Diego Marynberg, president of Adar Capital Partners, is predicting that the next two years will see continued adjustment in the hedge fund sector with many funds disappearing as a result of increased volatility.
Adar Capital Partners' Adar Macro hedge fund has accumulated a yield of 30 per cent between January and October this year and 57 per cent since it was launched in August 2013, consolidating it as one of the most profitable funds in the world.
Marynberg says: “The current crisis of many hedge funds is essentially due to the fact that they took up positions years ago in a market that over-invested at very low interest rates in assets with too much leverage. If we add to that that there will be more and more volatility, the consequence is that many hedge funds will have to disappear in the short term because they will not be able to guarantee returns or justify management fees of over 20 per cent.”
According to Marynberg, this severe adjustment among hedge funds will extend until 2018.
“The decline in profitability of some hedge funds since the financial crisis has been most dramatic in developed markets, but not in other regions such as Latin America,” he says. “In Latin America there are some excellent companies such as Petrobras, YPF and Ecopetrol with bonds denominated in US dollars and whose profitability exceeds 8 per cent per annum. To achieve these yields in the US, Europe or Asia you would have to invest in so-called junk bonds. In contrast, in Latin America they are mostly companies in which the state is the principal shareholder, which means that furthermore they are backed by a quasi-sovereign guarantee. Another advantage in this region is its lower leverage, which means they are less affected by economic crises. This group of companies represents 40 per cent of our investment portfolio and in the medium term they are less affected by the vagaries of the market.”
In 2017, Adar Capital Partners is expecting to expand its portfolio of investors and its Adar Macro fund to grow from its current USD850 million to USD1 billion.