Latin America-Focused Hedge Funds Outperform In 2012

Mar 8 2013 | 11:39am ET

Latin America was a hot place for hedge funds to invest in last year, and that trend looks to continue in 2013, according to a new report by database provider eVestment.  

Hedge funds that bet on Latin America were up 7.29% in 2012 and 1.16% in January of this year compared to the hedge fund aggregate performance of 6.59% and 2.51%, respectively.

Funds investing solely in Brazilian markets gained 13.02% in 2012 and 1.83% in January 2013, besting the Bovespa in both periods.

“Brazil continues to dominate in terms of operational location representing over two-thirds of all Latin America hedge funds. Within Brazil, São Paulo has a slight lead over Rio de Janeiro as the most actively represented city. The remainder are spread between the U.S., U.K. and various nations in Latin America,” according to the report.

Fund Flows

Latin America funds experienced net investor outflows in 2012 of $860 million, but performance related gains of $2.43 billion offset investor redemptions for a total AUM increase of $1.57 billion, according to eVestment.

January saw Latin American fund assets increase by $270 million, including $60 million in net investor inflows. This was in line with emerging markets strategies as a whole which experienced net allocations of $4.4 billion in January.

Equity Funds Outperform

Approximately half of hedge funds investing in Latin America are equity focused  strategies. Equity hedge funds outperformed with long-short up 15.78% in FY 2012 versus 8.66% for the MSCI EM Latin America, reports eVestment.

Meanwhile, Latin America focused macro funds were up 3.03% for 2012. This compares to 0.41% and 3.15% for the macro aggregate. 

Another popular strategy, multi-strategy Latin American-focused funds, outperformed macro, gaining 7.82% last year.

Looking Ahead

According to analysts at eVestment, interest in Latin America hedge funds and emerging markets strategies in general has picked up during Q1 of this year, but  it is too early to tell if this interest will lead to an increase in actual allocations to Latin America hedge funds.

“In our view emerging markets hedge funds run a much higher risk, compared to the rest of the industry, of having potential allocations cannibalized by traditional products. In this vein, Latin America focused funds will have to prove themselves on both a fee and risk adjusted basis,” according to the report from eVestment.

The eVestment research database contains 167 unique hedge funds which invest solely in Latin American markets.


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