LPEJ - Fourth Quarter.13

PE Investing in 2014
Where are Leading Investors

Looking for Opportunities in
Latin America and Abroad?
CIO of UTIMCO
Page 6
CIO of Hartford HealthCare
Page 8

CIOs from Brazils largest pension funds
Pages 16, 28, 44

Latin America
New York
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Washington, D.C.
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London
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Paris
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Frankfurt
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Moscow
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Hong Kong
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Shanghai
Debevoise has represented Latin American companies and foreign
investors in the largest and most challenging projects in Latin
America for over 50 years. The rms client base and the breadth
of its experience have made Debevoise a recognized leader among
international law rms active in Latin America.
Our Latin America practice has over 20 Partners, several counsel
and over 30 associates, a number of whom are uent in Portuguese
and Spanish, who spend a signicant amount of their time on
Latin America-related matters. Debevoise maintains strong working
relationships with leading law rms in the region, with whom we
work as one team from the clients perspective.
Debevoise has represented Latin American entities and institutional
investors in major acquisitions and dispositions of Latin American
companies, large-scale Latin America-based project nancings,
international securities offerings by Latin American issuers and
international restructurings and work-outs involving Latin American
borrowers. Debevoise regularly advises sponsors on the formation of
private equity funds targeting Latin America.
Debevoise Partners Attending
The Private Equity Forum 2013:
Jennifer J. Burleigh
Co-Chairs Opening Remarks
December 9th at 9:10
jjburleigh@debevoise.com
Peter Furci
Panel: Legal Developments
& Fund Formation in Brazil
pafurci@debevoise.com
Gregory Gooding
Moderator, Panel: Minority
vs. Control Investments
ggooding@debevoise.com
Michael Gillespie
Moderator, Panel: Exit Strategies
mjgillespie@debevoise.com
13
TABLE OF CONTENTS
LPEJ / FOURTH QUARTER 2013
3
Editors Note
Bruce Zimmerman
University of Texas Management
Co.
David Holmgren
Hartford HealthCare
Jay Koh
Siguler Guff
Jose Quiones
Peruvian State Pension Fund
Susanne Forsingdal
ATP PEP
Janet Cowell
Department of North Carolina
State Treasurer
Mauricio Marcellini
FUNCEF
Jon Lekander
Aberdeen Asset Management
Brian Bank
Aspiriant
Dominik Zehnder
Kehrli & Zehnder
Scott Voss
HarbourVest Partners
Luis Fernando Mejia
Colombian Ministry of Finance
Arlete Nese
Banesprev
4
6
8
10
12
13
15
16
18
20
22
24
26
28
Alfonso Munk
Prudential
Suzanne Etcheverry
Overseas Private Investment Corporation
Roberto Hesketh
Fundaao Real Grandeza
Bernard Aronson
ACON Investments
Jose Minaya
TIAA-CREF
Gregorio Schneider
Terranum Capital
Karim Ghannam
Raphael Zagury
Deutsche Asset & Wealth Management
Yoshi Kiguchi
Okayama Metal & Machinery Pension
Fund
Marvin Ray Risco
Weyerhaeuser Solutions
Gabriel Amado de Moura
Fundaao Itaubanco
David Ross
Chevy Chase Trust Investment Advisors
Matt Johnson
UBS Global Asset Management
Franois Racicot
Mercer
Francisco Reis
Icatu Fundos de Penso
30
31
33
34
36
39
40
41
42
44
46
48
49
52
Victor Muoz
Denham Capital
Anthony Breault
Oregon State Treasury
Patrice Etlin
Advent International
Gene Pohren
57 Stars
Juan Delgado
Hamilton Lane
Ken Wainer
VBI Real Estate
Pierre Fortier
La Caisse de Depot et Placement du
Quebec
Dhvani Shah
Illinois Municipal Retirement Fund
Michel Del Buono
Makena Capital Management
Rosalind Hewsenian
Helmsley Trust
Matthew Curtolo
Hirtle Callaghan
Daniel Arippol
Maninder Saluja
Carlos Heneine
Quilvest Private Equity
2014 Latin Markets Meeting
Schedule
54
55
57
58
60
62
64
66
68
70
71
74
76
5
16 8 60 44 6
EDITORS NOTE
Te Latin Private Equity Journal (LPEJ) is a
Latin Markets weekly newsletter and quarterly
publication featuring interviews with LPs, GPs,
government ofcials and private equity thought
leaders active in Latin America.

Latin Markets is the worlds leading provider
of Latin America focused investment
forums, regional summits, and streamlined
market intelligence. Our platform provides a
comprehensive and fascinating perspective of the
opportunities in this diverse and booming region.
All LPEJ content is copywritten & owned solely
by Latin Markets Brazil LLC.
To advertise in LPEJ, contact:
seth.fraser@latinmarkets.org
For private equity forum opportunities, contact:
paloma.lima@latinmarkets.org
Latin Markets, 10 W 37th Street 7th fr.
New York, NY 10018
Chief Executive Ofcer
Adam Raleigh
Group Managers
Giseli Akaboci
Kenneth Bauco
Charles Fathers
William Frank
Paloma Lima
Zaianna Ortiz
Amir Ouki
Tim Raleigh
Ahmad Sahar
Finance & Operations
Larissa Guimaraes
Editorial
Seth Fraser
Karishna Perez
Keoni Harrison
Private Equity Group
Brandon Link
Jack Schwarten
Anna Gonzalez
Adri Ruiz
Roy Salsinha
Real Estate Group
Daniel Kim
Pablo Oliveira
Andres Ortiz
Energy & Infrastructure Projects Group
Daniel Para Mata
Ana Romero
Carolina Gomez-Lacazette
Aaron Wheatley
Virginia Schmithalter
Northern Latin America Group
Javier Miana
Luiz Laco
Daniel Lusardi
Jake Marmulstein
Ana Lobo
Southern Latin America Group
Mathias Grez
Maria Tatis
Kilby Browne
Marcela Fonseca
Jose Pulgar
PE Investing in 2014
At Latin Markets, we spend a significant amount of time traveling
the world to meet with investors allocating to Latin America and
Latin American investors allocating globally. The Latin Private Equity
Journal is a quarterly publication designed to help connect our
everyday travels with those who cant always join us on the road.

In the following magazine, youll find exclusive interviews with
international LPs, GPs and government officials all focused on
investing in private equity.

Interviews in the current edition were conducted at a time of both growth and uncertainty for Latin
America and emerging markets as a whole.

An era of rapid expansion in Brazil eventually gave way to rising prices, and many investors
broadened their search to countries like Mexico, Colombia, Peru, Chile and Panama.

Account deficits in EM countries like India, along with signals the Fed would end QE3, sent ripples
of trepidation through the international investor community.

And while some have stepped away from emerging markets, the interviews that follow here show
that the story is not this simple, especially when it comes to an asset class such as private equity and
Latin America.

Rather than viewing emerging markets as one continent, some spoke with me about moving
into an era of differentiation. For many long term investors, these rumblings do not change the
fundamentals and strong demographics that exist in Latin America.

You either believe in an investment theme, Dominik Zehnder of Kehrli & Zehnder aptly puts it
in his interview, or you do not. Indeed, the region continues to change, but new opportunities
are waiting to be found for the adaptable private equity investor, even if you have to be out of So
Paulo getting your feet dirty, as Carlos Heneine at Quilvest Private Equity says on page 75.
If youd like to subscribe for free to the Latin Private Equity
Journal, you can sign up at www.latinmarkets.org. Subscription
allows you access to our weekly LPEJ newsletter, the LPEJ
Quarterly, exclusive invitations and discounted registration on
international private equity meetings, and inclusion within the
largest investor network in Latin America.
For all of those who took the time to speak with me, thank you, and I look forward to releasing our
first issue at the 5th Annual Private Equity Brazil Forum!
Regards,
Seth Fraser
4
KPMGs approach to your global
private equity investments:
Commitment without boundaries.
In the midst of economic volatility, some things remain
constant: our industry knowledge, global presence, and above
all, commitment. KPMGs Private Equity practice can help
maximize your investment across a funds life cycle and
across borders. Whether you are identifying and assessing
a new deal in So Paulo, implementing performance
improvement strategies in Mexico City, or timing your
exit in Bogot, KPMGs Private Equity practice is right
here to support you.
KPMGs worldwide commitment to private equity
and our global network of member firms give us the
reach and connectivity to work togetheracross
audit, tax, and advisoryon national and cross-
border deals, no matter the size.
For information on how KPMG can help you plan
an effective private equity strategy, contact
Ericson Amaral, So Paulo, at
eamaral@kpmg.com.br or Ryan Davis,
New York, at rdavis@kpmg.com.
kpmg.com
2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the
KPMG network of independent member firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG
name, logo and cutting through complexity are registered trademarks or trademarks of
KPMG International. NDPPS 220478
KPMGs approach to your global
private equity investments:
Commitment without boundaries.
In the midst of economic volatility, some things remain
constant: our industry knowledge, global presence, and above
all, commitment. KPMGs Private Equity practice can help
maximize your investment across a funds life cycle and
across borders. Whether you are identifying and assessing
a new deal in So Paulo, implementing performance
improvement strategies in Mexico City, or timing your
exit in Bogot, KPMGs Private Equity practice is right
here to support you.
