July 12, 2014 / 12:26 AM / 5 years ago

Credit Suisse's Verde hedge fund betting on a Brazilian rate cut

SAO PAULO (Reuters) - Money managers at Credit Suisse Group AG’s CSHG Verde FIC FIM, the biggest Brazilian hedge fund, are betting the nation’s central bank will soon begin to cut interest rates to revive a flagging economy.

Verde stands by its bet that Brazil’s currency, the real, will fall despite central bank efforts to prop it up, as concerns grow over the sustainability of public finances and external accounts, the managers said in a letter to investors distributed on Friday.

The real’s “artificial stability,” coupled with declining global market turmoil, allowed Verde to “set positions that could eventually benefit from a central bank’s interest-rate cut” in future monetary policy meetings, the letter added.

The real is up 6.1 percent against the U.S. dollar this year.

The central bank raised the benchmark Selic overnight lending rate nine times between April 2013 and April this year, leaving them unaltered ever since to head off inflation.

While most analysts expect rates to stay at current levels next year to help bolster growth in an economy that has been in a rut for almost four years, others see signs of a potential easing in policy.

As the Brazilian economy “stagnates, there is the possibility that the central bank reckons that it tightened policy too much - opening the room for a partial reversal of the recent rate hikes,” the letter added.

Most analysts expect the economy to expand about 1 percent in 2014.

Fundo Verde shed 0.06 percent in June, the fifth decline in six months, following a 0.91 percent gain in May, the letter said. The fund yielded a negative 2.06 percent return this year, its worst year-to-date return since its inception in 1997. In comparison, Brazil’s benchmark CDI interbank interest rate returned 4.97 percent during the same period.

In April, Credit Suisse and star fund manager Luis Stuhlberger, who created Verde, agreed to set up a new asset management venture with $14 billion under his control.

The venture, to be named Verde Asset Management, will open in January, with Credit Suisse and some of Stuhlberger’s associates as minority partners.

The deal allows Credit Suisse to retain Stuhlberger, Brazil’s most successful fund manager, whose CSHG Verde FIC FIM hedge fund has posted total return of about 8,500 percent since its creation.

Reporting by Guillermo Parra-Bernal. Editing by Andre Grenon

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