Fresh off the heels of an incredibly successful year, hedge funds are planning to capitalize on an abundance of available capital as they head into 2010. BHA analysts have spoken with countless investors that did not invest—or made minimal allocations—in 2009. They were comfortable missing the initial rebound in an effort to select the most prudent fund managers. But as investors return to the playing field, the question remains: Where is the best opportunity for uncorrelated, positive returns?
BHA analysts have noted substantial investor interest in emerging markets recently, and more specifically, Latin America. The region, which posted the best performance relative to its emerging market peers in 2008, had an outstanding 2009. The HFRI Emerging Markets: Latin American Index ended the year with a 46.98 percent gain.1
The managing partner of a Geneva-based family office with 25 percent of its total assets dedicated to hedge funds recently noted his firm’s interest in increasing exposure to Latin America. The firm is researching both long-only and long/short equity opportunities.
Similarly, a London-based advisory firm that has traditionally focused on developed markets is looking to add several emerging market-focused funds to its approved fund list for high net worth clients, including vehicles dedicated to Latin America. The senior investment manager mentioned that the firm targets easily understood strategies, typically long/short equity funds that are fundamentally driven.
Both investors referenced the regions’ weathering of the economic storms of the past 18 months as reason for their interest. In their opinions, that performance coupled with an impressive 2009 bode well for the region’s continued growth and the prospect of outsized returns when compared with developed markets.
Latin America’s largest and most prominent player, Brazil, is expected to lead the charge in the region. A natural resources haven with numerous untapped areas and stable economic fundamentals, Brazil will be hosting the 2014 World Cup and 2016 Olympic Games. In anticipation of these events, there is increasing urgency to improve a variety of infrastructure-related areas, such as power supply and mass transportation systems. Skilled fund managers will be poised to take advantage of the numerous opportunities these large and high-profile improvements are sure provide.
1 Hedge Fund Research, HFRI Monthly Indices, January 19, 2009.
