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2010 Key Trends in Latin American Hedge Funds


The Latin American hedge fund industry has seen tremendous growth in the last decade both in terms of performance and assets under management. Since its inception in December 1999, the Eurekahedge Latin American Hedge Fund Index has gained 422.8% while the number of Latin American hedge funds has also increased four-fold over this period. The growth in assets under management picked up incrementally after 2003, registering a three-fold increase from 2004 to 2007. Furthermore, Latin American hedge funds have posted average annualised returns of 15.4% since 2000 – the highest among all regional mandates covered by Eurekahedge over this period.

After weathering the financial crisis admirably, losing only 4.79% in 2008, Latin American managers delivered a year of robust returns in 2009, gaining a massive 26.94% – the best annual return on record since the bumper year of 2003. Starting the new decade on a high note, managers outperformed underlying markets in January and February 2010 while they achieved positive returns for March. Year-to-date March, the Eurekahedge Latin America Hedge Fund Index advanced 1.25%1 – almost at par with the MSCI EM Latin America Index which was up 1.31%.

An important factor to consider when analysing the Latin American hedge fund industry is the difference between onshore and offshore hedge funds. Onshore Latin American hedge funds are mostly set-up in Brazil, which is the largest economy of hedge funds in the region and denominated in the Brazilian real. The reason for a large local hedge fund market is that there are strict controls regulating the flow of capital in and out of the country: investors have to set-up special accounts, pay additional taxes and all transactions have to go through the central bank. As such, investors look for real-denominated hedge funds, thereby creating a market for hedge fund managers.

Based on the data in the Eurekahedge Latin American hedge fund database, we estimate the number of Latin American hedge funds to be 450, managing nearly $56.1 billion in assets as of March 2010.

Figure 1 gives a snapshot of the industry development over the past decade.

Figure 1: Industry Growth over the Years

Click on the image for an enlarged preview

Industry Make-Up and Growth Trends

The growth seen in the Latin American hedge fund industry over the years has been a result of strong performances and significant capital inflows. Assets under management have grown from US$2.7 billion in 2000 to more than …

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1 Based on 67.3% of the funds reporting their March NAVs as at 15 April 2010.