Brazil Shows Its Influence, Leads Latin America Hedge Fund Space

Brazil is the largest economy in Latin America and the most developed in terms of sophistication of its financial services industry and liquidity. Significant structural changes in the past few years have made Brazil an attractive market for hedge funds. In the recent years, there has been a significant increase in liquidity in the Brazilian market.

Alternative investment management in Brazil

In terms of the talents of the hedge fund managers, the availability of financial instruments, and improved liquidity, Brazil occupies the highest position in the Latin American hedge fund industry. The hedge fund industry in Brazil has been in existence since the mid 1990s. Unlike the other countries of Latin America, Brazil has long nurtured a strong hedge fund industry serving both the offshore investors and the domestic market.

Brazil’s hedge fund industry is mainly dominated by multi-strategy (macro) and long/short equity funds. However, various options are provided to the investors including fixed income arbitrage, event-driven, and market neutral funds.

Macro economic factors contributing to growth of Hedge funds

The hedge fund managers are however benefiting from the country’s extended period of economic and political stability. With the increasing global demand for its mineral wealth and agricultural commodities, Brazil at present enjoys a low and stable inflation, balance of payments and fiscal surpluses, and an improving level of public debt.

Financial innovation

There are also significant changes in Brazil’s equity markets. Investing in the Brazilian equity market had generated interesting challenges in the past. Several companies had issued their shares with both voting and non-voting rights. These voting shares had often been held only by a few owners. Currently, some local hedge funds have started challenging the share holders to adopt modern and better business models thereby encouraging several companies to behave more aggressively in relation to value creation of shareholders.

As an aside, IvyPlus has seen significant growth in participating emerging market funds, several focused on Latin American market.

http://www.harcourt.ch/manual/swisshedge/2007/q1/strategy_focus.pdf

http://hedgeweek.com/specialreports/

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