KPMGs worldwide commitment to private equity
and our global network of member firms give us the
reach and connectivity to work togetheracross
audit, tax, and advisoryon national and cross-
border deals, no matter the size.
For information on how KPMG can help you plan
an effective private equity strategy, contact
Ericson Amaral, So Paulo, at
eamaral@kpmg.com.br or Ryan Davis,
New York, at rdavis@kpmg.com.
kpmg.com
2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the
KPMG network of independent member firms affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG
name, logo and cutting through complexity are registered trademarks or trademarks of
KPMG International. NDPPS 220478
INTERVIEW:
Bruce Zimmerman
Chief Investment Offcer
University of Texas Management Co.
Prior to joining UTIMCO, Mr. Zimmerman served as CIO and Global Head of Pension Investments at Citigroup.
1. Give us a brief background on
UTIMCO and the firms experience in
Latin America.
BZ: We are the second largest university
pool behind Harvard, and are responsible
for investing $30 billion in assets. $22.5
billion of that is in endowments and we also
have intermediate and short term funds.
We have about 30 people on the investment
staff and the same number in support staff.
Our basic business model is a fund of fund
with 30 percent of our portfolio in hedge
funds and 30 percent in private investments.
Within these private investments we have
natural resources, real estate, lower middle
market buyouts, venture capital, growth,
opportunistic and emerging market growth.
Weve traveled to Latin America for the
last six or seven years. We now have some
private equity investments, public equities,
fixed income, and natural resources
investments. These are in Brazil, Mexico,
Colombia, Peru and Chile.
2. When did you first invest in Latin
America and what was your private
equity strategy?
BZ: When I began, UTIMCO had an
investment with a private equity firm in
Mexico. Then we started investing with
some Brazilian managers. Some of these
managers have expanded beyond Brazil and
weve recently invested with some Andes
managers. Its a combination of country
specific and pan-regional funds.
We tend to shy
away from the large
global firms that
are raising funds in
Latin America. We
look for truly local
managers...
INTERVIEW: BRUCE ZIMMERMAN
3. Which sectors and themes have you
focused on with private equity in Latin
America?
BZ: Commercial natural resources related to
infrastructure and the growing middle class.
4. What characteristics do you look for
in a manager?
BZ: We look to really identify the top talent
in whichever niche were looking to invest
in. This requires us to spend a lot of time
locally getting to know people and building
up our network of relationships. From the
time we get introduced we might develop a
relationship over a couple of years before we
invest. We tend to shy away from the large
global firms that are raising funds in Latin
America. We look for truly local managers
and fund sizes in the $200, $300 and $400
million range.
5. What is your outlook for emerging
markets in light of account deficits in
some countries, and the Fed eventually
raising rates?
BZ: Emerging markets is a big term that
covers about half the world in terms of
GDP. We need to understand the markets
in particular, not in general. We think
there are better growth characteristics in
emerging markets, which doesnt necessarily
make for a good investment because price
matters an awful lot. We supply capital and
try to understand the supply and demand
dynamics of capital markets. We like the
tailwind of relatively better growth but it all
really starts with pricing. With our model
it starts with finding the right partners. An
additional risk in emerging markets is the
political risk. We need comfort thatthere is
respect for capital and rule of law that will
persist. This is an added element of risk that
we need to be compensated for.
6. What is your outlook for Brazil and
Latin America with regards to private
equity investments?
BZ: Were long term investors so there
will always be ebbs and flows. Brazil is the
largest market, so we just need to be careful
about picking partners and niches. We
dont try to time things. We still think there
is a good structural story. The Andes and
Mexico have really come along as well.
7. What is your experience investing
in the Andean region?
BZ: Were new there so it is too early to tell.
Weve made an investment in a fund but
this is within the last six months to a year.
8. Are you looking to increase your
exposure to private equity and Latin
America?
BZ: Were certainly willing to and anticipate
we will, but were not trying to force things.
We think well continue to find good
opportunities and partners. My guess is that
our exposure will increase, but we dont
approach it like we need this amount of
money here or there.
9. What advantages have you found
in attending Latin Markets forums?
BZ: I think its a great opportunity to
meet the investment community in a very
efficient way. Some folks I know and some
I dont yet, so Im looking forward to the
event in December.
Mr. Zimmerman will be speaking on the panel
Emerging Market Manager Selection and
Monitoring at the 5th Annual Private Equity
Brazil Forum on Dec. 9-10, 2013.
LPEJ WEEKLY
EDITIONS & MORE
VIEW
INTERVIEWS
ONLINE
WWW.LATINMARKETS.ORG
7
8
David Holmgren
Chief Investment Offcer, Hartford HealthCare
Mr. Holmgren previously served as Principal Investment Officer for the Connecticut State
Treasury and Senior Portfolio Manager at DSI/UBS.
1. Give us a brief overview of Hartford
HealthCare. What are your assets under
management?
DH: Hartford HealthCare is a not-for-profit
hospital system. We are a pension and
endowment, with offshore insurance trusts
and defined contributions. We manage a
total of about $3 billion. The pension and
endowment is about $2 billion. Of those two
it is $700 million in endowment and $1.3
billion in pension.
2. How is your portfolio diversified
across asset classes and geography?
DH: We have 57 percent of what we call
growth assets, about 35 in risk reduction
assets, and 8 percent in the economic/
inflation protected asset class. Private equity
is housed within our growth allocation. We
place all hedged investments within the
risk reduction allocation. We dont break
down our portfolio by country sleeves, but
instead have a very global background. For
example, we dont start with the premise
of either being in Hong Kong or Chile.
Geographic exposures and concentrations
are the by-product of our manager selection.
Therefore, the country monitoring is for
risk management purposes and not for
allocation purposes.
3. What is your experience in Latin
America to date?
DH: I joined Hartford HealthCare three
years ago as their first Chief Investment
Officer to strategically build out the
investment office. Weve tried to maintain
our global core beliefs so hopefully were
isolating any regional bias. Within the past
two years in Latin America, weve taken
direct equity exposure and Latin American
only hedge funds (a couple through our
$200 million offshore insurance fund).
Within our energy infrastructure fund we
have a global emerging market focus and
about 25 percent of this is in Latin America,
primarily Costa Rica actually.
4. How do you think of your portfolio
in the context of developed versus
emerging markets?
DH: We think globally but do have discrete
developed versus emerging markets
allocations. Broadly, we strategically hold
US based versus non-US based and then
secondarily within those we keep layering
(or tiering) those to various subsectors.
For example, within non-US, we will
be opportunistic within emerging and
developed international markets, having
dedicated allocations to various sub
strategies like small cap. By individual asset
class, our real estate allocation is primarily
in the US. Our equities, are about 50-50. In
fixed income, its about 25 percent global
inclusive with currency and EMD. Hedge
funds are 25 percent non-US. Our natural
resource fund is about 75 percent US traded
but probably closer to 50 percent in US
holdings. This is by design as we have up to
10 percent in economic/inflation protected
assets which are environment based not
businesses based. So you could say that
the 10 percent is a hedge against the US
economy and/or US inflation.
5. Where are you investing in Costa
Rica?
DH: Where we choose to invest is a
byproduct of where the manager is making
allocations. Im not going to take that type
of tactical view because we are very strategic.
I want the managers in our fund lineup
to be tactical and go where they wish. Im
sitting in Hartford, Connecticut with a lot
of macro responsibilities and highly doubt
Within our energy
infrastructure fund
we have a global
emerging market
focus and about 25
percent of this is
in Latin America,
primarily Costa
Rica...
INTERVIEW: DAVID HOLMGREN
I can add value making individual country
market timing decisions. Thats not the
role of a dynamic investment officer. Once
weve gained confidence in a manager, well
set the allowances and parameters and then
allow them to go from there. Do I have a
preferential appreciation for being in Costa
Rica versus Nicaragua? Absolutely not. But I
hope that the managers are sourced enough
where they see the value proposition if it is
necessary to invest there. We are currently
at this type of cluster analysis (since a
few of our managers now have outsized
positions in Costa Rica maybe Costa Rica
itself is undervalued) but have yet to pull the
trigger.
6. As an asset class, how is private
equity advantageous globally and in
Latin America?
DH: Private equity is important to us
globally for the return enhancements to our
growth assumptions. We strongly believe in
the premise of being able to extract capital
returns through active manager value add,
especially within private equity investing.
On the risk management side, weve already
picked up a couple Asian only private equity
funds over the past year, so although were
comfortable having regional tilts we would
like to explore Latin American only private
equity as a risk management balance. That
said, the expansion of our private equity
allocation is not for risk management, but
for capital appreciation. Were still always
acutely aware of our risk profile and looking
to improve -- especially since our belief in
maximizing returns requires us to empower/
enable our managers. For example, we will
not constrain our managers investment
parameters with bucket constraints. Like
in infrastructure or natural resources, if
the manager believes he can only deploy
properly in Argentina, his benchmark,
proxy and value add evaluation will be
limited to exclusively Argentina.
7. Describe the manager selection
process at Hartford HealthCare.
DH: We look at managers by asset class. For
our private equity considerations we heavily
rely on sourcing from our dedicated, private
equity investment consultant Mercer.
