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Opinion – From Grain to Grain: It’s time to increase exposure in multimarkets; understand the reason


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The period from December 2019 to December 2021 was not conducive to investing in hedge funds. However, three factors justify increasing exposure to this investment class now.

Multimarket funds are products in which the manager seeks to capture gains above the CDI, operating in the following markets: interest rates, currencies, stocks and commoditiesboth in the Brazilian and international markets.

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One of the ways to monitor the performance of multimarket funds is through Anbima’s IHFA index.

This is an index that includes the most representative Brazilian hedge funds in the industry. At the moment, the index consists of 315 funds.

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As can be seen in the chart below, the index’s profitability in the two years mentioned above was equal to the CDI.

Although in general it is not appropriate to compare the result of risky investments with the CDI, this does not apply to multimarkets.

This is because surpassing the CDI is the goal of most Brazilian hedge funds. Thus, when this goal is reached, the manager is remunerated, as he usually keeps 20% of the gains that exceed the CDI.

It is important to note that when an investor evaluates the result as shown in the chart below, it is already net of all fees, that is, the management and performance fee.

Therefore, the returns presented in all reports is already the return that the investor receives. Just missing the IR.

As noted, the recent past has not been conducive, but three factors support investment now.

The first factor is related to the timing of interest rates in Brazil.

As I mentioned earlier, the best time to invest in hedge funds in Brazil is when interest rates are already high and there is a prospect that they may start to fall in the next six months.

The graph above shows the evolution of the Selic rate in the last 10 years.

At the last meeting of the Monetary Policy Committee, which took place two weeks ago, the decision was made to maintain rates. With this, the market already expects interest rates to start falling from March 2023.

The chart below shows how the IHFA and CDI performed, starting six months before the last interest rate fall cycle that began in October 2016.

The IHFA performed at more than 140% of the CDI between April 2016 and December 2019.

The second factor that justifies the application is the level of interest rates, both Brazilian and international.

The chart below shows the evolution of the basic interest rate in the US, known as Fed Funds.

Note that interest rates in the US have also risen recently and are expected to rise further by mid-2023.

When interest rates are higher, risk premiums are usually higher. The risk premium represents the implicit gain above interest rates in opportunities researched by managers.

Thus, the higher the premium, the lower the risk exposure made by the manager to have the same gain. Therefore, the risk return balance is better in the investments made by the manager.

Finally, the most challenging investment scenario in Brazil since 2020 has made managers improve their teams and strategies to also seek opportunities abroad.

Thus, several hedge fund managers in Brazil are better prepared to capture opportunities not only in Brazil but also abroad.

Proof of this is that one of the biggest sources of gains for several managers this year was betting on high interest rates in the US.

As it is not possible to invest in the IHFA, which represents the average of managers, the challenge is to select which ones are the best to invest in. Investment advisors can assist with this task.

It is important to point out that hedge funds are a risky investment and, therefore, one should pay attention to the investor profile and investment horizon before making any investment.

Michael Viriato is an investment advisor and founding partner of Investor’s House

Follow and like De Grão em Grão on social media. Follow the lessons of investing in the Instagram.

If you have any questions or suggestions for themes, please feel free to send by email.

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