Category: Funds

Despite the rout, geographically diversified global emerging markets (GEM) funds tracked by EPFR Global had their best week ever last week, both in dollar and percentage terms. “In recent years the fourth quarter has been the sweet spot for flows into emerging markets funds,” says EPFR Global md Brad Durham. “That’s the case again this year: fourth quarter inflows into these funds currently account for 57% of the year-to-date total.” A record-setting $3.37bn flowed into GEM Equity, according to the service, which tracked flows through December 14. LatAm equity funds received $489m in the period, fueled by appetite for more liquid markets. BRIC equity funds absorbed $985m, their best week since late Q1 2006. EM bond funds meanwhile saw modest inflows, while investors pulled over $600m out of global bond funds as risk appetite continued to increase, says EPFR. EPFR Global tracks both traditional and alternative funds domiciled globally with $10trn in assets.

Harvard Management Company (HMC), which manages the university’s $35bn endowment, has purchased a 12.5% stake in Rio de Janeiro-based Gavea Investimentos, marking a significant endorsement for Brazil’s highest profile hedge fund. HMC has been an investor in Gavea’s private equity funds for some years already and has had a relationship with a number of the firm’s partners, including founder Arminio Fraga. The 12.5% stake, whose value is undisclosed, makes HMC a partner in Gavea, but will not give it license to influence the investment strategy. Gavea manages $5.5bn across various strategies, including hedge funds and illiquid investments. The HMC capital injection will be invested directly into the fund, a Gavea partner tells LatinFinance. “For us, it’s a world class partner to have alongside us to help us continue to grow as an asset management firm,” says the executive. HMC is run by Robert Kaplan, formerly of Goldman Sachs, who took over as interim CEO following the premature departure of Mohamed El-Erian, who in September said he will return to PIMCO.

Private equity firm Conduit Capital Partners has sold its 70% stake in Inelec, a 52MW portfolio of three hydroelectric power plants in Western Mexico to a subsidiary of Italy’s Enel for $156m. The assets, which include the Trojes, Chilatan and El Gallo facilities in Jalisco, Michoacan and Guerrero, respectively, come from its Latin Power II fund. The fund is also said to be negotiating the sale of a Jamaican asset, which if closed, would see it enter 2008 with just one asset remaining to divest. BNP Paribas was financial advisor on the Mexican sale.

Flows into LatAm equity funds have rebounded, with those investors absorbing $467.8m inflows in the first week of December, according to EPFR Global. “Risk appetite returned, at least among some sources of capital, during the first week of December as EPFR Global-tracked emerging markets equity funds had their best week of the year in dollar terms, Financial Sector Funds absorbed another $1bn and High Yield Bond Funds posted inflows for the first time in six weeks,” says the fund tracker. “But plenty of investors remain cautious: Money Market Funds, a proxy for cash, took in another $21.3bn,” it adds. Year-to-date, LatAm equity funds are sitting on average gains of over 63% and net inflows stand at 306% of the total for 2006, says EPFR. Equity funds geared to US, Japan and Europe have lost $45.9bn since the first week of August. During that same period EM funds took in a net $26.9bn. “Some of that is still attributable to the fact developed markets have more direct exposure to the US sub-prime debt crisis, and some to the fact another US rate cut – if it happens – is going it hit Japanese and European export competitiveness,” says EPFR Global senior analyst Cameron Brandt. “But much of it boils down to basic performance. The average Asia ex-Japan Equity Fund’s year-to-date portfolio gain is nearly eight times larger than the 7.3% returned by their US Equity Fund counterparts and 11 times greater than the average gain posted by Global Bond Funds.”

Conduit Capital is launching a new infrastructure fund to invest in areas like transportation, according to managing partner Scott Swensen. Although more than a year from launch, he says the $800m-$1bn fund will consider projects such as airports and seaports, but likely not toll roads. “We’re considering broadening into new infrastructure,” Swensen told LatinFinance’s Innovation in Latin American Infrastructure Finance seminar in Miami. Conduit has in the past dealt only in power and gas pipeline projects. “Local markets are more developed, inflation is now under better control and we have a lot more tolerance for currency risk,” says the investor. Conduit is a private equity fund that invests in LatAm and the Caribbean.

Dedicated LatAm equity funds saw only a modest outflow in the week to November 28, which also saw significant losses for EM dedicated investors, according to EPFR Global. LatAm shed $36m, or 0.11% of assets under management (AUM) in the period, versus a $941m exodus for Global EM, or 0.45% of their AUM. Brazilian equity funds saw $4m in redemptions, while Mexico suffered a $68m outflow. The latter fund class has seen significant losses recently because of a closer correlation with the US market, says EPFR. LatAm equity funds returned 4.02% in the week ended November 29, following a 5.44% loss in the previous week, according to Lipper. That brought the YTD performance to 43.30%, which is where the group was in the second week of October. China Region funds swelled 6.80% in the week, bringing their YTD to 58.56%. In the past five years, LatAm funds have gained an accumulated 48.66%, according to Lipper.

EM bond funds lost $250m in the week to November 28, according to EPFR Global, amid a flight from riskier fixed income assets. EM funds geared to hard currency debt accounted for 85% of the outflows. High yield bond funds meanwhile lost $833m. EM debt funds have returned 4.66% this year, less than short and intermediate US Treasury funds group tracked by Lipper, which have YTD returned 7.31% on average overall. EM debt is also trailing global income and international income funds tracked by Lipper, two groups that have underperformed EM for most of this year. Those two groups have returned 7.13% and 9.13% this year, respectively, overall.

In the second week of the last eight to see cash departing the region, LatAm equity funds lost $421.3m in the week ended November 14, according to EPFR. YTD, LatAm equities have seen net inflows of $9.7bn. Meanwhile, performance of LatAm equity funds was also nasty in the week ended November 15, according to Lipper. The region’s particularly sharp selloff of 4.73% put it among the worst performances tracked by the service. LatAm was second only to International Small/MidCap Growth funds, which fell 4.76% and Gold Oriented funds, which lost 9.11%. So far this year LatAm is up 45.30%, compared to 58.78% for China Region funds, the best performer of the year.

LatAm equity funds took in $105m last week, well below the year-to-date weekly average of $225m, according to EPFR Global, mostly due to an outflow from Mexico. Investors expressed concern about tight integration with the US economy by yanking out of Mexico country funds some 7.48% of the assets they had under management at the start of the week, says EPFR. Investors fled to the larger emerging economies, including Brazil. “Investors globally have been gravitating to the sounder economic and fiscal story that emerging markets represents,” says Brad Durham, MD at EPFR Global. “But the ever-weakening dollar, if it turns into a destabilizing rout, could even damage the current rosy sentiment of investors towards emerging markets,” he adds.

LatAm equity funds are the second biggest recipient of fund flows so far this year, according to EPFR. “Investors steered another $625m into these funds [last week], pushing year to date inflows over the $10bn mark, as key commodity prices remained at or near record highs,” says the fund tracker. It adds that there is a strong investor preference for the bigger emerging economies. “Between them India, China, Greater China, Russia, Brazil and Korea Country Funds absorbed a net $1.28bn and the BRIC Equity Funds took in another $394.4m,” says EPFR. EM bond funds meanwhile absorbed a net $264m during the last week of October, taking year-to-date inflows back over the $4bn mark.