As a testament to our global beliefs, Im
pleased to acknowledge that we are really
utilizing the global breadth of Mercer as
evidenced by three of our current years
private equity commitments, which came
to us from Mercers Sydney office. Specific
to private equity, we prefer very small use
of leverage, as culturally we do not believe
in the sustainability of highly leveraged
investment thesis. Similarly conservative,
weve tended to steer clear of first time
private equity funds. We spend an awful lot
of time looking at the value add proposition,
which is extremely important in Latin
America since we assign no beta return. We
spend time making sure theyre providing
something to the value chain, outside of
simply financial engineering. Although we
are long term investors and understand
our money will be stuck somewhere, we do
spend a lot of time, especially in the non
US markets where were taking currency
risk, making sure the GP has a successful
track record of appropriate exit strategies.
We look for managers who can articulate
a really logical investment thesis which is
sustainable with a long lifecycle. As a not-
for-profit, were also quite headline risk
aware, so we spend a lot of time considering
a GPs transactional efficiency and
governance structures.
8. How do you gauge the amount
of a commitment to be made in Latin
America?
DH: Given our focus on risk management,
if the GP considered is Latin America
focused, then in our overall budgeting,
that fund would probably have a smaller
allocation than a fund which is truly
diversified. Well see where we are not
meeting global diversification and may
weigh one manager more to bring back the
geographical weight to parity. We size based
on conviction and then adjust the weighting
based on its influences to the remainder
of that asset class. This is the same weight
process we use for hedge fund allocations.
Oddly enough, it ends up becoming a
win-win for us as were very comfortable
committing small amounts like $2 million,
so we tend to be sought after LPs in the
growth equity space. Without generalizing,
some of the mega buyouts shops are too
levered for our appetite.
9. What are your thoughts on reports
of capital flows returning back to
developed markets and away from
emerging markets?
DH: We clearly have a long term belief in
emerging markets as one of our investment
beliefs is to always remain global. We
also have a core conviction in active
management. Pure and simple, with our
core beliefs, were trying to mitigate some
of that daily noise youre talking about
arising from interest rates to DC politics
and the resulting emerging market flow
of funds. Were hoping to mitigate this by
being strategic in the allocation process. We
rebalance as prudent given operational and
cost consideration. We have occasionally
seen and capitalized on some misevaluations
arising from those heavy flows. We like to
be aware of those flows and sometimes well
be contrary to the flows. Were not trying
to tactically time them, but were hoping
to benefit strategically by rebalancing. We
recently went through a policy review to
determine if we were being tactical, strategic
allocators to emerging markets. We decided
we wanted to have a strategic base line
allocation to emerging markets, so we hired
dedicated managers, and then established
sub-classes we can rebalance.
10. Are you looking to make
additional allocations in the coming
years to Latin America?
DH: We are making additional allocations
and expect it to continue, but based on our
identification of the managers. I think its
fair to say that the more inefficient markets
have more alpha potential and should
expect additional private equity and hedge
fund investments. Beyond that, thats a beta
call which is contrary to our investment
style.
11. What are you looking forward to
at the Private Equity Brazil Forum?
DH: Knowledge, perspective, contacts
and a Caipirinha.
Mr. Holmgren will be speaking on the Global
Foundation & Endowment Roundtable at the 5th
Annual Private Equity Brazil Forum on Dec. 9-10,
2013 in So Paulo.
9
partners and private equity managers.
We manage capital on behalf of over 450
institutional clients and over 500 high net
worth individuals.
2. What are your assets under
management and where are they
currently deployed?
JK: Siguler Guff, together with its affiliates,
has over $10.3 billion in assets under
management, estimated as of December 31,
2012. We manage over $3 billion of capital
commitments in the Emerging Markets
in a couple of strategies. We have our
direct Russian funds including a fund that
targets high-growth businesses related to
technology and innovation in Russia and
the countries of the former Soviet Union.
We also manage a series of multi-manager
funds that invest in the BRIC countries and
other select Emerging Market.
3. What is your diversification
strategy across asset classes and
geography?
JK: In addition to Emerging Markets private
equity, we have a US small buyouts strategy,
and we manage distressed opportunities
funds and a distressed real estate fund.
In the Emerging Markets context, weve
increasingly focused on investing in and
around Latin America. We have an on the
ground presence in Mumbai, Shanghai,
Moscow and So Paulo, and we believe in a
localized strategy in the Emerging Markets.
4. Where in Latin America are you
investing?
JK: Our office in So Paulo has done a fair
amount of investing in Brazil itself. We
also recently made our first investments in
Colombia and Peru.
5. Is there a certain country you are
focused on in Latin America?
JK: We have a very strong presence in
Brazil. The head of our Brazilian and Latin
American business, Cesar Collier, has both
operational and private equity experience
as well as a retail background having held
senior management positions at Carrefour
and Wal-Mart.
We are continuing to focus on hard-asset
activities in Brazil. It is a great opportunity
and a different opportunity than it was a
couple of years ago because it is a story
about selectivity and market development.
I think youre going to see change as far
as which sectors offer the most attractive
opportunities. In addition to Colombia and
Peru, Mexico is also at a very interesting
inflection point from a structural
standpoint. Overall, we have a lot of interest
in all of Latin America.
10
INTERVIEW: JAY KOH
1. Tell us about Siguler Guff.
JK: Siguler Guff is a multi-strategy private
equity investment firm that was founded
by George Siguler, Drew Guff and Donald
Spencer in 1991 within PaineWebber. In
1995, we became an independent firm with
an active, value-oriented opportunistic
strategy. We were the first active private
equity firm on the ground in Russia and we
have leveraged our experience as a direct
investor in Russia in our broader Emerging
Markets strategy. We now manage pooled
multi-manager funds, as well as direct
investment funds and separate account
vehicles, but we have the DNA of doing
direct deals and working with co-investment
Mr. Koh is a member of the management team and investment committees for all Siguler Guff multi-
manager funds. He previously led the Overseas Private Investment Corporations (OPIC) $2.6 billion
emerging markets private equity program. He also focused on direct growth equity investing with an
emphasis on telecommunications and security as a Principal at the Carlyle Group from 2000 to 2007.
Jay Koh
Managing Director
Siguler Guff
INTERVIEW: JAY KOH
JK: It is a three-handed story. First, the
institutional framework for private equity
investing in Latin America has substantially
improved. In the 1980s, there were
concerns about inflation, fiscal policy and
the openness to foreign investment. The
ground rules needed to be laid to be able to
actually compete in those markets. Second
is the development of capacity. If you think
simplistically, how do you invest capital?
There are sources of capital, uses of capital
and management aspects. Where are you
getting the capital from and whos actually
doing the investing? Lastly, you need that
source of talent on the GP investor side with
international best practices or operational
expertise that can change and adapt in all of
these different countries.
9. What is your economic outlook for
Latin America?
JK: We are moving into a second or third
stage of maturity in private equity in
Latin America. There is a headline growth
story and general development, and the
expansion of many different businesses
across the spectrum. There has been a lot of
growth in natural resources and consumer
6. Which sectors are you focused on in
Latin America?
JK: I think we are going to see a second
stage of technology-related businesses and
business services emerge in Latin America.
We expect to see more sophisticated
consumer retail plays emerge and new
opportunities related to natural resources.
We also expect that there will be some
outsourcing and consolidation, as well as
increased success in sector-based funds as
managers now have track records and the
ability to specialize in certain areas. As far as
challenges, the big question for all of Latin
America is of valuations and exits. As the
amount of capital and interest coming into
these markets has increased, the danger is
that it bids up valuations in certain sectors.
At the end of the day, we see a very strong
correlation between entry multiples and exit
returns.
7. What are your preferred types of
private equity investments in Latin
America?
JK: Right now it is going to depend on how
the markets evolve. Private equity in the
Emerging Markets is very different from
how you would typically think about private
equity in North America and Europe. In
the Emerging Markets, it has largely been
growth equity, growth buyout transactions
and growth control transactions. This has
been driven by top line revenue and cash
flow growth, EBITDA, or the relevant
metric for the particular company or
country, and not by highly leveraged
restructurings or mature company
investment strategies in these markets.
We expect this to change as these markets
mature and as opportunities and fund sizes
change. There are sector-oriented strategies
that we anticipate will emerge in Latin
America when the economy is mature and
sophisticated enough to support that kind of
capital structure.
8. What social and economic factors
do you attribute to the success of
investing in Latin America
specific to private equity?
retail investment strategies. Now, as we
move into the next phase of development,
we expect business services companies to
develop as economies mature and need to
service themselves. I think were going to see
infrastructure-related services developing as
well. With that said, as those sectors evolve,
we expect a transition from primary growth
activity today occurring in major cities
with the most access to capital and the best
baseline of growth, to growth in secondary
and tertiary cities. We are investing in
managers that have been disciplined in
how they invest in small and middle-sized
companies and are looking at secondary and
tertiary cities where we still see a lot of room
for growth.
Mr. Koh interviewedLuis Albert
Moreno,President of the Inter-American
Development Bank, at the Private Equity Latin
America Forum on May 9, 2013 in New York City.
11
I want to make
clear all of these
new mandates
are oriented
toward socially
responsible
investments.
INTERVIEW: JOSE QUIONES
1. Tell us about the Peruvian State
Pension Fund. What are your assets
under management?
