NYHFR Survey: Brazil Offers Best Overseas Investment Opportunities

Apr 11 2016 | 6:59pm ET

Alternative investment professionals believe Brazil’s deepening recession and political issues are creating a large number of long-term opportunities in segments like distressed debt, private equity and real estate, according to a new survey by the New York Hedge Fund Roundtable (NYHFR).

Geopolitical risks from Latin America to China have substantially impacted how portfolios have fared in recent years, while the world’s marketplaces and the businesses that operate within them have become increasingly interconnected and well-balanced investment portfolios rarely operate without some sort of overseas exposure.

Accordingly, NYHFR’s March meeting focused on global political risks and opportunities, and surveyed its membership about the alternative investment industry’s approach to investing overseas.

Key findings included:

  • When asked where the greatest overseas investment opportunities lie for alternative investors at the moment, 56% of respondents think that Brazil’s struggles with a major recession have created a ton of attractive long-term opportunities in distressed debt, private equity and even real estate; 30% think that Kyle Bass and Warren Buffet have made a compelling case for shorting the Chinese yuan in anticipation of a banking crisis that is expected to be far more significant than what the U.S. experienced in 2008; 7% think expectations for a collapse of Japan’s banking system make shorting Japanese equities an attractive bet; and another 7% think that Puerto Rico’s struggles to repay its debt, coupled with the inability of its municipalities and public companies to utilize Chapter 9 bankruptcy filings, makes the purchase of heavily distressed bonds in its secondary market a good bet.
  • 73% of respondents said that they have a different risk tolerance when considering investments in companies within emerging markets, while 27% said their risk tolerance remains the same whether investing within the U.S. or abroad.
  • 37% of respondents the Middle East represents the greatest geopolitical risk in 2016, due to issues ranging from ISIS to ongoing religious conflict within the region; 30% think it will be cyberspace, because of the increasing sophistication of cyber crime and terrorism and the absence of a geographic limit to their potential reach; 23% think it will be China, because of the meddlesome nature of its government in its marketplace and uncertainty regarding its claims in the East and South China Seas; and 10% think it will be Russia.
  • 80% of respondents said that the possibility of reputational risk tied to a company’s operation in a country rife with corruption, or where the government is known to be invasive, would be enough to deter them from investing in an otherwise promising company.
  • 70% of respondents said they routinely consider political risks regardless of where a company is located; 17% said this is something they would only consider in countries where there are existing issues; and 13% said this is something they consider when investing in emerging markets, but not in developed countries such as Europe.
  • When asked if they would be willing to look past the longtime perception of widespread corruption in a country if opportunities there were attractive enough, 63% said they would not because the mindset of corruption in such places runs too deep for even the most promising businesses to overcome and would make it too hard to sell institutional investors on such investments; Conversely, 37% said they would since under the right circumstances, an existing bias towards a specific country can actually create a great opportunity for early adopters.

Each NYHFR survey includes an interesting bonus question, which in this case asked Roundtable members whether they thought Donald Trump would ultimately win the Republican nomination:

  • 57% of respondents believe that, despite opposition from high profile Republicans, the party will accept Trump’s majority and nominate him as its candidate. 
  • 45% think that, regardless of what kind of lead he may have, there is no way the Republican party will ever allow Trump to be its nominee and that he will ultimately be forced to run as an independent.

Of the respondents to this survey, 27% were fund managers, 20% were allocators, 7% were risk management or trading, 36% were service providers, and 10% were other industry participants.

The New York Hedge Fund Roundtable is a non-profit organization focused on promoting ethics and best practices within the alternative investment industry. The membership consists of investors, fund managers and other industry professionals who regularly meet to discuss current issues within the industry and connect with peers.

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