(Bloomberg) -- On trading floors across Sao Paulo’s sprawling financial district, Luis Stuhlberger is a towering, almost mythical, figure.
One of the pioneers of the Brazilian hedge-fund industry, Stuhlberger, deeply private and media shy, would for years draw standing-room-only crowds, with traders packed in shoulder to shoulder, when he’d appear at public events. His acolytes, when at their most awestruck, refer to him as the Godfather.
This is what minting stellar returns — often the best in the business — for three decades will do. The flagship hedge fund at his firm, Verde Asset Management, has produced a gain of 26,000% betting on everything from currencies to commodities since its inception in 1997. That comes to 22% (or 15% when converted into dollars) per year.
But now, on the eve of his 70th birthday, Stuhlberger is confronting a crisis unlike any he’s faced before.
Verde’s returns have gone from spectacular to just so-so over the past few years, sparking chatter in the glass towers along Faria Lima Avenue that Stuhlberger has lost his Midas touch. Clients are yanking money, driving down the firm’s assets under management by more than half and forcing Stuhlberger to overhaul his team.
In the past six months, he’s taken direct control of the firm’s local stock-market strategy, laid off traders and pushed out the head of sales, according to people familiar with the matter who asked not to be identified discussing internal matters.
It’s a rough moment in general for Brazilian hedge funds. A jump in interest rates and a change in tax laws have prompted investors to shift money out of hedge funds and into asset-backed bonds that are tax exempt.
Stuhlberger, who declined to comment for this story, has highlighted these headwinds when talking publicly about his fund’s recent struggles. “The proliferation of tax-exempt investments is exponential,” he said on a recent podcast. The country is “in a process of asset reallocation.”
But in the past he had always skated through these market ups and downs largely untouched. Now, he finds himself fighting to stem the outflows just like everyone else. Behind closed doors, this delights his rivals. The schadenfreude is irresistible. And yet, among the dozen financial professionals contacted for this story, only one was willing to say anything publicly about his firm’s decline.
Stuhlberger “helped shape the industry as we know it,” says Christopher Galvao, a fund analyst at Sao Paulo-based research firm Nord Research. But Verde, he says, “wasn’t left unscathed” by the recent wave of hedge-fund redemptions.
The grandson of Polish immigrants, Stuhlberger attended the University of Sao Paulo, where he studied civil engineering in the 1970s, before trying his hand in finance. He quickly made a name for himself trading futures and commodities at a brokerage called Hedging-Griffo and launched his fund in 1997 with the firm’s backing.
The Brazilian hedge-fund industry was in its infancy back then and Stuhlberger started very small. He had 1 million reais (about $900,000 at the time) to invest. But he had a bold opening wager he was ready to make — buy dollars and wait for the government to devalue the real — and an unwavering conviction he was right. He even named the firm Verde, or green in Portuguese, in part as a nod at the long dollar position he’d amass.
The devaluation came on Jan. 13, 1999, and over the next few weeks the dollar soared more than 50% against the real, turning Stuhlberger — and his tiny fund — into a sensation. “I’ll ride this maxi devaluation,” he recalled thinking in an interview years later. “And if I do, the fund will become famous.”
Famous, that is, in Brazil.
For while the hits kept coming — including the time he bet big on a market rebound in the wake of the 2008 global financial crisis — Stuhlberger never sought the limelight enough to earn the kind of notoriety in New York and London that contemporaries like Arminio Fraga did.
A wonkish figure seemingly always toting a thick stack of research reports, he’d rarely attend high-profile conferences, turned down most media interview requests and kept a tight cap on the size of his main hedge fund.
At its peak, the firm managed 55 billion reais in 2021. His flagship fund, which accounts for about half of the firm’s total assets, posted just its second annual loss that year. The outflows began then and have been building ever since.
All sorts of wagers backfired on Stuhlberger in recent years: He mistimed the US stock market rebound following Covid lockdowns; failed to foresee how Brazil’s soaring budget deficits would sink local markets; and even took a hit from a massive corporate fraud. Put together, these mistakes pulled the fund’s returns down in line with those generated by benchmark interest rates over the past five years and left them just a few percentage points above the industry average.
By the end of September, Verde’s assets were down to 20 billion reais. Stuhlberger has stuck a chunk of that money into a handful of key investments. In a letter to clients last week, the hedge fund said it’s betting that oil will climb, the Indian rupee will gain, the euro and Chinese yuan will fall, and that inflation will clock in higher than bond traders expect in both Brazil and the US.
Meanwhile, Stuhlberger has a new partner to help plot the firm’s turnaround. Daniel Goldberg, the former Brazil head at Morgan Stanley who now runs his own firm called Lumina Capital, bought a minority equity stake in Verde in November.
The layoffs began several months later. A few of Stuhlberger’s old lieutenants were among those let go. But Stuhlberger never really delegated all that much anyways, several Verde veterans said. Not at least when it came to running the flagship fund. He’s always made the key investment decisions, they said.
And now he’s taken on another task too: public speaking. He’s been sitting for more interviews with the local press and taking questions on podcasts about his market views and the fund’s strategy.
There’s an old Stuhlberger adage for this. He wrote it years ago, back when Verde was still killing it and wealthy Brazilians were lining up for a chance to invest in the fund and Luis Stuhlberger remained that elusive, legendary figure in Sao Paulo.
“He who wins, wins,” Verde told clients in a letter in 2014. “He who loses, explains.”
--With assistance from Rachel Gamarski.
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