A reputable example of a Latin American hedge fund is that offered by Gávea Investimentos, which is based in Brazil. This particular fund is considered to be highly stable, one of the best options for hedge fund investment. In fact, Highbridge Capital, a company owned by JPMorgan Chase, acquired a majority interest in the fund during the early part of 2010. Hedging-Griffo’s Verde Fund is also well established, but is dedicated to systematic growth. This has led to situations in which not everyone who wants to participate in the fund is able to do so, even those who are willing to commit to a longer term. Considered to be one of the top performing hedge funds in not only Latin America but also the entire world, it has a long waiting list not likely to be reduced by any measurable amount anytime soon. Another highly successful fund is Tarpon HG Fund-A, an offshore fund that enjoyed an annualized return of 30 percent for the period between 2005 and 2010.3 Following this further, the growth of Brazil’s economy has been an important lever in contributing to the tremendous growth in the industry, as more than 65 percent of Latin American hedge funds are headquartered in that country.4
figure 1 industry growth over the years Source: Eurekahedge
Source: Eurekahedge
figure 2 asset flows to latin american hedge funds vs. global hedge funds Source: Eurekahedge
fund domiciliation The Latin American onshore hedge fund market is largely dominated by Brazil, which not only hosts a number of service providers but also employs one of the most comprehensive regulatory frameworks in the world. Moreover, there has not been a single case of fraud in the region, partly because regulations require independent (thirdparty) service providers and external risk assessment for domestic hedge funds.5 As shown in Figure 3, the confidence in the industry and the efforts of regulators have paid off, given that the numbers of onshore and offshore funds were basically the same in 2000. More recently, the difference has widened, as there are now about 250 onshore funds compared to about 200 offshore funds. However, it is important to mention
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Figure 2: Asset flows to Latin American hedge funds vs. global hedge funds
Source: Eurekahedge
that when considering the amount of assets under management, it is clear that the benefits of offshore domiciliation are well understood by investors, given that only $20 billion sits onshore versus over $40 billion of assets under management registered offshore. Today, the countries that more commonly use offshore vehicles are Argentina, Mexico, Brazil, and Venezuela.
More conservative countries, such as Chile, are not yet as keen to use these vehicles.6 These funds are generally established either in the British Virgin Islands or the Cayman Islands. Unsurprisingly—as it is the jurisdiction of choice for Brazilian managers—the Cayman Islands retain the majority of the Latin American funds that are set up offshore. The rest of the Latin Amer-
Figure 3: Onshore and offshore industry growth over the years