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Analysis of Hedge Fund Investor Appetite for Latin America – October 2015

by Joseph Lee

  • 26 Oct 2015
  • HF

This month, Preqin highlighted how Latin America-focused hedge funds have achieved negative returns in each of the four months to September 2015. Although Latin America is a relatively new area of focus for many hedge fund investors, Preqin’s Hedge Fund Investor Profiles online service currently tracks 162 investors with exposure to the region, accounting for approximately 3% of the investor universe. Such investors are likely seeking diversification and access to investment opportunities outside developed regions.

Fifty-seven percent of Latin America-based hedge fund investors currently commit to local funds, the majority of which are based in Brazil. Despite the majority of these investors actively investing in the region, they account for only 13% of the total number of investors looking to gain exposure to Latin America-focused hedge funds.

Only 3% of North America-based hedge fund investors have exposure to Latin America, similar to Europe-based investors (3%) and Asia-Pacific-based investors (2%). Despite only a small proportion of North America-based investors exhibiting a preference for Latin America, these investors account for 61% of the 162 investors looking to invest in the region.

Investors with exposure to the region have been active in the hedge fund space for an average of 13 years, with an average allocation of 20.0%. Those seeking opportunities in Latin America are typically experienced and confident hedge fund investors.

One example of an investor gaining exposure to Latin America through hedge funds is the Colorado Fire and Police Pension Association, which allocates 24.8% of its $4.2bn assets to hedge funds. The pension fund recently allocated $10mn to Brevan Howard Argentina Fund, a vehicle that aims to provide the pension scheme with fixed income and equity exposure to Argentina’s public markets.

Investors with commitments in Latin America will be hoping that economic and political conditions stabilize, particularly in Brazil, where the majority of Latin America-based fund managers are headquartered, and following the Petrobras scandal and the weakening Brazilian Real. Despite a general decline in recent performance, Preqin has also highlighted that Latin America-focused credit, event driven and macro strategies funds have achieved positive year-to-date returns, as of August 2015. Funds focused on the region will be hoping that recent events have not deterred potential investors as well as seeking to take advantage of the current environment in the region to protect capital and produce returns.

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