Brazil Continues to Dominate the South American Hedge Fund Industry – April 2014

by Oliver Crabb

  • 15 Apr 2014
  • HF

Data from Preqin’s Hedge Fund Analyst shows that the countries of South America play host to 108 hedge fund managers, accounting for approximately 1.7% of all active hedge fund managers tracked by Preqin. Collectively these managers run a total of 305 individual funds, putting the average number of funds per manager at 2.86, compared with an industry-wide average of 1.92 funds per manager.

Of the countries within South America, Brazil has by far the most developed hedge fund industry. 86% of all South America-based hedge fund managers tracked by Preqin are based in Brazil, with the majority of the remaining managers based in Argentina or Chile. Columbia, Uruguay, Guyana and Venezuela are the other countries in the region with active hedge fund managers. The core hedge fund centres in Brazil are Sao Paulo and Rio de Janeiro, while all of the managers in Argentina and Chile are based in the capital cities of Buenos Aires and Santiago.

The region is relatively under-developed in terms of fund type and structure diversification. Ninety percent of the funds managed in South America are single-manager commingled vehicles; funds of hedge funds account for just 6% of funds in South America, compared to 18% of funds globally. The main strategies used across South America-based funds are divided in much the same way as the hedge fund industry globally. Long/short strategies are the most widely employed at 48% of all funds, with macro and multi-strategy approaches representing the majority of the remaining funds at 27% and 19% respectively.

The more niche strategies, however, are very much underrepresented in South America compared with the wider industry. Event driven, relative value and other strategies account for just 3%, 3% and 1% of South American funds respectively, compared to the 9%, 9% and 4% of funds that the same strategies account for globally. Investment location preferences of South America-based managers are also fairly concentrated with a focus on domestic markets; 51% of managers in the region focus their investment efforts solely on Brazilian markets. Eighteen percent of managers invest across South America as a whole while a further 20% have a global investment outlook.

These figures show that the South American hedge fund industry is one very much dominated by a single country. While Brazil can claim to be a significant player globally (ranking 3rd in terms of total hedge fund industry assets under management according to The 2014 Preqin Global Hedge Fund Report), it cannot alone compete with the likes of North America and Europe in terms of fund diversification and investor opportunities. With strategies concentrated around the globally prominent long/short and macro approaches, investors in the region are given few opportunities for diversification when it comes to hedge fund investing.

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