Key Takeaways
- • Brazilian hedge funds' Anbima Index (IHFA) gained 9.9% through September 4, 2025, marginally outperforming the CDI benchmark at 9.3% for the first time since 2022, signaling industry recovery after years of underperformance.
- • Since end-2022, IHFA returned 26.9% versus CDI's 37.0%, reflecting structural headwinds including the 2023 introduction of semiannual "come-cotas" taxation on exclusive funds that triggered billions in redemptions from ultra-high-net-worth families.
- • Individual investor allocations to multimarket funds declined 15.7% to R$532.8 billion between December 2023 and June 2025, while fixed-income holdings surged 48% to R$855.7 billion, driven by high Selic rates and tax-exempt bond yields—though the government's proposed 5% tax on these bonds starting 2026 may reverse this trend.
- • AZ Quest, majority-owned by Italy's Azimut and with a minority stake held by XP, has grown AUM to nearly R$36 billion as of July 2025, more than doubling from R$16.5 billion in 2021, through a multi-strategy approach combining private credit with directional and relative-value equity strategies.
- • The industry recovery reflects well-timed macro bets on global interest rates and local equity rallies, with multi-strategy funds now delivering CDI-plus returns of 5–8% depending on volatility tolerance, according to market participants.
Summary
Brazil's hedge fund industry is showing early signs of recovery in 2025 after years of persistent underperformance relative to its domestic benchmark. The Anbima Hedge Fund Index (IHFA) has gained 9.9% through September 4, 2025, marginally exceeding the CDI benchmark's 9.3%—marking the first outperformance since 2022. However, the broader picture reveals the depth of the sector's prior struggles: since the end of 2022, IHFA has accumulated only 26.9% in total returns, substantially lagging the CDI's 37.0%.
The sector faced significant headwinds stemming from regulatory and tax changes introduced in 2023. According to Walter Maciel, CEO of AZ Quest, the introduction of semiannual "come-cotas" taxation on exclusive closed-end funds prompted ultra-high-net-worth families to liquidate hedge fund holdings that had previously functioned as portfolio wrappers. This unwinding coincided with weak fund performance, triggering billions of reais in redemptions that reshaped the industry's investor base. Simultaneously, Brazil's persistently elevated Selic policy rate redirected capital toward tax-exempt fixed-income securities, a dynamic that intensified after the government proposed a 5% tax on these instruments beginning in 2026.
Between December 2023 and June 2025, individual investors reduced multimarket fund allocations by 15.7%, cutting holdings to R$532.8 billion, while fixed-income allocations surged nearly 48% to R$855.7 billion. Tax-exempt bonds jumped approximately 30%, reaching R$1.4 trillion, according to ANBIMA data. This capital migration underscored the relative attractiveness of passive fixed-income returns during a period of monetary tightness.
Despite sector-wide challenges, select managers have thrived by adapting their strategies. AZ Quest, which is majority-owned by Italy's Azimut and holds a minority stake from XP (acquired in 2021), has nearly doubled its assets under management to approximately R$36 billion as of July 2025, up from R$16.5 billion in 2021. Maciel attributes the firm's growth to deep relationships with retail investors and advisers, combined with a multi-strategy approach that blends private credit for cash optimization with both directional and relative-value equity opportunities. This formula, he notes, generates alpha relative to the CDI while maintaining moderate volatility levels, enhancing the client experience during volatile periods.
The 2025 rebound appears supported by well-timed macro positioning on global interest rates and strength in local equities. Multi-strategy hedge funds are now delivering CDI-plus returns ranging from 5% for low-volatility portfolios to 7–8% for more aggressive allocations, positioning the sector competitively against fixed-income alternatives as the government's proposed taxation of tax-exempt bonds may shift investor preferences back toward equities and diversified strategies.
The sector faced significant headwinds stemming from regulatory and tax changes introduced in 2023. According to Walter Maciel, CEO of AZ Quest, the introduction of semiannual "come-cotas" taxation on exclusive closed-end funds prompted ultra-high-net-worth families to liquidate hedge fund holdings that had previously functioned as portfolio wrappers. This unwinding coincided with weak fund performance, triggering billions of reais in redemptions that reshaped the industry's investor base. Simultaneously, Brazil's persistently elevated Selic policy rate redirected capital toward tax-exempt fixed-income securities, a dynamic that intensified after the government proposed a 5% tax on these instruments beginning in 2026.
Between December 2023 and June 2025, individual investors reduced multimarket fund allocations by 15.7%, cutting holdings to R$532.8 billion, while fixed-income allocations surged nearly 48% to R$855.7 billion. Tax-exempt bonds jumped approximately 30%, reaching R$1.4 trillion, according to ANBIMA data. This capital migration underscored the relative attractiveness of passive fixed-income returns during a period of monetary tightness.
Despite sector-wide challenges, select managers have thrived by adapting their strategies. AZ Quest, which is majority-owned by Italy's Azimut and holds a minority stake from XP (acquired in 2021), has nearly doubled its assets under management to approximately R$36 billion as of July 2025, up from R$16.5 billion in 2021. Maciel attributes the firm's growth to deep relationships with retail investors and advisers, combined with a multi-strategy approach that blends private credit for cash optimization with both directional and relative-value equity opportunities. This formula, he notes, generates alpha relative to the CDI while maintaining moderate volatility levels, enhancing the client experience during volatile periods.
The 2025 rebound appears supported by well-timed macro positioning on global interest rates and strength in local equities. Multi-strategy hedge funds are now delivering CDI-plus returns ranging from 5% for low-volatility portfolios to 7–8% for more aggressive allocations, positioning the sector competitively against fixed-income alternatives as the government's proposed taxation of tax-exempt bonds may shift investor preferences back toward equities and diversified strategies.
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