Brazil’s hedge fund industry suffered its weakest monthly performance in six years in March, as a sharp repricing in global interest rates – driven by surging energy prices – unravelled widely held macro positions across local managers, according to a report by Bloomberg.
A basket of Brazilian hedge funds tracked by the national capital markets association declined 3.4% over the month, marking the worst collective performance since the early pandemic period in 2020. The move contrasted with a 1.2% rise in the CDI benchmark rate, underscoring the extent of underperformance versus cash.
The downturn was largely driven by a rapid selloff in interest rate markets, as rising oil prices forced investors to reassess the pace and scale of monetary easing globally. In Brazil, swap rates surged as markets sharply reduced expectations for policy rate cuts, effectively halving the probability of further easing.
Energy market volatility also played a key role, with crude prices spiking sharply during the period and disrupting positions that had been positioned for lower oil and declining inflation pressures.
Several prominent funds reported significant losses linked to rate, currency and equity exposures. Among the hardest hit were large local managers, including Ibiuna Investimentos and Kapitalo Investimentos, both of which recorded some of their weakest monthly results on record.
At Ibiuna, losses were primarily attributed to positions tied to emerging market interest rates and US dollar exposure, while Kapitalo cited adverse moves across equities, interest rates in both developed and emerging markets, and incorrect positioning on lower oil prices.
The broader industry reaction was one of rapid risk reduction, with several managers cutting exposure following the volatility shock. Some funds reduced or closed positions linked to easing monetary policy expectations, while others shifted toward more defensive allocations or rotated into equities and commodities to rebalance portfolios.
Despite widespread losses, performance across individual strategies was mixed. Some managers were partially cushioned by hedges or alternative positioning, including exposures to equities, foreign exchange, and precious metals. A few funds reported gains from relative value trades or commodity-linked hedges, even as directional macro bets suffered.
The episode highlighted the sensitivity of Brazilian hedge funds to global macro shifts, particularly in rates and commodities markets, where crowded positioning on monetary easing was quickly reversed as inflation expectations were jolted higher.
