Gávea funds rise in September as bets on Brazil currency pay off

SAO PAULO/NEW YORK (Reuters) - Two hedge funds run by Brazilian investment firm Gávea Investimentos Ltda rose in September, rebounding from losses last year, as bets on declining Brazilian and Asian asset prices helped offset expectations of gains in some Mexican and Indian investments.

Last month, the firm's Gávea Fund and the higher-risk Gávea Fund Plus returned an estimated 1.61 percent and 2.45 percent, respectively, the lowest in three months, a letter to investors said on Tuesday. Both funds ended last month with $568 million and $124 million, respectively, in assets under management.

Gávea, which was founded by former Brazilian central bank president Arminio Fraga in 2003, cut risk exposure last month. Value at risk, a widely followed gauge that measures the maximum amount an investor can lose in a trading session, fell to 0.6 percent of capital for Gávea Fund and 0.9 percent for Gávea Fund Plus, from 1 percent and 1.5 percent in August, respectively.

Their performance highlights Fraga's successful bet on a slump in Brazil's currency, which is grappling with the impact of a swelling budget deficit, rapidly eroding political support for President Dilma Rousseff and fallout from slowing growth in China.

Last month, the real hit a 13-year low while Brazil's benchmark Bovespa stock index traded near the lowest levels in eight years, when measured in dollars.

"Within this context, market expectations continue to deteriorate and should lead to further growth contraction and rising unemployment" in Brazil, the letter said. Gávea's funds kept so-called short positions - or bets on price declines - in Brazil currency and equity markets.

In the first nine months, Gávea Fund and Gávea Fund Plus returned their investors 12.32 percent and 20.02 percent in dollars, outpacing key rivals.

The HFRX Macro/CTA Index, which tracks hedge funds using a similar strategy as that of Gávea, is down 1.79 percent through Oct. 2. The index shed 0.55 percent in September.

In July, Fraga and his partners agreed to repurchase Gávea from JPMorgan Chase & Co, to focus on private equity and hedge fund investments. A JPMorgan Asset Management affiliate kept Gávea's real estate and equity businesses under terms of the deal.

At the end of July, Gávea had $5.1 billion in assets. Gávea officials could not be immediately reached for comment.

Both funds are within the so-called macro fund class, in which fund managers bet on macroeconomic trends using a variety of security types.

(Editing by Bernard Orr)