Key Trends in Latin American Hedge Funds (September 2020)

The Eurekahedge Latin American Hedge Fund Index was up 0.21% as of July 2020 year-to-date, broadly outperforming the underlying equity market in the region as represented by the MSCI EM Latin America Index, which was down 13.59% over the same period. In 2019, Latin American fund managers gained 15.22%, outperforming their regional peers as the strong run of risk assets in the region supported the fund managers' performance throughout the year. However, risk aversion resurfaced in the first quarter of 2020 due to concern surrounding the spread of the coronavirus outside China. The fast transmission of the virus forced government authorities to impose a lockdown, which resulted in the partial shutdown of economic activity. The equity market recorded sharp losses during the said period, with BOVESPA plummeting 29.9% in March. Going into the second quarter of 2020, despite the rising number of infected cases in Brazil, President Jair Bolsonaro eased their implemented lockdown which supported the recovery of the region’s equity market. The BOVESPA was down 2.04% over the first seven months of 2020, as it gained 31.11% in the second quarter compared to 36.08% loss in the first quarter.

The industry assets of Latin American hedge funds stood at US$57.8 billion as of July 2020, down around US$4.7 billion year-to-date. Industry population continued its streak of decline which has lasted for almost a decade, with 12 funds closing down compared to four new fund launches over the first seven months of the year.

Figure 1: Latin American hedge fund Industry growth

Onshore funds continued to outperform their offshore peers in 2020, and collectively managed around 70% of the total hedge fund industry AUM of Latin America. Looking at strategic mandates, multi-strategy hedge funds took the lead by gaining 3.40% year-to-date over the first seven months of the year, while on the other end event-driven hedge fund lagged behind their peers which lost 4.86% over the same period.

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