Research

2016 Key Trends in Latin American Hedge Funds

Introduction

The first four months of 2016 saw some renewed investor interest into the Latin American hedge fund space. Total assets for Latin American hedge funds grew US$0.8 billion as of April 2016 year-to-date, roughly twice the level of asset growth seen over the same period last year. The Eurekahedge Latin American Long Short Equities Hedge Fund Index and Eurekahedge Latin American Multi-Strategy Hedge Fund Index were up 11.21% and 8.53% respectively as of April 2016 year-to-date. Investor optimism in the region was evident as major Latin American equity indices rallied at the start of the year. The MSCI Latin America Index1 was up 15.24% in 2016 year-to-date as resilient oil and commodity prices have helped in pushing up the valuations of underlying assets. Much of the investor psyche hinges on the outlook of the oil market, the region’s political developments and the anticipated direction of capital flows between the developing and the developed world. Nonetheless, the recent run-up in Latin American markets remains unsustainable given the inherent problems faced by these economies. Indeed, the global economy is still stuck in its current lethargy as ongoing political and economic worries continue to unnerve investors.

Figure 1a: Industry growth since 2000
 

The assets under management (AUM) of the Latin American hedge fund industry grew from just US$2.5 billion in 2000 to reach its peak at roughly US$56.4 billion in 2007 in the pre-financial crisis period. The region was not spared from the global financial crisis with AUM declining 25% in 2008 from the previous year. However, interest into emerging economies was restored after the financial crisis as investors sought to diversify their exposure. The Latin American industry AUM peaked to an all-time high in 2013, during which AUM stood at US$60.3 billion, largely on the back of performance-based gains. Investor outflows was particularly challenging for the Latin American hedge fund industry with steep redemptions totalling US$11.5 billion from Q2 2013 to Q1 2015.

On the other hand, performance-based gains stood at a modest US$4.5 billion over the same period. The Latin American hedge funds industry had contracted by US$2.2 billion in 2015, making this the second consecutive annual contraction for the industry. As of April 2016 year-to-date, Latin American hedge fund managers manage US$55.1 billion in AUM, overseen by a total of 387 funds.

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Footnote

1MSCI EM Latin America Index (Local)
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