JQ: Our assets under management are
$3.5 billion. We also have a generator of
electricity enterprise that is owned by us but
not managed by FCR (Fondo Consolidado
de Reservas Previsionales, Peruvian State
Pension Fund). That makes $5.3 billion
altogether. We have a special governance
system in place for FCR with our board
of directors. The ministry of the economy
is the chairman of the board and on that
board you have the CEO of the ONP, the
general manager of the central bank and
two pension representatives (one from the
National Pension System and the other from
the Private Pension System).
2. How is your portfolio currently
broken out across asset class and
region?
JQ: We have 80 percent in Peru and 20
percent outside. Almost everything is
invested in fixed-income. 53 percent is
in the financial system in Peru, in short
term, and we dont need so much liquidity.
When we were born as a fund we had 90
percent placed in the U.S. and abroad. At
that time, we had a third of the Peruvian net
international reserves and the investment
mandate was that no less than 80 percent
should be invested abroad. Now, no more
than 50 percent should be invested abroad.
Now, the dollar has been devaluing in front
of the sol. Returns in sols in Peru are a lot
better than investing in tertiaries. So now
we have 80 percent in Peru and in sols. The
20 percent that is outside is under external
management. We dont invest directly and
we have three mandates on fixed-income.
We are diversifying FCRs portfolio adding
new asset classes, such as TIPS, Public and
Private Equities.
4. Where are you looking to invest
abroad?
JQ: We are mainly going to be invested
in the United States. The fixed income
mandate we have with external managers is
90 percent in the U.S. and 10 percent in non
U.S. But we have also changed this to a Core
Plus mandate, so we can invest in high yield
and emerging markets.
5. So youre looking to diversify and
move more into emerging markets?
JQ: Emerging markets will be reached by
us also with Public Equities - MSCI ACWI
mandates. We aim mostly to diversify our
portfolio and grow the return. Also, I want
to make clear all of these new mandates
are oriented toward socially responsible
investments. Were asking the managers to
respect that. We are sending them a list of
enterprises which they shouldnt invest in.
6. Why do you think it is valuable for
investors to attend the Private Equity
Forum?
JQ: As I mentioned in the panel, it is about
gaining concrete ideas for opportunities in
private equity. I had attended the Sao Paulo
forum in 2012 and it was a great experience;
there I began wishing to invest in Private
Equity. I met a lot of GPs and I was able
to develop my knowledge of the business.
This event is the place to create chances and
opportunities.
Mr. Quiones is a seasoned speaker of the Latin
Markets Private Equity series. He spoke on the
Andean Investor Roundtable at the Private Equity
Latin America Forum on May 9, 2013 in New
York City.
Mr. Quiones serves as a member
of the investment committee of the
ONP, Technical Secretariat of FCR.
He previously represented MEF as a
member of the Board of Directors of
the Banco de Fomento Agropecuario
and served as Vice President of the
Board of the Fondo Nacional de
Propiedad Social.
Jose Quiones
Chief Investment Officer
Peruvian State Pension
Fund
12
3. Where in particular are you looking
to invest in private equity in Peru?
JQ: The plan is to take the money from
the local financial system and add that to
external and internal private equity. The
first step already taken was to invest in a
private equity fund in Peru. Were trying to
create a real estate fund as well and to grow
infrastructure mainly in Peru.
INTERVIEW: SUSANNE FORSINGDAL
1. Tell us about ATP Private Equity
Partners.
SF: ATP is the largest Danish pension fund
with about $100 billion U.S. dollars under
management. ATP PEP was set up in 2001
to be the primary vehicle for investing in
private equity. We were set up like a captive
fund-of-funds so we still go raise capital
from ATP every 2nd year. Today we have
raised four funds with ATP capital backing
of 7 billion euros. Our most recent fund is
1.4 billion euros.
2. How would you describe these
funds?
SF: We have mostly invested in private
equity funds in Europe and North America
and a slice of five percent on the side for
venture investing. And 10 percent is set
aside for emerging markets. We have made
three commitments to Latin American
funds so far: Advent, Linzor and Victoria.
3. When did you make these
commitments?
SF: We made the commitment to Advent
in 2010, and then made the other two
commitments in 2011 and 2012.
4. Do you tend to take a sector or
country-based approach?
SF: In the U.S. we have committed
to funds specialized in energy, IT and
communications. For now, in Latin America
it has made sense for us to commit to
funds which are able to invest in different
economies throughout the region.
5. Which countries are you focused on
in Latin America?
SF: The Peru, Colombia, and Mexico
regions look great for growth. Brazil looks
overpriced, but well see. Its a long term
investment for us and we dont make short
term bets.
6. What type of private equity
strategies do you prefer?
SF: We are mainly focused on mid-market
buyout groups, for Latin America as well.
In some regions we have been happy
committing to investors that do minority
investing. But we are mostly interested in
funds that take a controlling interest in
the company and make co-investments
alongside the funds available.
7. What is the typical size of a
commitment you make to a fund?
SF: In regions of Europe and North
America our commitment size is $50
million. In emerging markets its $25
million.
8. When dealing with GPs, what
character traits do you look for?
SF: We look at experience and those who
have had a long history of investing in the
markets. Its also a question of building a
relationship and trust.
9. Will you be allocating funds to Latin
America in the next two to three years?
SF: We want to watch those three funds
first and become better educated on the
markets. We are meeting with more local
funds in each of the countries. A natural
next step would be to look at a fund that is
not necessarily regional but a country focus.
Our focus is on funds larger than $250
million though, and we prefer managers
that have built up a track record.
10. What are you looking forward
to at the Private Equity Latin America
Forum?
SF: Im looking forward to seeing the
Colombia spotlight and also hearing what
Latin American pension funds are saying
about making private equity investments.
Ms. Forsingdal spoke on the panel, Fund of Funds
& Advisor Investments in Latin America, at the
Private Equity Latin America Forum on May 9,
2013 in New York City.
Susanne spent seven years in equity
research at Nordea Bank, Codan
Bank, and Danske Bank. She also
served as the Head of the Strategy
and Investor Relations Department at
Danske Bank.
Susanne Forsingdal
Partner
ATP PEP
SEPT. 9-10, 2014
CARTAGENA, COLOMBIA
PRIVATE EQUITY
ANDEAN FORUM
REGISTER TODAY
13
F
undada em 1978, a Clayton, Dubilier & Rice (CD&R) tem uma abordagem
nica para investimentos em Private Equity, combinando a expertise
nanceira com o conhecimento operacional de empresas. A equipe da CD&R
composta por renomados lderes de grandes empresas globais que, em
conjunto com prossionais de gesto das empresas investidas, trabalham
na implementao das estratgias de transformao e iniciativas para
melhorar o desempenho de longo prazo.
Desde sua criao, a CD&R investiu mais de US$ 18 bilhes em 56 empresas
de diversos setores, a maioria subsidirias ou divises especcas de
grandes organizaes, totalizando aproximadamente US$ 90 bilhes em
transaes.
NEW YORK LONDON
www.cdr-inc.com
Building Businesses, Building Value
INTERVIEW: JANET COWELL
1. Please tell me about the North
Carolina Department of State Treasurer.
JC: The public pension fund is over $80
billion. In terms of allocation its 24 percent
to alternatives. Within that we have 5
percent in an inflation hedge bucket where
we have commodities exposure and up to
10 percent in real estate of which 25 percent
is international. We also invest in private
equity which is 7.5 percent of our portfolio
and then a credit bucket and long short
investments on the public equity side.
2. What is your experience investing
in Latin America and emerging markets?
JC: Im a believer in gaining exposure to
these markets. We dont have any quotas.
The challenge is finding the right partners
and doing the due diligence given the short
staffing at many U.S. pension funds. In the
era before the crash people were trying to
get $400 or $500 million in funds and make
sweeping international allocations, but I
think those days are over. Now you have to
create smaller relationships with partners.
Its a slow, deliberate process to find the
right partners in emerging markets.
JC: Our fund partners must meet a
statutory minimum of $100 million under
management. Our typical allocations are
$50 million or less. We also invest in fund-
of-fund structures with smaller allocations
to access smaller emerging managers.
4. What kind of returns do you expect
to see in a first time investment?
JC: Our target return for the portfolio is
7.25 percent. We expect 8 to 10 percent
for the overall real estate portfolio. For
opportunistic strategies in emerging markets
we expect high teens. In private equity we
also expect high teens.
5. Is there a particular country you are
investing in Latin America?
JC: Brazil is where we have the most
exposure.
6. Are there certain sectors you are
interested in Brazil?
JC: We have been most invested in the retail
and residential sectors, though we are open
to expanding this approach.
7. Are you looking to make additional
allocations in the next two to three
years?
JC: It depends on the market conditions.
Were going where there are the best
partnerships and opportunities. We are
actively looking and I spoke with a number
of groups who said they are speaking with
our Director of Real Estate Investments
Susan Carter. My anticipation is that our
investments in Latin America will grow in
the coming years.
8. How do you go about selecting
fund managers?
JC: They must meet our statutory minimum
under management. We do extensive due
diligence and a lot of it is the track record
and performance of their investments. This
is a craft business. Post 2008, pensions and
endowments need to do more scrutiny and
checks and balances on fee structures. As
we meet people we will stay in touch and
track them and keep a shortlist of partners
globally.
9. How many trips have you taken to
Latin America on due diligence?
JC: The staff has traveled to Latin America,
but I have spent more time in Asia. This is
part of the reason for coming to this event;
to gain more insight into Latin America.
10. Why do you think it is valuable to
attend Latin Markets forums?
