Fund Backed by Brazil’s Former Central Banker Arminio Fraga Falls 88%

Rio de Janeiro-based asset manager TT Investimentos Ltda, which has two of Fraga’s nephews as founding partners, saw its TT Global Equities FIA IE fund shed about 73 million reais ($14 million)

Arminio Fraga, who lifted Brazil’s benchmark interest rates to 45% on his first day as central bank president in 1999, was the fund’s largest client.
By Vinícius Andrade
September 11, 2022 | 11:14 AM

Bloomberg — A small equity fund backed by former Brazilian central bank chief Arminio Fraga suffered an 88% rout after leveraged bets in American outdoor sports gear company Clarus Corp. (CLAR) went wrong.

The Rio de Janeiro-based asset manager TT Investimentos Ltda, which has two of Fraga’s nephews as founding partners, saw its TT Global Equities FIA IE fund shed about 73 million reais ($14 million) in assets after peaking in March of last year. Losses accelerated recently after the fund failed to meet a margin call and was forced by its custodian to liquidate its Clarus position, according to Arthur Fraga Bahia.

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The trade consisted of selling put options and buying call options of Clarus. Fraga Bahia apologized to clients in an emailed message, adding that losses were “irreparable.”

Arminio Fraga, who lifted Brazil’s benchmark interest rates to 45% on his first day as central bank president in 1999, was the fund’s largest client. He had no involvement with the fund’s management activity and was solely an investor.

Arminio didn’t reply to a request for comments sent outside business hours to the asset manager he founded, Gavea Investimentos.

Shares in Clarus, a Salt Lake City-based manufacturer of outdoor equipment and lifestyle products, are down 41% since the beginning of the year, compared to a 16% drop for the Russell 2000 Index in the same period. According to S3 Partners, short interest on the security is currently 31% of float, up from about 25% on Aug. 1.

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Other holdings in the TT Global Equities fund through the end of May included apparel retailer Farfetch Ltd., Bloomberg data show.

“I’m writing this email broken-hearted knowing that not only I lost the fund’s money but also ruined my career in a business that I love since I was young,” Fraga Bahia told clients in the note.

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