Top Hedge Fund Says Brazil Pessimism Could Bring Happy Surprises

(Bloomberg) -- A growing number of pessimists are bracing to be disappointed by Brazil’s long-delayed pension overhaul. For one of the nation’s most-watched hedge funds, that may be a good thing.

``The market consensus today is way less constructive than what we saw at the beginning of the year, therefore there's more room for positive surprises,'' Verde Asset Management said in a monthly note to clients Tuesday.

The October election of President Jair Bolsonaro brought with it rising optimism that Brazil might finally make headway on its faltering pension system. Since then, clashes with key allies have raised questions about the government’s ability to push through its ambitious overhaul agenda.

Verde is still expecting turbulence ahead, but ``maybe less than what we saw in March and April,'' because the administration seems to be learning from its mistakes, the company said. In a letter last month, Verde said it was startled by how Bolsonaro seemed to be threatening his own administration’s reform push.

Luis Stuhlberger, the industry veteran behind Verde, is one of the most revered hedge fund managers in Brazil. His fund has posted a total return of more than 16,000 percent since its inception two decades ago. For 2019, the fund is outperforming its benchmark by more than 3 percentage points.

While it underperformed in March, Verde’s flagship posted total return of 0.86 percent in April, above the 0.52 percent of the interbank rate known as DI, the fund’s benchmark. Verde cut back on its Brazilian stock holdings for tactical reasons, according to the note, while it increased its exposure to the midpoint of the Brazilian rates curve.

To contact the reporters on this story: Felipe Marques in Sao Paulo at fmarques10@bloomberg.net;Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Daniel Taub

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