Money Manager Apologizes on Twitter After Brazil Funds Crushed

(Bloomberg) -- The market chaos is leaving a trail of red in Brazil’s fund industry.

The best-performing money managers are reeling after the nation’s markets were especially hard hit by the global selloff. Some took to social media to try to appease anxious investors, who flocked to riskier products in recent years as Brazil’s benchmark rate hit an all-time low.

One apologized, another discussed his sleeping patterns.

“Unfortunately, we were unable to defend ourselves from this fall like we did in 2015, or in the drawdowns of 2016 or in May 2018 and in other moments,” Joao Braga, co-head of equities at XP Asset Management tweeted on Wednesday. “I apologize and we will work hard to recover.”

They have a lot to recover. The XP Long Biased fund is suffering its worst monthly loss since its 2013 inception, down 30% through March 11, according to data compiled by Bloomberg. The fund, with about 2 billion reais ($425 million) under management, still has the best five-year return among 100 peers.

Braga co-manages the fund with Marcos Peixoto, both industry veterans who lean heavily on stocks. XP declined to comment.

Reality Check

The reality check for Brazilian funds comes after years of rapid growth, driven by investors moving from government bonds and into equity and hedge funds. This enticed banking veterans to switch careers and launch investment firms, which multiplied at breakneck pace, even as global counterparts suffered from outflows and closures.

Brazilian equities were among the best-performing globally in 2019 as the prospects for economic reform encouraged investors to bet on Latin America’s biggest nation. Now the booming industry, and the nation’s equity market, are being whipsawed by the plunge in oil prices and fears over the economic impact of the coronavirus pandemic.

On Thursday, Brazilian stocks tumbled almost 20% in the single worst trading day since the 1992, with back-to-back circuit breakers. The Ibovespa stock index has erased 20 months of gains since late January and is down almost 40% since its peak this year.

Alaska Asset Management’s Henrique Bredda and Luiz Alves Paes de Barros also took to social media to explain their losses. Their Alaska Black Master fund, one of the nation’s best performers, is down 43% year to date through March 11. Their live transmission on Instagram on Thursday drew an audience of about 6,000.

Barros said he’s using his own money to scoop up stocks, even though they might fall further. He says moments of massive stress can take a toll on how much he sleeps, but so far he’s fine.

“I’ve been sleeping like a prince,“ he said. “I wake up very satisfied willing to start buying.“

The Alaska Black fund has scrapped all its bets on currencies and rates until markets calm down, Bredda said. The fund kept its long position in Brazilian stocks, with bets on pulp-maker Klabin SA, retailer Magazine Luiza SA and Cogna Educacao.

Among smaller funds, the Logos Total Return Master fund is suffering one of the biggest reversals of fortune.

After posting a return of 155% in 2019 -- more than three times its peers’ average -- the fund posted a 51% loss this year through March 11. Assets have dropped to about 170 million reais from a peak of 333.7 million reais in early January. The firm responsible for the fund, Logos Capital, was created in 2018.

“We’ve purged the position we had on the real from our portfolio, with a heavy loss. We were wrong, but we’re still long Brazilian stocks,“ Luiz Guerra, the Sao Paulo-based chief investment officer at Logos Capital, said in an interview. He says the firm also made a mistake with banking stocks, which it scrapped, and is now focusing on utilities, telecom companies and exporters.

“Moments like this have happened to us before and we usually manage to recover,” Guerra said.

©2020 Bloomberg L.P.

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