Bloomberg — Goldman Sachs Group Inc. (GS), UBS Group AG and Deutsche Bank AG are among banks profiting as the growth of Brazilian hedge funds forces them to look overseas to fuel returns.
The lenders’ global-markets units are benefiting the most by providing liquidity, lending securities and executing simultaneous trades in different regions for the nation’s hedge funds. UBS’s Brazil asset-management clients increased their US futures investments by 10% this year, according to the Zurich-based bank.
At Goldman Sachs, revenue from Latin American client-related businesses reached a record this year, according to Ricardo Mora, co-head of the region at the New York-based bank. He said the global-markets division, which includes sales and trading and the prime-brokerage unit, was the main driver.
“Brazilian investment funds were among the biggest participants in global rates markets,” and Goldman Sachs helped them navigate macroeconomic trends, Mora said in an interview.
Brazil’s hedge fund industry more than tripled over the past decade to about 1.6 trillion reais ($300 billion) in assets under management. Many funds started investing abroad years ago, mainly in other Latin America nations or emerging markets, especially Mexico, though they also moved into Turkey and South Africa. This year, several have boosted their investments in developed nations and Asia.
“Portfolio managers in Brazil have the same mindset as any global macro hedge fund in other jurisdictions — they just happen to be domiciled in Brazil, but are thinking globally,” Mora said. Macro hedge funds are actively managed funds that attempt to profit from broad market swings caused by political or macroeconomic events.
Winning Bets
Many Brazilian hedge funds anticipated higher US inflation, and bet that US rates would climb, the dollar would strengthen and stocks would fall. They also gained by placing short positions on the Colombian peso and betting against UK government bonds, which tumbled amid political turmoil that led to the resignation of the British prime minister. A trade that has been luring some locals recently is going long the Japanese yen against the US dollar.
“Brazilians have a very deep sense of fiscal risks and inflation cycles, having experience with that for many decades,” said Paula Moreira, head of the fixed-income, currencies and commodities sales and trading desk in Brazil for Goldman Sachs. “This experience and subsequent associated trades against dollar rates has proved to be very lucrative for our clients.”
SPX Capital, which oversees more than 77 billion reais and was launched in 2010 by traders including Rogerio Xavier, is one example of this trend. The firm set up offices in New York, London, Sao Paulo, Rio de Janeiro and Cascais in Portugal. It plans to open a Singapore office in February, with a staff of Asia-focused researchers and traders. SPX’s macro hedge fund, Raptor, has topped all of its local peers in the past two years, with a 67% return after fees, data compiled by Bloomberg show.
Deutsche Bank has increased its macro-coverage team in Brazil, which covers the Brazilian hedge fund community. Those clients helped the Frankfurt-based bank post its highest revenue from Latin America in six years in 2022. The bank also transferred a Brazilian trader to Singapore to serve clients including hedge funds.
“Brazilian funds became a part of the global hedge fund community, and started deploying risk and investments in a variety of countries outside emerging markets,” said Ricardo Cunha, Deutsche Bank’s head of global emerging markets for Brazil. “The bulk of their money has been made by paid positions in rates, short positions in equities and long positions in the dollar against pretty much any other currency.”
Among Brazil’s best-performing hedge funds in the past 12 months is a fund run by Asa Investments, which was founded by Alberto Safra, son of Joseph Safra, the billionaire banker who died in 2020. Flagship funds at Mar Asset Management and Vinland Capital are also leading gains, with returns of 33% and 30% after fees, respectively.
To expand its client base, UBS has been meeting with more Brazilian hedge funds and offering them its global macro research in markets such as the US, China, Europe and Latin America outside Brazil.
“Brazilian funds will continue to seek markets abroad not only because it’s a good investment opportunity, but also because it will help them scale,” Daniel Mendonça de Barros, UBS’s head of global markets in Latin America, said in an interview. “Some hedge funds have became too big to invest only in Brazil, and need to diversify to obtain above average returns.”
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