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Hedge funds: Brazilian fund bonanza piques foreign interest

“Retail demand in Brazil is getting used to the idea that the very high level of real interest rates will not be available in the near future.”

Foreign investors are becoming increasingly drawn to Brazilian hedge funds, attracted by the industry’s strong performance over the past few years. “This year, there’s been a really stark change in the market environment. Overseas investors were coming to Brazil in 2005 but it was really only in 2006 that they started to allocate money to hedge funds,” says Dara Chapman, relationship manager at Polo Capital in Rio de Janeiro, which has $220 million in offshore assets.

Behind this overseas interest lie three years of high returns. According to São Paulo consultancy Arsenal Investimentos, investable hedge funds returned an average 19.54% in the first 11 months of 2006 and have posted an enviable 156.41% since the end of 2001. The demand for product has encouraged the creation of several new funds. In the past 12 months, four new fund management companies opened shop and a total of 29 pooled funds were created, with just 13 closures, according to Gustavo Teixeira Coelho, asset allocation manager at Arsenal. Even more noteworthy is the growth in assets under management. These have nearly doubled and are at R$41.5 billion ($19.37 billion) from R$24.4 billion a year ago.

This combination of demand and performance is leading managers to launch new types of fund.

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