Re-evaluating the Hedge Fund Business Model

Following an energetic session of speed networking (if only the traffic in São Paulo experienced as much movement…), the next part of the day´s program commenced with a panel discussion amongst various locally-based fund managers, concerning the state of the hedge fund businesss model in Brazil. The first question naturally related to the changes the panelists have experienced within their firms in the past couple of years, particularly in light of the recent crisis. The managers commented that operationally, not that many changes actually took place because the economic downturn coincided with a time when their businesses were growing. Post-September 2008 had also been a good time for them because while there had been a huge decrease in investor appetite in ROW, there had been a simulaneous surge in interest in Brazil. A good lesson learned, however, was the realization that the investors who have remained with the firms are their best investors because they´ve stuck around during both during the down times as well as the boom.

In setting up their firms, the fund managers noted that it is certainly necessary to have a good, solid risk platform. But additionally, one of the best practices that they have adopted from the market was while strong fund performance is certainly compelling, the foundation of a fund lies with its franchise. In comparing Brazilian funds with their global counterparts, the panelists did not feel the 2% tax imposed on foreign investments serves as much of a deterrent for those genuinely interested in investing in the Brazilian market.  Local funds have traditionally been focused on equities, a strategy which makes a lot of sense for investors primarily focused on growth.