THE BRAZILIAN INVESTOR MARKET FOR INTERNATIONAL HEDGE FUNDS

Brazilian investor interest in diversifying internationally has continued to gain momentum in the past six months but remains focused on long-only products. This strong preference is a logical response in light of their recent investment experience but more importantly given the performance of the offshore financial markets in the past two and a half years. At the heart of the appeal of these products has been the bull market in US equities and historically low rates and spreads in global fixed income products.

This exceptional period in fact makes a strong case for diversification away from complete reliance on long only investments in favor of increasing exposure to actively managed vehicles that afford portfolio managers greater flexibility and the tools to adjust to and, in fact, profit from shifts in the markets. Whether or not the markets are fully valued is a discussion that elicits almost as many opinions as participants. What does seem clear, however, is that it is highly unlikely that valuations will climb indefinitely.

Though Brazilians were active alternative investors prior to the 2008-2009 Financial Crisis, they have had little contact with this segment of the industry in the past six years. Not only have there been numerous changes to the industry during this period but the turnover in managers has been greater than ever. The fact that hedge funds are largely unfettered by official oversight in the management of their funds makes the entire selection and due diligence process of utmost importance. This combination of limited recent exposure and the complexity of the undertaking argue strongly for the assistance of professionals that are experienced and that have remained active in and engaged with the alternative investment markets.