Brazilian hedge funds including Ibiuna Investimentos and Ace Capital, are outperforming as falling inflation strengthens expectations for rate cuts, with several managers benefiting from positions in local interest rate swaps and the real, according to a report by Bloomberg.

The country's IHFA hedge fund index gained 2.2% in August, ahead of the CDI overnight rate’s 1.2%, bringing year-to-date returns to 10.5% versus 9.7% for the benchmark. Ibiuna Investimentos rose 2.8% and Ace Capital 2.6% last month, with both funds profiting from trades aligned with easing inflation and a firmer currency.

Swap markets are now pricing the first rate cut in January and 275bps of easing through mid-2027, though the central bank is expected to keep borrowing costs at a two-decade high this week. Managers including Kapitalo, Verde and Legacy also increased positions tied to falling nominal rates and a stronger real.