Sept. 16 (Bloomberg) -- Brazilians are “addicted” to the returns provided by the overnight interbank lending market, distorting the perception of how hedge fund managers are performing, said Pedro Bastos, chief executive officer of HSBC Global Asset Management in Brazil.

Hedge-fund returns shouldn’t be measured by using the overnight rate, known as CDI, as the benchmark, Bastos said at a conference in Sao Paulo. The overnight rate, while down from 19.5 percent five years ago, remains one of the highest in emerging markets at 8.75 percent.

“Brazilians continue to be addicted to the CDI as a benchmark and we need to get away from this,” Bastos said.

Hedge funds, known as multimercados in Brazil, pulled in 22.4 billion reais this year, attracting the most of any fund group even after missing the rally in stocks earlier this year, according to the investment bank association known as Anbid. The 22.4 billion inflow follows 54.6 billion reais of outflows last year amid the global financial crisis.

“The appetite for hedge funds is coming back very fast,” said HSBC’s Bastos. “The recovery this time around has been faster than ever before.”

Benchmarking against CDI caused the “significant” redemptions last year because hedge-fund returns lagged those provided by investing in the overnight market, Bastos said in a speech at an event for investors today in Sao Paulo.

Specified Return

The Bovespa benchmark stock index slumped a record 41 percent last year before rising 61 percent in 2009. Anbid doesn’t provide average annual hedge fund returns on its Web site.

A better benchmark would be a specified absolute return for each category of hedge fund, said Marcelo Serfaty, founding partner at Rio de Janeiro-based Fiducia Asset Management.

“There should be some type of agency that categorizes each strategy,” Serfaty said in an interview at the Sao Paulo conference of fund managers.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.

Last Updated: September 16, 2009 16:31 EDT