Brazilian banks recruit top hedge-fund managers

Brazilian banks are recruiting leading hedge-fund managers and absorbing independent teams as high interest rates and weak hedge-fund returns push investors toward bank asset-management units. Arminio Fraga, a former central bank governor who founded Gavea Investimentos, moved his funds to Banco Bradesco’s asset-management arm, citing high rates, recent hedge-fund losses and competition from tax-advantaged investment products.

Brazil’s benchmark interest rate has stayed above 10% for a fourth straight year, increasing returns on government and other fixed-income investments. Industry data show assets across seven of the country’s largest independent domestic macro strategies fell by almost half since 2022 to about BRL89 billion (roughly $17 billion). The number of macro funds declined about 20% from its 2021 peak, to 743 in July. Investors have withdrawn roughly BRL672 billion from the sector since 2022.

At the same time, macro funds within Brazil’s six largest banks have grown, with combined assets nearly doubling since 2019 to BRL542 billion by June. Large banks are recruiting well-known managers and integrating independent teams, offering broader distribution and lower compliance, technology and back-office costs than standalone firms. Luiz Eduardo Portella, co-founder of Novus Capital, joined Itaú Asset Management to build a hedge-fund investment unit. Banks have also brought in equity managers and research leaders from independent firms.

Market shocks affected hedge-fund performance this year. An oil price spike tied to the conflict in Iran helped trigger a global rates sell-off that undermined positions based on expected monetary easing; March was the worst month for Brazilian hedge funds since 2020. Market pricing now implies the central bank’s benchmark rate will stay above 13% through at least the end of 2027.

A decade ago, falling rates led investors away from government bonds and helped create a generation of independent hedge funds. The central bank’s rate increases beginning in 2022 reversed that trend and have coincided with a consolidation of talent inside major financial institutions.