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Alternative Market Briefing

Hedge funds, family offices find higher yield in local Brazilian bonds

Tuesday, January 07, 2014

Komfie Manalo, Opalesque Asia:

The Brazilian local bond market offers more profits than offshore bond markets, said George Wachsmann, a partner with GPS Investments, the largest independent wealth manager in Latin America, at the recent Opalesque Brazil Roundtable.

"Rates are very compressed in Brazil, but last week we bought 10-year paper for our clients at inflation plus 7.5%," Wachsmann said and added, "The month before we bought inflation plus 6.5% with a tax exemption. That investment gives you almost twice the return you will get with the CDI (the Brazilian benchmark interest rate), so it's a huge opportunity."

He added that his firm continues to have confidence in the local hedge funds space because they can tactically hedge in challenging times for the Brazilian economy. In addition a number of local fund managers invest offshore and hedge against currency fluctuations.

Nathan Sor, one of the founders of Galloway Capital, a global emerging market fixed income asset management house, pointed out why the local bond markets are better because Brazilian large local issuers pay lower yields than their issues offshore primarily because big local pension funds, foundations and other institutional investors do not invest abroad yet.

"Local demands will accept to buy bonds that just pay over local CDI, equivalent to L......................

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