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Key Trends in Latin American Hedge Funds

The onset of the pandemic in early 2020 had a severe socio-economic impact on Latin America, with GDP declining by 6.8% in 2020 as governments implemented social distancing and other mitigation measures to reduce the spread of the virus. AuM of Latin American hedge funds were severely impacted, falling by $8.6bn in Q1 2020 as riskaverse investors sought to preserve their capital. Governments in the region reacted swiftly, targeting fiscal policy action to protect the most vulnerable groups and working in tandem with central banks to ease monetary conditions to support economic activity. Investor sentiment recovered, benefitting the Latin American hedge fund industry that rebounded strongly from its March 2020 low ($54bn), reaching a peak of $63bn in August 2021. Going into 2022, riskoff sentiment in the region grew as high food and energy prices related to the Russia-Ukraine war stoked political tensions and compelled global and regional central banks to raise interest rates to combat inflation. As of the end of July 2022, Latin American hedge fund industry AuM has declined $8.0bn from its August 2021 peak and currently stands at $55bn.

Monthly asset flows in Latin American hedge funds

The majority (93%) of onshore funds are based in Brazil, which is regarded as the gateway to the rest of Latin America by industry players looking to establish their presence in the region. For offshore funds, the UK and the US collectively oversee 77% of the market share. Whereas the Cayman Islands and the Netherlands collectively oversee only 7% of the market share. Offshore domiciles also remain popular among hedge fund managers as they have more lenient tax laws and less regulatory oversight. Cayman Islands account for 61% of the offshore funds, followed by the US (14%) and other tax havens including Luxembourg (7%) and the British Virgin Islands (5%).

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