance frameworks, portfolio construction expertise and risk oversight. K2's CIO offering is increasingly recognised as a flexible and institutional-quality solution."