Fund Tycoon Says He Ran Out of Cash Betting on Stocks in Brazil

(Bloomberg) -- Luiz Alves Paes de Barros made his fortune by buying in Brazil when everyone else was bailing. This time, he ran out of money doing it.

The 72-year-old founder of Alaska Investimentos Ltda., whose family fund was briefly worth $1 billion at the start of the year, embarked on a stock buying spree late in the first quarter as markets worldwide reeled and Brazil’s benchmark Ibovespa index tumbled as much as 58% year-to-date in dollar terms. While Barros acknowledges now that maybe he got in “a little earlier” than he should have, he says it hasn’t changed his appetite for under-appreciated Brazilian assets.

After cash on hand ran out sometime around the second half of March, “I got some extra money from a bond that matured and started it all over again,” he said in a interview from Sao Paulo.

Betting on the underdog has become a habit for Barros, who made a name for himself in Brazil’s financial circles fishing for bottom-of-the-barrel valuations like Magazine Luiza SA. The battered retailer became one of Alaska’s biggest holdings in late 2015 when it was still a penny stock -- and then rallied 50,000% since its all-time low in December of that year. Bets like that helped Barros and his two lieutenants, Henrique Bredda and Ney Miyamoto, turn the Alaska Black Master fund into one of the nation’s top performers in five years.

Then came the virus lock-down, and the market chaos that ensued.

Fund Tycoon Says He Ran Out of Cash Betting on Stocks in Brazil

The Tides Turn

Now, the fund is down 50% since the start of the year, under-performing 99% of its peers in Brazil, according to data compiled by Bloomberg. In March, it had the worst month since its 2010 inception. Wrong-way leveraged bets on interest rates and the Brazilian currency are to blame, as well as Brazil’s stock tumble.

While markets like the U.S. have already recovered the bulk of their losses, a combination of political turmoil and fiscal concerns are holding Brazil back. The Ibovespa is still down 33% year-to-date in dollar terms, the world’s third-biggest loser among major indexes.

Barros, whose family owned sugarcane mills, previously traded commodities and was a partner of well-known fund manager Luis Stuhlberger.

Barros’s own money, invested in the Alaska Poland fund -- of which he, his wife and son are the three single shareholders -- took a dive from a mid-January peak of 4.25 billion reais, or a little more than $1 billion at the exchange rate at the time, to 3.2 billion reais, now worth about $650 million after the real tumbled, according to data compiled by Bloomberg. It’s the biggest hit he’s ever taken to his personal wealth since the Poland fund’s inception.

Fund Tycoon Says He Ran Out of Cash Betting on Stocks in Brazil

Still, Barros says he’s not shaken. There’s opportunity in upheaval.

“There’s no hidden bogeyman this time,” he said. Since the reason for the crisis is clear, he says it’s easier to act, and he’s still buying, albeit in a way that gives him more liquidity. “The world will lose a year with the pandemic, and I don’t think that is a big problem.”

The ‘Anonymous Billionaire’

Once known in Brazil financial circles as the “anonymous billionaire,” Barros is incognito no longer: About five years after Alaska Investimentos started investing other people’s money, the Sao Paulo-based firm has risen in the ranks in recent years to become one of the nation’s most popular asset managers, with over 200,000 investors and 12.8 billion reais in assets under management. A rare public lecture by Barros last year drew 10,000 attendees. Bredda, who manages the Alaska Black fund, is something of a guru on the so-called FinTwit scene, with more than 156,000 Twitter followers.

Despite Brazil’s brutal tumble, Barros is confident stocks will recover, although he acknowledges the recent rocketship rebound may have gone too far, too fast.

“The crisis will still last longer -- it isn’t over yet,” Barros said in a recent live broadcast, arguing Brazilian stocks are due for some bumps in the roads after surging 50% since the bear-market bottom in March. “No one should be sad about that. Falling a bit now is part of the game.”

The firm is betting on a full-recovery as early as next year.

“We’re assembling structures in our funds that can give us a lot of money if the Brazilian market recovers to its record high by mid-2022,” Bredda said in the interview.

Barros, who during the Zoom interview used a superimposed background of green tropical leaves, joked to his partner: “You’re obligated to be a little pessimistic. Me? I think by mid-2021 we’ll be past the all-time high. But that’s why I don’t talk publicly that much.”

The Alaska Black fund is already up 32% in the past month. Firms like iron-ore producer Vale SA or pulpmaker Suzano SA will see results recovering much faster than the economy, Bredda said.

With coronavirus cases exploding and Brazil poised to post its worst economic contraction in history, it’s hard to reconcile Alaska’s optimism with reality. On the other hand, U.S. markets are also behaving as if the virus pandemic that grounded the economy to a standstill never happened.

Brazil’s political mess and fiscal woes, Bredda argued, “have nothing to do with the stock market.”

©2020 Bloomberg L.P.

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