JC: Its important to do due diligence
and learn about whats happening from
a macroeconomic perspective and to also
meet the key GPs in the space.
State Treasurer Cowell spoke on the panel,
Sovereign Wealth Funds and Global Pension
Administrators, at the Real Estate Latin America
Forum on June 10, 2013 in New York City.
Elected in 2008, Treasurer Cowell
is the states 27
th
Treasurer and is
the first woman to win the post. She
is the Chair of the State Banking
Commission, and serves on the
boards of State Education and
Community Colleges.
Janet Cowell
North Carolina State
Treasurer
15
1. Please give us a brief primer on
FUNCEF and your current commitments
to private equity.
MM: FUNCEF is the pension fund for
Caixa Economica Federal employees, a
Brazilian federal bank. We have around
130,000 participants, of which 70 percent
are still working and 30 percent are retired.
We have about $53 billion of Reais invested,
or US$25 billion, including 11 percent
invested in private equity. Our portfolio
of private equity started in 2003, and has
grown a lot since 2006. We are currently
invested in around 46 private equity funds
with 23 GPs.
sectors?
MM: We expect to increase the share of
private equity in our portfolio from 11%
to 15 percent by 2018. This represents
an additional investment of more than 2
billion Reais ($1 billion USD) in the next
five years, excluding the reinvestments.
Our portfolio is strongly diversified across
small and large companies in 20 of the 27
Brazilian states in all of the five geographic
regions. FUNCEF invests in various sectors
like infrastructure (oil & gas, logistics,
power generation, sanitation), education
(high schools, technical schools, book
publishers), timberland assets (eucalyptus
forests, pulp plants), IT (technology,
biotechnology), consumer services, and so
on. Most of these companies are not listed
on the stock exchange; but they offer a good
diversification strategy.
INTERVIEW:
Mauricio Marcellini
FUNCEF
Mr. Marcellini previously served as Institutional Manager and Executive Director of new business dealings at
Caixa Participacoes, the pension fund for the employees of Brazilian federal bank Caixa Economica Federal.
INTERVIEW: MAURICIO MARCELLINI
3. In which regions and sectors are you
currently planning to make additional
allocations?
MM: For now, all of our direct investments
are only in Brazil, or in the Brazilian
companies operating overseas. We own a
position in a company called Invepar that
manages infrastructure investments in toll
roads concessions, airports and urban mobility.
This company has made an investment recently
in Peru, creating a train line in downtown
Lima, Peru.
We have discussed an Investment Strategy for
the future outside Brazil. Investing overseas
will allow us to diversify, acquire valuable
international expertise, share and learn from
managers that invest in other countries, and to
access new opportunities.
4. What type of private equity strategies
does FUNCEF prefer?
MM: Every year, we make an investment
plan that represents the ALM (assets
liabilities management) of our portfolio.
This investment plan considers many aspects
such as: economic sector concentration,
geographic concentration, J-Curve, firm
maturity (seed and venture capital, medium
firms and bigger companies). Besides that,
we have three pillars of investment in PE:
improve the Brazilian infrastructure by
investing directly in infrastructure or in
its supply chain and services (logistics, toll
road equipment, energy, water, sanitation);
access comparative advantages in Brazil like
abundant natural resources, low production
costs, increased global trade liberalization
(agribusiness, plantations, oil & gas); and invest
in domestic consumption through companies
in retail, insurance, food, services, healthcare,
technology, etc.
5. What is FUNCEFs process for selecting
GPs to invest with?
MM: FUNCEF uses a process of selection of
funds that is nationally recognized as one of
the most insightful, structured and trusted.
The methodology evaluates the following
criteria: thesis of the investment fund (if the
strategy proposed by the fund is consistent);
compliance to FUNCEFs strategy; experience
of the GP (in PE/VC, qualified staff, knowledge
of the sector to be invested); disinvestment
strategy (if the strategies are feasible); GPs
commitment (how much of his own money
the manager will commit). Additionally,
the private equity fund selection process
requires origination, analysis and evaluation,
negotiation (pricing, governance aspects,
management and performance fees), and
approval and compliance.
MM: FUNCEFs commitment will depend on
the size of the fund. In small funds, we are used
to investing about $30-40 million. In the case
of bigger funds the commitment increases to
$100-125 million. But these numbers may vary
for different investment strategies.
7. What kind of returns do you expect to
see in a first time investment?
MM: As our first investments in private equity
occurred after 2003, we are receiving the first
divestments now. Thus, we expect a real return
of 13 percent for the entire portfolio of private
equity.
attending Latin Markets forums?
MM: We understand that this is an important
event and we are honored for the invitation.
It is a way to get to know more pension fund
managers and to discuss the future of the
market. It also helps for us to gain broad
knowledge of Brazilian and overseas markets.
Mr. Marcellini will be speaking on the Brazilian
Pension Chief Investment Officer Roundtable at the
5th Annual Private Equity Brazil Forum on Dec. 9-10,
2013.
Investing overseas
will allow us to
diversify, acquire
valuable international
expertise, share and
learn from managers
that invest in other
countries, and access
new opportunities.
INSTITUTIONAL
REAL ESTATE
LATIN AMERICA
FORUM
JUNE 2-3, 2014
New York, NY
REGISTER BY
DEC. 31 TO RECEIVE OUR
EARLY BIRD DISCOUNT
www.latinmarkets.org
17
Past Featured Keynote:
Dean Adler
Lubert Adler
Aberdeen Asset Management. What are
your assets under management?
JL: Aberdeen was established 30 years
ago. Over the years we have grown both
organically and through acquisitions, and
we are now one of the largest independent
European asset management firms. As
a property multi-manager we have been
active since 1996. We are an independent
asset manager and manage $322 billion
across all asset classes, of which 10 percent
is invested in real estate. One percent of our
total AUM is multi-manager, which is my
responsibility.
2. What property types do you
typically invest in?
JL: If your outlook on emerging markets
is not just growth, but urbanization and
the demographics, you tend to focus more
on defensive assets such as retail, logistics,
industrial and residential. Its not that we
exclude office buildings but those defensive
assets generally make more sense to us.
3. How does investing in real estate
work within the overall strategy of your
portfolio?
JL: Real estate is fundamentally a real
asset so its doing the same job as private
equity. Long term they are a diversifier
in your portfolio. Theyre not a perfect
hedge of liabilities in your portfolio, but
they do generate diversification and can offer
performance contribution. They mirror the
long term economic growth of the countries
you invest in. Real estate could have a lower
correlation to bonds than it does to equities.
Whether that spurs or not is another matter. In
an efficient and transparent market, real estate
can offer other types of returns than equities
can.
4. How are your asset classes diversified
outside of real estate?
JL: Most of our portfolio is in global equities,
emerging market equities, and regional
equities. Our second largest asset class is fixed
income, and this is followed by alternatives and
then property.
5. How do you go about selecting fund
managers?
JL: We currently track some 2000 funds in the
real estate space. We have bi-weekly meetings
on a regional basis where we discuss how to
move forward. We pair our initiatives with
our criterion for quality and demand from our
mandates and products.
6. Do you typically invest in first time
funds? What kind of returns do you
expect?
JL: We manage core mandates to opportunistic
mandates so it varies. We do invest in first time
funds, subject to being comfortable with the
capabilities of the fund manager. We focus on
returns that are commensurate with the risk of
the strategy.
7. In which countries are you currently
invested in emerging markets?
JL: We have invested in China, Malaysia, India,
Russia, Poland, Czech Republic, Hungary,
Romania, Moldova and Greece, which is once
again an emerging market officially.
8. That is a fair amount of emerging
markets. How has your EM strategy
evolved over the years?
JL: We do everything from the ground up and
like to build our own view on things. We have
focused on Asia because this region is more
important to our client base. Weve invested
in Europe mainly because its a core market,
transparent, closer to us and we are more
familiar with the area. Some people talk about
emerging Europe and then theres emergency
Europe, so speaking broadly about property, a
distressed play in Europe makes sense. I think
core assets are becoming pricy wherever you
go.
9. Which countries are you researching
in Latin America?
JL: We have yet to make our first investment
in Latin America. We are mainly invested
in emerging markets in Europe and Asia, so
we are in the process of gaining knowledge
about Latin America. Latin America is a very
important part of the global economy. From
a property market perspective, the market is a
growing market.
Jon Lekander
Global Head of Property Multi-Manager
Aberdeen Asset Management
Mr. Lekander joined Aberdeen in 1998. He develops forecasting processes for the European and
Asian real estate markets, and tools for strategic analysis of real estate portfolios.
18
As a starting point, its about urbanization
and economic growth and demographics.
On a more operational level, its about what
we understand about real estate globally
and how we conduct our due diligence and
select managers. From a risk perspective its
Brazil, Mexico, Colombia, Peru and Chile.
Brazil is the largest market obviously and we
are somewhat concerned about the pricing
there. The social stability in Mexico and
Colombia still needs to settle so we can be
more assured before progressing. We dont
have a country specific strategy; rather we
are agnostic in our approach with regards to
country.
10. What has been your experience
investing in real estate in emerging
markets as opposed to developed
markets?
JL: Our experience in emerging markets
has actually proven to be less risky than our
exposure to established markets. Were not
talking about decoupling the economies, but
we do have much less leveraged risk in those
markets, which I think is very appealing.
