Brazilian hedge funds are on track to outperform their domestic benchmark for the first time in three years, supported by well-timed interest rate trades and a sharp rally in local equities that has lifted returns across the industry, according to a report by Bloomberg.
Data from industry body Anbima show the IHFA hedge fund index rising almost 15% in 2025 through 23 December, edging ahead of the CDI interbank rate, the sector’s primary benchmark, which gained around 14% over the same period. The performance marks a potential turning point after several challenging years for Brazil-focused managers.
Falling interest rates have been a central theme. Macro-oriented hedge funds benefited from positions anticipating a domestic easing cycle, while declining global yields also contributed to gains. Managers at firms including Vinland Capital and Legacy Capital cited rate-driven strategies as key return drivers, alongside exposure to developed and emerging market curves.
Equities have provided an additional boost. Brazil’s Ibovespa index is on track for its strongest annual performance since 2016, supported by broader emerging market inflows and growing expectations that the central bank will begin cutting rates in the coming months. At Absolute Investimentos, gains were amplified by a 33% rally in domestic stocks during the year.
Global macro positioning has also played a role. Kapitalo Investimentos reported gains from trades spanning the US, Europe and Scandinavia, as monetary easing across major economies lifted bond markets and currency opportunities.
Despite the strong performance, political volatility has introduced fresh risks. Local markets sold off in early December after former president Jair Bolsonaro endorsed his son Flavio as a potential presidential candidate, unsettling investors who had viewed São Paulo governor TarcÃsio de Freitas as a more market-friendly option against incumbent Luiz Inácio Lula da Silva.
Investor flows remain fragile. While redemptions from Brazilian hedge funds have slowed significantly compared with 2024, net outflows still totalled roughly $11bn through November, according to Anbima. That compares with $57bn over the same period last year. Market participants expect withdrawals to ease further once the rate-cutting cycle formally begins, with swaps markets currently pricing in around 250 basis points of easing through April 2027.
Fund-level performance has varied, though several managers posted double-digit returns driven by combinations of rate positioning, relative-value trades and selective equity exposure. Macro funds focused on Latin America and Central Europe were among the strongest performers as expectations for global policy easing intensified.
