Research

2015 Key Trends in Latin American Hedge Funds

Introduction

Latin American hedge funds have been facing dwindling interest from investors over the past few years as they cope with redemption pressure and stagnating performance-based gains compared to other regional mandates. Despite challenges in the Latin American hedge funds space, managers have reported gains of 2.32% in 2014, outperforming the MSCI Latin America Index which was down 4.21%1 last year amid a difficult market environment. As of April 2015 year-to-date, the Eurekahedge Latin American Hedge Fund Index has gained 2.23% with the total assets under management (AUM) of the industry currently standing at US$56.7 billion managed by a total of 392 hedge funds.

Although Latin American hedge funds were not spared from the effects of the 2008 financial crisis, with highest recorded redemption of US$11.9 billion in 2008, the Latin American hedge funds sector performed admirably through the financial crisis – the Eurekahedge Latin American Hedge Fund Index declined by only 5.74% in 2008 while the average global hedge fund posted losses of 9.71% during the year. Since then, the industry has posted a remarkable recovery and over the next two years, the region posted excellent gains while also attracting substantial investor capital. In April 2011, the AUM of Latin American hedge funds had reached a historical high of US$64.2 billion, a record which still holds as at April 2015.

Figure 1: Industry growth since 2000
 

Market sentiment began to sour towards the latter half of 2011, due to overwhelming concerns about the European debt crisis and the strength of the global economy. This clouded the outlook for Latin America as well, resulting in a decline in AUM primarily due to net negative asset flows in 2H 2011.

2013 was a mixed year for Latin American hedge funds. Although they managed to successfully outperform underlying markets, fund managers have had to contend with net asset outflows of US$0.4 billion as the Federal Reserve announced its intention to begin tapering its quantitative easing program, causing investors to begin pulling their capital from overseas emerging markets, where they had been chasing yield.

 

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Footnote
1 MSCI Latin American Index IMI (Local Currency)
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