One rookie Latin American hedge fund shop is hitting rougth seas. AguasClaras Investimentos launched its maiden hedge fund, AC Equity Hedge Latin America (Brazil), a long/short offering, in June.

The fund, which was seeded by Protégé Partners and debuted with US$42 million, has dropped 11.37% through October. While investors may be disappointed about the negative returns, the fund actually compares relatively well to its benchmarks, the MSCI Latam and MSCI Brazil Indices, which dropped 55.3% and 58.1%, respectively, during the same period. It currently manages about US$56.7 million.

AC Equity Hedge Latin America employs a research-intensive and value-oriented approach to investing and its strategy is based on fundamental research. According to the firm’s September investor letter, it began building its portfolio in June with a view that there was some fundamental value being created with the correction of nearly 20% from the highs in the Brazilian markets.

“So we added risk to the portfolio gradually through early July concentrating our investments in Brazil and Mexico, within the basic materials, banking, telecom, utilities and beverages sectors,” it said, in a September investor letter.

Since then, the biggest losers in its portfolio were its long positions in the commodities and telecom sectors. The fund’s cash position rose by the end of the September. “Cash is king in this market environment,” the firm said.

AquaClaras, which means clear waters, offered a bleak outlook for the LatAm space stating that, “Visibility is poor at this moment. Conviction and confidence in the market place are low. And to make matters worse, the tools (models) are not working because we are in unchartered waters from a fundamental standpoint.”

The firm expects Latin American economies to be hit hard hit resulting in a slowdown of growth in 2009, but no recession.