Research

2017 Key Trends in Latin American Hedge Funds

Introduction

The Eurekahedge Latin American Hedge Funds Index gained 14.16% as of September 2017 year-to-date, while MSCI EM Latin America IMI Index posted 18.73% over the same period. Latin American hedge funds still outperformed their European and North American counterparts by a sizeable margin and remain attractive to investors in 2017, as indicated by the 2017 year-to-date investor inflows which stand just above the US$6 billion mark, bringing the cumulative AUM to match the previous 2013 year end peak at US$60.3 billion.

The steadily rising commodity and industrial metal prices, along with the increase in tourism are expected to boost the region’s economic growth in the upcoming year, according to The World Bank Global Economic Prospects report. The strong economic growth would in turn boost Latin America’s equity market, and hedge funds are expected to capture a portion of the upward rally. Despite the remarkable AUM growth in 2017, the Latin American hedge fund population continues to see the shrinking trend, with most of the recent closures comprised of small funds managing no more than US$20 million.

Total AUM of the Latin American hedge fund industry grew from a modest US$2.5 billion in 2000 to a pre-financial crisis high of US$56.4 billion in 2007. Following the financial crisis, the industry’s AUM declined to US$41.9 billion in 2008 but recovered thereafter as investor interest into emerging markets picked up in the following years. Since then, Latin American hedge funds have continued to produce positive performance based AUM growth every year, shrugging off investor scepticism.

Figure 1: Industry growth over the years

  Latin American hedge fund industry map

Onshore funds continued to outperform their offshore peers in 2017, and collectively they managed 56% of the total hedge fund industry AUM of Latin America. Among the geographic investment mandates, Brazil, Latin America and globally investing funds all posted greater than 10% year-to-date returns, leaving funds that invest in emerging markets behind. Looking at strategic mandates, long short equities hedge funds managed to outperform other strategies in capturing the underlying market rally since 2016, with 18.38% year-to-date gains as of September 2017.

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