Former XP Partner Embraces ‘Quantamental’ in New Brazil Fund
Former XP Partner Embraces ‘Quantamental’ in New Brazil Fund
(Bloomberg) -- Joao Braga helped steer one of the top Brazilian hedge funds in the past few years. At his new firm, Encore Asset Management, he’s hoping to pull it off again.
Only this time around, Braga, who succeeded in picking companies through old-school research, has embraced “quantamental” investing, a merger of computer and human-based decision making, he said in an interview. Encore hired quant analysts to develop machine-learning algorithms “to give our team an edge,” according to Braga.
“It’s something in the early days in Brazil, so I drew inspiration from asset managers abroad,” he said. “It should set us apart in the local industry.”
Traditional money managers around the globe, including prominent firms like Steve Cohen’s Point72 Asset Management LP and Dan Loeb’s Third Point LLC, have tried using data-driven investing to enhance human decisions. For some, the two approaches clashed.
In Brazil, local hedge funds are booming but quants are still a small corner of the market. Domestic hedge funds posted 97.6 billion reais ($18.6 billion) in inflows last year, a record high, prompting several high-ranking traders to start their own firms.
Braga, 40, is part of that contingent. Last year, he left his job as co-head of equities at XP Inc.’s asset-management unit. There he helped oversee the XP Long Biased FIM fund, which beats 98% of its peers in a five-year window even after posting a 14% loss in 2020, failing to fully recover from its March drawdown, data compiled by Bloomberg show.
Braga even tweeted an apology last March for his fund’s poor performance. He departed XP in May. XP “should help with distribution, seed money” for his new funds and could eventually own a stake in the firm in the future, Braga said earlier this week. XP confirmed the information.
Encore will launch its first products in the coming weeks, focusing on Brazilian equities. The firm will have a long-biased fund and a long-only fund with an initial capacity to manage about 5 billion reais before closing to new money, Braga said. Encore will start with about 15 employees, poached from asset-management rivals. Among its top partners are two women, Jessica Bessa and Adelia Souza, a rare sight in Brazil’s male-dominated asset management industry.
Braga, who talks about behavioral economics with the same enthusiasm as he mentions his passion for the Beatles, is optimistic about Brazilian stocks. He argues that despite all the nation’s mounting risks -- from messy politics to deteriorated fiscal accounts -- there are positive drivers, including record-low interest rates, a growing number of companies going public and a rally in commodity prices.
“Brazil might catch a good wave if the commodities cycle persists like it did in the 2000s,” said Braga. “The outlook is positive and apparently will be for several years.”
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