Brazil’s Best-Known Hedge Fund Stumbles to a Rare Annual Loss

(Bloomberg) -- One of Brazil's largest and most renowned hedge funds posted an annual loss in 2021, notching only the second yearly decline in its more than 20-year history.

Verde Asset Management's flagship CSHG Verde FIC FIM fund fell 1.1% last year, dragged down by a poorly timed bet on Brazilian stocks. That marked its worst performance since a 6.4% loss amid the global financial crisis of 2008, according to data compiled by Bloomberg.

The fund, which is run by industry veteran Luis Stuhlberger and has Credit Suisse Group AG as a minority holder, saw its equity investments decline after President Jair Bolsonaro's administration scrapped a spending cap that investors saw as crucial to the country's fiscal health. One of the best-known hedge funds in Brazil, Verde has had a return of more than 18,300% in local currency terms since its inception in 1997 and the firm has about 50 billion reais ($8.8 billion) under management, according to its website.

Verde declined to comment on the fund's annual performance. 

The unexpected decline adds to the challenges Verde and its peers face. The country's hedge-fund industry saw net outflows last year as surging interest rates lead investors to shift into less-risky, fixed-income bets. 

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The average return of a basket of 242 Brazilian hedge funds tracked by Bloomberg in the three-month period ended Dec. 27 was 0.78%, underperforming the benchmark interbank deposit rate known as CDI by about 1 percentage point. 

In October, Verde boosted exposure to Brazilian stocks following a steep sell-off, on the view that a negative outlook was already priced in, according to a letter to investors in November. But losses mounted on signs the government would breach the nation's fiscal rules to accommodate additional spending, weighing on the fund's performance. 

The fund, which had a bad start to the fourth quarter, climbed 2.1% in December, more than double the CDI, data show. 

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