What were really contending with is the
integrity of the manager because they are
operating in less transparent markets. But
if you identify the right managers its a very
different game.
11. As a potential first time investor
in Latin America, what would you like to
see improved in the coming years that
would attract you to invest?
JL: A lot of the capital from abroad
We have invested in
China, Malaysia, India,
Russia, Poland, Czech
Republic, Hungary,
Romania, Moldova and
Greece, which is once
again an emerging
market officially.
INTERVIEW: JON LEKANDER
has come from the US and this is because
Americans are more familiar with Latin
America due to proximity and history, etc.
From a non U.S. based perspective, the reach
out needs to be done. Political stability is
critical as well as an understanding of how
the political and socio economic environment
works. On a fund manager level, like I said, its
about transparency and understanding where
the returns are coming from.
JL: Real estate is a people business more than
anything, so it is vital to meet with people and
begin to understand what their day to day lives
and jobs consist of.
Mr. Lekander spoke on the panel Multi-Manager
Executive Perspective at the Real Estate Latin
America Forum on June 10-11, 2013 in New York
City.
PERUVIAN
INVESTORS
FORUM
MARCH 18-19, 2014
LIMA, PERU
REGISTER BY JAN. 3 FOR OUR
EARLY BIRD DISCOUNT
19
1. Tell us about Aspiriant and your
experience managing assets for high
net worth families.
BB: We are an independent registered
investment advisor headquartered in Los
Angeles, with six other offices in major US
cities. We represent over 800 high net worth
families. From an alternative investment
perspective, we pool client capital into
various access vehicles, or in-house fund
of funds. This provides clients exposure
across asset classes such as buyout, private
real estate, venture capital, hedge funds, and
direct investments.
2. What is your experience
internationally across geography and
asset classes?
BB: We have dedicated funds for real estate
and private equity. We bundle traditional
buyout funds and venture capital together.
In real estate we have over $200 million
deployed and roughly $150 million across
venture and buyout. We try to build
diversified portfolios across vintage,
geography and sectors for real estate, as
well as for venture and buyout. Most of
our investments are North America-centric,
but that said we do have global exposure.
We have close to 30 percent in real estate
outside the US. About 10 percent is in
Latin America, about 15 percent in Europe,
and the balance in Asia. On the venture
and buyout side its again mainly in North
America but we do have emerging markets
exposure, specifically in Brazil and Asia. We
have indirect exposure in Europe via some
of our generalist fund investments.
3. What is your client makeup across
geography?
BB: All of my investors are qualified
purchasers, so they must have at least $5
million of investable assets. As a firm, we
have a national footprint but most of our
private equity investors are based on the
West Coast. Our Northern California clients
are generally related to the newer tech and
online-related economy, but many have
grown their wealth more traditionally over
the last 15 years. The Southern California
clients tend to be from longer established
family wealth, but we also have clients
everywhere in between. Our investors have a
high level of sophistication in the asset class.
They like to understand the managers and
some of the underlying themes and stories.
4. How did you first begin investing
with private equity in Brazil?
BB: Our initial investments into Brazil were
in real estate partnerships. In 2009 and
2010, we committed to several pan-Latin
America real estate investment managers.
One of our managers also created a sidecar
fund dedicated to Brazil. This made sense
because we liked the demographics, the
manager, the strategy and the real estate
gaps related to supply and demand in
20
INTERVIEW: BRIAN BANK
Our Northern
California clients
are generally
related to the
newer tech and
online-related
economy
Mr. Bank previously served as Director of US Fund of Funds and Co-Investments for PineCrest
Capital Partners. He has over 10 years of experience in the alternative investment industry.
Brian Bank
Director of Private Equity
Aspiriant
INTERVIEW: BRIAN BANK
7. What is the typical size of an
investment for your firm in Latin
America?
BB: I dont like being bigger than three
percent of a fund. Consequently, our
commitments range from $3 million to $12
million. We like to be big enough that the
fund managers answer the phone but not
big enough where we are an anchor.
8. What type of returns do you expect
to see?
BB: For private investment returns to make
sense, there needs to be a risk premium
associated with these firms. Were not going
to make a commitment unless they promise
at least 2x or 2.5x. Emerging markets need
to provide an additional 300 to 500 basis
points premium.
9. What are your thoughts on
perceptions toward emerging markets
shifting in light of account deficit
situations in some countries, and the
Fed eventually raising interest rates?
BB: The term emerging markets is
obviously very broad and much of this
talk has been focused on China, India,
and Brazil specifically. Whatever growth
number we can agree on is still going to be
an impressive growth number compared
to developed markets. Its not going to
maintain double digit numbers as it has in
the past 20 years but anything at five to six
percent is an impressive growth number.
Having visited China in the early 90s and
revisited several times over the past ten
years, theres no mistaking the growth weve
seen there. I havent had the same firsthand
experience in Latin America, but I have
heard similar viewpoints. The historical
and most recent growth rates still merit an
allocation to the asset.
I think the markets are going to mature
and there will be a slowdown to digest all of
the growth weve seen. Weve seen Bovespa
behave the way it has, the capital markets
tightening a little, and IPOs getting priced
and then pulled. The IPO market has been
multi-family housing. Despite some recent
hiccups, Brazil as a whole has been going
in the right direction for the last few years.
Unemployment and inflation are coming
down and the demographic trends have
been receptive to new investments, whether
its the age of the population, or the need for
new services and technologies. We invested
into Brazil at the same time we invested
in the Asian markets, but unlike our Asia
strategy, which was across the region
and industry specific, we took a country
specific approach on the private equity side
investing with one of the better known,
experienced managers in Brazil.
5. Which sectors and dynamics does
this fund focus on in Brazil?
BB: Our fund manager in Brazil is more of
a generalist, relationship-driven investor
with a very experienced team. They dont
necessarily invest in control positions but
invest across a variety of stages. They invest
on both the private or public side, taking
companies through privately negotiated
transactions. We felt confident in their
experience and track record as our initial
foray into the market.
6. What has been your due diligence
process in Latin America?
BB: We tend to invest primarily into funds
themselves, so our diligence has been
focused on the general partners. With
our Brazil and Asia managers it required
on-the-ground visits, face-to-face meetings
with the GPs and talks with management
companies of their earlier portfolio
companies. Its important to understand the
landscape, the backgrounds of the team and
what differentiates them when investing.
Our Brazil manager was a group that had
experience together working on several
funds and a good list of US based investors.
I like to know who the other limited
partners are and their level of sophistication.
Ill call the director of private equity, the
chief investment officer, or the head of real
estate of the other LPs and compare notes to
get a sense of their allocation process.
slightly more robust than last year, but its
still not providing the exit opportunities
wed like to see relative to the amount of
capital thats going in. So in this context,
selecting managers becomes that much
more important. You need to find managers
who have seen the cycles and dont invest
in bad cycles and try to exit in bad cycles.
For our current PE manager in Brazil,
many investments are minority positions
in very strong, stable high market share
companies. Revenues will be impacted by
the general economy but the companies are
not necessarily at risk of failing. Another
point worth noting, is that a lot of deal
structuring in emerging markets, more
so than in developed or domestic private
equity markets, now includes risk mitigated
terms in the deal like put options or control
provisions.
10. Are you looking to make
additional allocations in the coming
years to Latin America?
BB: I continue to be generally bullish on
emerging markets. Demographic trends
scream for additional investment, whether
its real estate, technology, supply chain
related businesses, or food production,
where its impossible for some of these
economies to satisfy demand. There will
be a significant realization that certain
countries have been over-invested and
that the capital markets cant support
the number of companies that have been
funded. I havent done significant diligence
outside of Brazil but Im hearing good
things about Peru, Colombia and Mexico.
On the Asia front, there seems to be another
article every few quarters about the missed
opportunity in India. But do I intend to
continue investing in these markets? Yes.
LPEJ WEEKLY
EDITIONS & MORE
VIEW
INTERVIEWS
ONLINE
21
1. Briefly describe your firm Kehrli &
Zehnder.
DZ: We are a Switzerland-based wealth
advisor that focuses on two businesses:
multi-family office services and global
wealth management. The family office
business is purely advisory while global
wealth management is discretionary. We
focus on asset allocation and then select
appropriate managers to mirror our views.
The firms partners come from banks like
Goldman Sachs, Pictet and Credit Suisse, as
well as some smaller banks in Switzerland.
We serve a global client base across Asia,
Europe, Switzerland and Latin America.
2. Where are you investing across
asset classes and geography?
DZ: We invest globally across all asset
classes, including fixed income, convertible
bonds, equities as well as hedge funds and
private equity. We pursue absolute returns
and capital preservation. We cant say that
we want a certain percentage exposed to a
certain asset class at all times. For capital
appreciation and growth, private equity
is an important component. Its not for
everybody, but for some of our clients who
have an entrepreneurial background, private
equity is an important allocation.
Because Switzerland is a small market,
we have always looked internationally for
investment opportunities. Historically, our
firm has had more exposure to Asia and
Latin America than most firms our size.
Over the past 20 years Ive traveled to Latin
America probably 100 times, so I have a
thorough understanding of the region.
3. How much have you allocated to
private equity specifically?
DZ: Between five and 10 percent is allocated
to private equity. The actual allocation is
client driven. Our family office clients have
more exposure to less liquid investments
than our wealth management clients. It is
also a question of size in absolute terms.
