May 8, 2017 / 3:10 PM / 2 years ago

Verde hedge fund warns Brazil pension bill could be further weakened

SAO PAULO, May 8 (Reuters) - Verde Asset Management SA, Brazil’s largest hedge fund, sees lingering risks that Brazilian lawmakers will further water down government efforts to streamline the social security system, a move that could hamper austerity efforts in Latin America’s largest economy.

Investors have been “complacent” with the negotiations as the Temer administration seeks to gather lawmaker support for the so-called pension reform, Verde money managers led by Luiz Stuhlberger said in a monthly investor letter for April.

There is growing investor doubt over whether President Michel Temer can implement his ambitious reform agenda, seen as critical to curbing public debt growth and lifting Brazil from its deepest recession ever, according to the letter obtained by Reuters.

“Exacerbated optimism with Brazil - and emerging markets in general - continues to permeate the universe of global and local investors,” the money managers wrote.

Brazil’s stocks and currency ranked among the world’s best-performing assets last year, but the rally has since stalled on concern over the shape of a final pension reform measure. The real has moved away from two-year highs touched in February, while the Bovespa stock index has been nearly flat since the end of March.

A committee approved the bill last week after the government agreed to budge on several controversial points, including lowering the minimum retirement age for women. A lower house plenary vote originally planned for this week has been pushed back to allow Temer’s base to muster the necessary two-thirds support to pass the bill.

“Now, more than any time in the last seven years, it is very hard to find cheap assets available for purchase,” the letter said.

The Verde FIC FIM fund returned a consolidated 0.43 percent in April, extending gains to 3.04 percent so far this year. Still, it underperformed the benchmark CDI interbank interest rate in both periods.

São Paulo-based Verde said last month that gains came from local and global equity positions, as well as foreign exchange trades involving the Brazilian real and the Korean won. It booked a 0.3 percent loss on its fixed-income book as market interest rates spiked due to jitters over the pension reform talks. (Editing by Guillermo Parra-Bernal and Jeffrey Benkoe)

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