Brazilian Hedge Funds Lure $19.7 Billion This Year (Update1) - Bloomberg.com

Brazilian Hedge Funds Lure $19.7 Billion This Year (Update1) - Bloomberg.com:
By Alexander Ragir

Oct. 19 (Bloomberg) -- Brazilian hedge funds are luring more money than any type of investment pool in the country after record withdrawals last year, offering returns four times the yield from certificates of deposit.

Local hedge funds attracted a net 33.7 billion reais ($19.7 billion) this year through Oct. 15 after posting 54.6 billion reais in redemptions in 2008, preliminary data from the National Association of Investment Banks’ Web site show. Third-quarter inflows surged to 36.3 billion reais, according to the data, which are scheduled to be revised and re-published today by the association known as Anbid.

The Bloomberg Active Index of Brazilian hedge funds, which tracks the performance for 1,171 funds before fees, rose 44 percent this year through Oct. 12 to a record. That’s more than triple the gain of global hedge funds and compares with the 8.61 percent annual average rate that certificates of deposit paid at Brazilian banks.

“We’re on our way to recover last year’s redemptions because it’s the most flexible alternative asset that big banks and private bankers can offer clients,” said Marcelo Serfaty, who oversees 360 million reais as founder of Fiducia Asset Management in Sao Paulo.

A Brazilian equities rally and record low interest rates are also spurring demand for higher-yielding assets. The Bovespa stock index rose 0.2 percent today to 66,296.69 at 10:07 a.m. New York time, extending a gain this year to 77 percent.

Most Inflows

Brazil’s 326 billion-real hedge fund industry received more money than any fund group in Brazil so far this year, according to Anbid. Funds that invest in asset-backed securities came second with a net inflow of 13 billion reais, followed by fixed- income funds, which recorded 9.8 billion reais in inflows through Oct. 15, Anbid data show.

The Bloomberg index of Brazilian hedge funds, known locally as multimercados, fell 15 percent last year, less than half the 41 percent drop of the Bovespa index. The average global hedge fund’s holdings, as measured by the HFRX Global Index, rose 12 percent this year through Oct. 15. The gauge is still 17 percent below a record set July 13, 2007.

“Flows always chase performance,” said Claudio Andrade, co-founder of $1 billion hedge fund Polo Capital Gestao de Fundos Ltda. “That’s what we’re seeing.”

Latin American hedge fund managers are gathering today for the annual Hedge Funds World LatAm 2009 conference in Miami, hosted by Terrapinn Holdings Ltd., to discuss investment strategies with money managers from the U.S., Europe and Asia.

Tighter Regulation

Brazilian multimercado hedge funds are regulated and most are required to return money to clients within five business days of a redemption request under local securities regulations. They must also publish their performance daily.

Hedge funds in the U.S., Europe and Asia don’t have these rules, said Peter Rup, chief investment officer at New York- based Orion Capital Management LLC, which invests in hedge funds. Multimercados can bet on the rise or fall of traded securities and some use leverage, or borrowed money.

Hedge funds “should continue to lead inflows until new high-yield and equity-driven products are developed and the distributors convince their clients to accept less liquidity in order to increase portfolio diversity,” said Serfaty, the former director of investment banking at Banco Pactual SA, a Brazilian bank acquired by UBS AG in 2006 and sold this year to a local banker.

“Multimercados still have daily liquidity and they’ve been used before, so they’re the easiest for the biggest banks to sell to clients,” he said.

Markets

The Bovespa index climbed 3.3 percent last week, its third straight advance. Gafisa SA, Brazil’s second-biggest homebuilder, rose the most with a 12 percent gain. Lojas Renner SA, the largest publicly traded clothing retailer, slipped 2.2 percent for the steepest decline.

The real strengthened for a seventh week, the longest stretch of gains in five years. The currency increased 1.8 percent to 1.71 per U.S. dollar from 1.7410 on Oct. 9.

The yield on the government’s zero-coupon bonds due January 2011 fell 2 basis points to 10.48 percent, according to Banco Votorantim.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net
Last Updated: October 19, 2009 10:12 EDT"