INTERVIEW:
Dominik Zehnder
Partner
Kehrli & Zehnder
Mr. Zehnder co-founded Kehrli & Zehnder in 2003. He previously served at
Goldman Sachs for nine years in the asset management division.
INTERVIEW: DOMINIK ZEHNDER
4. And how much is invested in emerging
markets and Latin America?
DZ: We have about 15 to 20 percent in
growth markets, which I define as Asia, Latin
America, and also Africa for more adventurous
investors. There are times when we like to have
more exposure in one region or another.
5. You mentioned you have twenty years
of experience traveling to the region. What
has been your impression on how the Latin
American markets have changed over the
years?
DZ: When I first went to Latin America it
was as a wealth manager for Goldman Sachs.
This was between 1994 and 2003. Wealth
advisory was mostly about tax efficiency and
yields. Now it is more about global growth
opportunities. When I first began in this
industry, wealth management services were
still largely commission based. Today clients
are asking for all-in fee structures and overall
allocation advice.
On a regional level, it is amazing how certain
countries like Colombia and to a lesser extent
Peru have developed a middle class and a
consumer class. In my view, Colombia offers a
huge opportunity for private equity, given the
need for infrastructure, public transportation
and consumption.
6. What has been your due diligence
process in Latin America?
DZ: While I am in Latin America I split
my time between meeting with clients and
investment managers. Apart from careful
monitoring and crunching the numbers
we place emphasis on a funds institutional
backing, its client roaster as well as local
insights. With age also comes experience.
commitment in Latin America?
DZ: Depending on the opportunity we would
allocate between $2 and $20 million. We are
more cautious with first-time funds, unless
there is a compelling reason.
8. What type of returns do you expect?
DZ: In private equity were shooting for an IRR
of 15 and 35 percent and look for a multiple of
2x depending on liquidity, industry and region.
9. Have your clients had a particular
interest in Colombia?
DZ: Absolutely. When I first proposed
allocating to a Colombia-based real estate
development fund earlier this year, our family
office clients were intrigued immediately.
We probably could have raised double the
amount we did, had the fund not set up
its offshore vehicle through the states. It
is becoming increasingly complicated to
meet the USs formalistic requirements, to
put it gently. We see a growing number of
international families that would rather pass
on an investment opportunity than needing
to meet certain formalistic requirement of
doubtful effectiveness in the fight against
money laundering or tax evasion. If red-tape
gets out of hand it suffocates business. An
extraterritorial application of one countrys tax
laws on citizens of other tax jurisdictions does
little to promote (long-term) investments from
foreigners.
10. How is your approach in Colombia
a part of your overall Latin America
strategy?
DZ: We are looking at opportunities but were
not targeting a specific region. Mexico, Peru
and Colombia are the countries we currently
like best in the region. They have pro-business
governments and have been able to pull their
economies and public life away from the tug
of war of capitalism versus socialism. We
feel Brazil is somewhat late in the cycle. In
Colombia there are only a few experienced
managers working for strong institutions. In
the case of the real estate development fund,
we liked the experience of the management
team, the seed investors and who we were
co-investing with. Knowing who were
co-investing with is an important part of our
due diligence process. In addition to the real
estate development story, weve invested in
a trade financing fund in the southern cone.
The yields are lower but more predictable and
stable. Weve also put some money with locally
run equity and fixed income funds.
11. What has been the educational
process for you as a European investor
going into Latin America?
DZ: International investors tend to overlook
Latin America. The region still suffers from
the stigma of being involved with crime and
drugs in the 80s and 90s. Needless to say this
has changed a lot. Latin America has many
things that Asia and other countries need like
energy, water and its derivatives like food
and feedstock. One problem is that it has
historically had difficulties with infrastructure.
However it has a young, motivated, well
educated population that wants to move the
continent forward. From a portfolio allocation
point of view, in my opinion, allocations to
Latin America could benefit from the fact that
it has become more difficult to invest in the
US.
12. What is your view on the perception
that investors are shying from emerging
markets as a result of account deficits in
some countries, and the Fed eventually
raising interest rates?
DZ: For a private equity investor thats a
short term view. Private equity is a long term
investment and if you believe in the region you
shouldnt be basing your decision too much on
the interest rate being raised or not. You either
believe in an investment theme or you do not.
Mr. Zehnder will be speaking on the panel Local
Investments for International Investors at the
Colombian Investors Forum on Feb. 6, 2014 in
Bogot, Colombia.
Colombia offers a
huge opportunity for
private equity, given the
need for infrastructure,
public transportation
and consumption.
23
24
1. Tell us about HarbourVest Partners.
SV: We are a global private equity asset
management firm. Our assets under
management are approximately $35 billion
and thats spread across three major broad
strategies: fund of funds, a secondary
strategy, private debt and our direct
co-invest strategy.
geography?
SV: We give our clients exposure to global
private equity in the U.S., Europe, Pan-
Asia, and emerging markets outside of Asia
with markets like Latin America and Africa.
We invest in private equity through buyout
strategies, growth equity strategies, venture
capital, and other strategies like mezzanine and
distressed debt.
3. What percentage of your portfolio
is dedicated to emerging markets?
Specifically in Latin America?
SV: 50 percent of our capital is invested in the
U.S. and the other 50 percent is in non-U.S.
In that international bucket outside of Asia
its about 15 percent, and between five and 10
percent of international investments are going
to Latin America.
4. What is your preferred type of PE
investment?
SV: In emerging markets we have a strong
emphasis on control oriented growth buyouts,
as well as growth equity. Most of the venture
exposure we get in the emerging markets is
through US venture funds in Latin America,
Russia and others.
5. Are there specific sectors or countries
you are currently focused on in Latin
America?
SV: We are looking at consumer oriented
opportunities such as consumer product,
consumer finance, financial services,
manufacturing, and distribution. We have
some infrastructure exposure as well that has
generated private equity-like returns.
6. Why do you think a private equity
strategy is important in Latin America?
SV: Latin America is the feature geography
in our emerging markets strategy. It makes
up about 50 percent of what were doing in
emerging markets. The countries were focused
on like Brazil, Mexico, Colombia, Chile, Peru
are much more stable today than they used
to be, and more advanced than many other
emerging markets. Private equity has become
a more accepted part of the capital markets in
Latin America.
7. Why do you think that is? A more
developed institutional infrastructure?
SV: First, its been around for a very long time.
Weve been involved in Latin America since
the early 1990s when it was more of a frontier.
Since then youve seen the service providers
around private equity mature like lawyers,
consultants, and bankers. Theres an ecosystem
that can help better support the private equity
idea. The entrepreneurs or the owners of these
companies are also more familiar with the role
that private equity plays. During a sale where
a founder is selling his company to private
equity, there is less time explaining what
private equity is, and more time to explain
what private equity can do for their firm. Ten
Mr. Voss joined HarbourVest in 1999. He focuses on primary partnership investments in
the US, Asia, emerging markets, as well as global clean tech investments.
Scott Voss
Managing Director
HarbourVest Partners
INTERVIEW: SCOTT VOSS
INTERVIEW: SCOTT VOSS
or twenty years ago the discussion revolved
around describing what private equity is.
The other important component is local
institutional investors like pension funds in
Brazil, Mexico, Colombia, Peru, and Chile.
These countries have been investing in
private equity themselves for about a decade
now, and seeding managers that global
institutional investors would consider as an
emerging manager. Theyve supported those
managers for one or two funds so they have
been able to build track records that they
can now market to institutional investors.
commitment you make to a fund? What
kind of return do you expect to see
specifically in Latin America?
SV: Our average commitment to a fund is
typically $20 million on the low end and $70
million on the top end, so on average its $40
to $50 million. We expect every fund that
we invest in to generate a very competitive
private equity return within our global
investment strategy. Our expectation of a
net return is two times a money multiple
and an IRR that is north of 20 percent and
hopefully closer to 30 percent. Considering
volatility we may not be able to achieve this
every time, but its our expectation that our
emerging markets portfolio will achieve this
over time.
9. Are you planning to make
additional allocations to Latin America
in the future?
SV: We think in cycles so in the next three
to four years we expect to invest $250
million to $400 million in Latin America.
10. What economic themes are you
focused on in Latin America?
SV: The two big ideas were investing in
is this domestic consumption idea, where
you have an emerging middle class and
more people entering the middle class with
disposable income who can spend money
on consumer oriented products and services
such as education, health care and those
kinds of things. The other factor is that global
consumption is largely being led by the growth
in Asia and China. Given that Latin America is
so rich in natural resources, China has become
a big consumer and the number one trade
partner for many of the leading countries in
Latin America.
Our managers are not targeting investments
directly into real assets, but services around
delivering those real assets, commodities and
natural resources to the end user. Theres also
of course infrastructure to consider with ports
and waterways, logistics, and transportation. If
you were to look at our portfolio and strategy
we want to invest in companies that are
building off of those macro themes.
11. What do you find valuable about
attending Latin Markets investor forums?
SV: Latin Markets has historically and
consistently been able to get high profile
institutions at your events that should be
talking to each other. Whether its more local
in New York, or the bigger events in Brazil, I
give you a ton of credit for bringing together
a whos who of institutional investors, general
partners, and service providers, and creating an
environment where business can be done.
Mr. Voss spoke on the panel, Fund of Funds &
Advisor Investments in Latin America, at the Private
Equity Latin America Forum on May 9, 2013 in New
York City.
