Key Trends in Latin American Hedge Funds (February 2022)

The Eurekahedge Latin American Hedge Fund Index retreated -2.95% in 2021, outperforming the MSCI EM Latin America Index which declined -7.58% over the same period. GDP in the Latin American region declined by 6.8% in 2020, driven by the economic collapse caused by the onset of the COVID-19 pandemic. The implementation of lockdowns by governments to prevent the spread of COVID-19 led to high unemployment and reduced demand for goods and services, which caused inflation to decline to less than 5% in most Latin American countries. Going into 2021, inflationary pressures started to build up, driven by the strong rebound in global demand which pushed up the prices of commodities dramatically, as evidenced in the S&P GSCI Index which has increased by 40.35% in 2021. The prices of Brent Crude oil and West Texas Intermediate crude oil has also rebounded in tandem, achieving price gains of 51.07% and 56.68% in 2021 respectively. Higher commodity prices combined with other favourable factors such as the progress on vaccinations and continued fiscal support from governments enabled Latin American GDP to rebound by an estimated 6.3% in 2021. GDP growth is likely to be more moderate in 2022, as monetary policy normalization in developed economies lead to an increase in interest rates and raise debt-servicing costs, exerting pressure on Latin American governments to tighten their fiscal policies to ensure the sustainability of public finances.

The industry assets of Latin American hedge funds stood at US$60.6 billion as of December 2021, up around US$0.4 billion throughout 2021. Industry population increased slightly from 347 funds in 2019 to 369 funds in 2021, reversing a trend of decline that has lasted for almost a decade.

Figure 1: Latin American hedge fund industry growth

Onshore funds continued to outperform their offshore peers in 2021, and collectively managed more than 50% of the total hedge fund industry AUM of Latin America. Looking across strategic mandates, macro hedge funds lead their strategic peers with a 5.52% return in 2021. On the other end of the spectrum, long/short equities hedge funds lagged behind their strategic peers with a 2021 return of -6.92%.

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