LONDON, April 04, 2023 (GLOBE NEWSWIRE) -- Today Preqin, the global leader empowering the alternatives community with essential data and insight, published the Preqin Territory Guide Alternatives in Brazil 2023. The report shows the number of active Brazil-based hedge funds increased significantly over the last few years. In Q1 2023, Preqin estimates that 653 funds are active in the region, almost doubling since 2020 from 332.
Preqin’s Alternatives in Brazil 2023 key facts:
- $29.8bn: Total Brazil-based private capital AUM as of June 2022, dropping from $31.2bn at the end of 2021.
- 390 active institutional investors based in Brazil.
- 653: The total number of active hedge funds based in Brazil in Q1 2023.
Private capital struggles to find a foothold in Brazil, yet bright spots remain in infrastructure and private debt
Nearly every major asset class has seen flat-to-negative assets under management (AUM) growth over the past five years, with overall AUM falling from $32.6bn in 2017, to $29.8bn in June 2022, failing to reach or surpass its 2014 high of $35.6bn.
Inflation and high interest rates defined the $1.6tn Brazilian economy in 2022. The country’s central bank, Banco Central do Brasil (BCB), reported inflation peaking at 12.3% year-over-year growth in April, while policymakers raised the base SELIC benchmark interest rate by 260 basis points to 11.8%.
The $29.8bn in overall private capital AUM in Brazil, estimated by Preqin as of June 2022, fell by $1.3bn in the first half of 2022 as markets slid both globally and locally. By this same time, dry powder made up 22.9% of total AUM. While that number is slightly lower than the 23.5% at the start of 2022, and the five-year high of 23.9% in 2020, the uninvested capital collectively held by managers in the industry remains high.
However, infrastructure investment has been a bright spot in Latin America’s largest economy. Making up 19.4% of the country’s total alternative assets AUM, the asset class was the only one of its peer strategies to add AUM in the first half of 2022, from $5.7bn in 2021 to $5.8bn in 2022, as government reforms played a significant role in encouraging private investment. Similarly, private debt assets have been on the rise in Brazil. While still only 13.7% of net local AUM, assets jumped from $1.8bn at the end of 2020 to $4.5bn the following year.
Macro hedge funds are thriving on market volatility
Preqin’s top-level hedge fund index for the region calculated an 8.7% annualized five-year return for all hedge funds based in Brazil. This is slightly ahead of the Preqin global hedge fund benchmark return of 7.6% over the five years ending in December 2022.
Global macro strategies have performed particularly well. These funds, which trade on macroeconomic factors such as interest rate changes, the resulting currency movements, and equity market swings, have all been very active in Brazil, investing globally as well as locally.
Private equity and venture capital still hold the lion's share of AUM, but allocation continues to fall
Private equity and venture capital (PEVC) held the majority of total AUM in Brazil, according to the Preqin report. Combined, they held an estimated $9.9bn in net assets, or about a third of total alternative assets based in Brazil in June 2022. However, that proportion has been in decline for the better part of a decade.
At its peak, PEVC AUM made up nearly half of all assets, but has since struggled in the country’s volatile markets. Since PEVC AUM peaked at $16.4bn in 2014, unrealized value fell at an average annual rate of 4.7%, despite local funds deploying a greater share of their capital. Preqin’s PEVC dry powder was estimated at $2.2bn, or 21.8% of committed assets, as of June 30, 2022. That number stands above the previous five-year average of 17.8%.
Charles McGrath, AVP, Research Insights at Preqin says: “Alternative assets in Brazil should expect low to negative growth over the short to medium term. Compared to other regions of the world, volatility and comparatively higher-risk investments will remain an ongoing deterrent for most private capital asset classes. That said, a couple still offer opportunities. The first is private debt and the second is infrastructure. High local interest rates and increased demand from corporate borrowers should support the debt industry and help it mature. Of course, this maturity will depend on the economic success of the broader economy.”
For more information, and to receive a full copy of the report, contact Dawn Bowles at dawn.bowles@preqin.com
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Preqin, the Home of Alternatives™, empowers financial professionals who invest in or allocate to alternatives with essential data and insight to make confident decisions. It supports them throughout the entire investment lifecycle with critical information and leading analytics solutions. The company has pioneered rigorous methods of collecting private data for 20 years, enabling more than 200,000 professionals globally to streamline how they raise capital, source deals and investments, understand performance, and stay informed. For more information visit www.preqin.com.
