Brazil Hedge Funds Hemorrhage Cash

A handful of asset managers in Brazil’s young hedge fund industry, including Maua and Quest – both run by celebrity central bankers – are up against the ropes and being pummeled by redemptions. A combination of bad individual bets on the market, and a broad-based investor exodus into higher-yielding cash products like CDs, leave multimercado (macro) hedge funds gasping for air. “Only in the last 12 months have we really been able to get a clear sense of [multimercado] managers’ strategies and abilities,” says Gustavo Coelho, manager at Arsenal, a Brazilian fund of funds. He adds that until recently, the industry had little critical mass and was riding on a global bid for Brazil that kept asset prices moving up, lifting al funds, regardless of ability. Assets under management (AUM) at Maua’s main macro hedge fund have evaporated to BRL277m from BRL1.32bn a year ago, according to the CVM. Quest’s 30-day macro fund has been sliced to BRL418m from BRL1.75bn a year ago. So far in 2008, the Maua vehicle has delivered returns of 3.21% while Quest is down 5.91%, according to Anbid. Both are underperforming the CDI benchmark, which has returned 6.51% YTD. Arsenal estimates Brazilian hedge funds have underperformed CDI by some 2.35%, posting an average nominal gain of 4.16% YTD. Not all macro hedge funds have succumbed. Gavea’s main global macro vehicle is up 7.08% YTD with roughly the same amount of AUM it had a year ago, while Hedging-Griffo’s Verde unit is firmer by 10.78% and has seen AUM swell by BRL1.5bn in the 12-month period.