Brazilian Hedge Fund Verde Gets Stung by Bets on Local Stocks

(Bloomberg) -- Brazil’s Verde Asset Management, whose flagship fund is known for its outsized returns over the past two decades, had one of the worst months in its history after a wrong-way bet on local stocks.

“We believed a lot of bad news was priced in, and that political actors had reasonable incentives not to breach the spending cap,” Verde said in a letter to clients. “That view has proved wrong.”

The CSHG Verde FIC FIM fund fell 4.4% in October, its fourth-largest monthly decline on record, according to data compiled by Bloomberg. Last month, Verde said it was boosting exposure to Brazil stocks “selectively and with discipline” given that the market seemed to price in a negative outlook following a steep sell-off in the third quarter. 

Instead, local stocks extended their slide and entered a bear market on signs the government would breach the country’s spending cap rule to accommodate its new social program. The performance put the fund on track for its worst year since the global financial crisis of 2008, the only time since its inception in 1997 that its posted negative annual returns. 

“The fund’s positioning has clearly proved fragile given the events that took place in Brazil over the past months,” said the asset manager. 

One of the best-known hedge funds in Brazil, Verde has had a 18,327% return in local currency terms since its inception. Credit Suisse Group AG is a minority stakeholder in the firm, which is led by industry veteran Luis Stuhlberger.

Verde Asset Management has over 50 billion reais ($9.1 billion) under management, according to its website.  

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