PRIVATE
EQUITY
LATIN
AMERICA
FORUM
MAY 19-20, 2014
NEW YORK, NY
REGISTER BY
FEB. 28 TO
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25
THOMAS H. LEE
President
Lee Equity Partners
Past Featured Speaker
able to grow at about two percentage
points.I would also like to point out that
attributing our growth to the mining
sector is exaggerated. Im not saying its
not important but the contribution to
GDP growth from the mining sector is 8
percent of GDP. If you take away mining
from our growth over the past 10 years, the
average growth rate remains unchanged.
FDI investment, which last year was $16
billion, has been key in maintaining rapid
growth. From that figure, about $5 billion
was channeled to the oil and mining sector,
so that gives you an idea of the importance
of other sectors like manufacturing and
financial services.
3. What must Colombia continue to do
to grow in the coming years?
LFM: We need to continue with solid
monetary policy and counter-cyclical
policies when necessary. Our price level
stability has been remarkable, current
inflation is a little below our target of two
percent, so price stability has not been
compromised. We were the only Latin
American country that didnt suffer from
high inflation in the 1990s, and this is
a solid foundation for continuing these
remarkable growth rates.
We also have a new framework for
conducting fiscal policy called, The Fiscal
Rule, which aims to specify medium-
term targets for the structural fiscal
balance. The fiscal rule implies a target
for the structural balance for the central
government in the medium term below
one percent and a declining path for debt.
This new framework has led to a rapid
fiscal consolidation, which led last year to
the highest combined public sector surplus
in sixty years (0.3%), compared to a three
percent deficit in 2009. The gains in security
and a solid establishment of the rule of
law must be maintained in the medium
term, which is the plan of the current
administration. The peace talks dont have
any implications for the medium term such
as defense spending, or the current strategy
for fighting the insurgency. So overall, if we
continue on this path of fiscal consolidation,
low debt, and improved security, we will
continue to grow.
4. Give us some background on
Colombias history of investing with
private equity. What are the recent
laws that have been implemented
concerning private equity?
LFM: In terms of the macroeconomic
financial framework we were a country
that was relatively closed to foreign private
equity investments. In the 1990s we saw
the effects of the Russian and Asian crisis,
which led to the first contraction in about
eighty years in the Colombian economy.
That kept us cautious on allowing private
equity investments from abroad. Now
that we have established a good regulatory
environment, the new administration has
quickened the pace for increased private
equity investment. In the last tax reform
which was approved in December 2012,
26
1. What factors do you attribute to
Colombias growing economic success?
LFM: Its a combination of two important
things. First, a very solid macroeconomic
and fiscal framework, which has been a
remarkable characteristic for our economy,
as far back as sixty to seventy years. On
the one hand, the inflation rate has been a
controlled variable for us in modern history.
On the other hand, our fiscal policies
have been very prudent and we havent
had problems honoring our debts, which
distinguishes us from other Latin American
economies.Adding to this equation, we
have had a very important improvement
in security conditions. Starting in 2000 we
put in place the Plan Colombia which was
supported by the U.S. government. We
managed to triple the size of our military
force and increase defense spending as a
percentage of GDP, from two percent to five
percent. Increased security conditions and
solid fiscal and monetary policies have led
to an important increase in investment from
private agents both do.
2. What economic policies other
than increased security have been
implemented?
LFM: Beyond security conditions, we
employed counter-cyclical policies when
necessary. In 2009, when the world
economy suffered from the global economic
downturn, and the world and Latin America
suffered negative growth, Colombia was
Luis Fernando Mejia
General Director
Colombian Ministry of Finance
Mr. Mejia previously researched at the Inter-American Development Bank under the supervision
of Chief Economist Guillermo Calvo. His current responsibilities include coordinating and
implementing macroeconomic and fiscal policy for Colombia.
INTERVIEW: LUIS FERNANDO MEJIA
6. How can you continue to spur FDI
in Colombia?
LFM: We are happy with the current levels
of FDI. Last year we had $16 billion in FDI
while three years ago FDI was just $6.7
billion. We are expecting FDI this year to
be around the same level as last year with
about a third of FDI coming into the oil
and mining sector. We must channel FDI
into other sectors such as agriculture and
manufacturing which are lagging behind
our current growth rate. This will in turn
raise the overall growth rate of the economy.
7. In your view, why has the energy
sector improved over the past few
years?
LFM: On a very basic level we have seen a
very rapid rise in oil and gas prices. We have
elevated investments in these sectors and we
changed how we are conducting contracts
with foreign oil and mining investors.
When you look at the evolution of these
agreements, we had amicable agreements
in the 1990s. Then investors thought we
were peaking in performance and the terms
did not remain as attractive. We created the
ANH, the Colombian agency for mining
and oil. This agency deals with foreign and
domestic contracts in more competitive
terms. These more competitive terms
and the high performance of the mining
industry have increased the attractiveness
for investors.
8. Why is it valuable to attend Latin
Markets forums?
LFM: It is important to get to know the
thoughts of our peers and investors alike.
What are their questions about emerging
markets? At your Private Equity Latin
America Forum in New York, I learned that
Brazil was taking the lions share of private
equity investment. This led me to ask why
this occurs, to examine what Brazil is doing
right to attract private equity, and to speak
with members of the Brazilian investment
community. Some point to scale or the
investing framework, but Brazil hasnt had
the highest growth rates in the past years.
My take on this is that when you enter new
markets you have to pay fixed costs for
acquiring knowledge about the regulatory
environment in a particular economy. In
this sense, investors are more familiar with
Brazil, so its easier to go with the country
you already know. Our goal then is to
facilitate this information for investors and
make these fixed costs lower so they can
enter new markets, like Colombia with its
attractive opportunities.
Mr. Mejia made the Opening Keynote for the
Colombian Macro Update, at the Private Equity
Latin America Forum on May 9, 2013 in New
York City.
we lowered the tax rate for foreign private
portfolio investments from 33 percent to
14 percent. Were now seeing an increase
in portfolio investments this year and we
are coordinating with the Superintendence
of Finance and Bancoldex to attend events
and reach out to individuals to expand
knowledge about investing in private equity
in Colombia.
5. Where do private equity and PPPs
play an important role in the Colombian
economy?
LFM: One of the main objectives of the
current administration is making crucial
infrastructure investments. The main
bottleneck for improving our economy is
the availability of roads and ports. We have
a very ambitious plan for infrastructure
which is about $30 to $35 billion in size,
so we think investment in infrastructure
will certainly be attractive to private equity
investors. We are experimenting with PPPs
and we think they will be successful in
bringing our infrastructure to optimal levels.
The gains in
security and a solid
establishment of the
rule of law must be
maintained in the
medium term
27
to learn and select real assets in Brazil.
Second, we must seek opportunities in
sectors and companies which are not listed
in our stock market.
3. How are these changes related to
Brazils current economic performance?
AN: I think this is a positive movement for
Brazils current economic performance,
considering more available capital to
invest in the real economy, such as the
infrastructure sector. I also believe in the
continuity of reducing the interest rate to
grow Brazilian industry and to create new
consumers in the rising middle class of our
country.
4. Are there specific sectors you are
looking to focus on in Brazil?
AN: In sectors we are not exposed to
in Brazil yet, such as technology and
pharmaceuticals. Our overall focus is in
assets from companies abroad that are
investing, producing and maximizing
returns in developed countries and
emerging markets. In order to diversify and
grow returns we have been working hard to
convince our board and other governance
institutions to make the first step in opening
foreign investments abroad. First we
would like to invest in private equity and
secondary markets.
5. Why do you think Latin Markets
Private Equity meetings are valuable for
investors to attend?
AN: It is an opportunity to exchange
experiences and more than this, the
possibility of creating a learning curve
related to alternative investments from
abroad.
Arlete Nese spoke on the Brazilian Investor
Roundtable at our Private Equity Latin America
Forum on May 9-10, 2013 in New York City.
2. What is your view on Brazils recent
moves to loosen restrictions on pension
funds investing abroad?
AN: In fact, in the past we couldnt invest
abroad. Only in 2009 the legislation
permitted us to invest in a specific foreign
investment segment. Related to this point,
I believe Brazilian pension funds have
two important challenges to take into
account. First, diversify in the real economy.
Brazilian pension funds are concentrated
around 80 percent in treasury bonds,
without considering the three top pension
funds in Brazil. So, there are opportunities
1. Tell us about Banesprev.
AN: Banesprev is a Brazilian pension fund.
The sponsor of Banesprev is Santander,
the Spanish bank that bought the Bank
of So Paulo in 2000. We have under
management $5.4 billion and these assets
are concentrated in fixed income treasury
bonds. 100 percent of this is local. In
the past, we had a higher interest rate.
Considering the changes in the interest rate
and the extent of recent legislation, Brazil
has changed the asset allocation rules for
pension funds in 2009. This established that
we can invest up to 70 percent in equity, 20
percent in structured investments and 10
percent in foreign investments.
28
INTERVIEW: ARLETE NESE
Ms. Nese is responsible for allocating
funds, defining benchmarks, strategies, and
administrative costs. She previously worked
as an Investor Relations Manager for Julio
Simoes Logistics Co., and as a structured
finance Product Manager at Santander.
Arlete Nese
Investment Officer
Banesprev
In order to diversify
and grow returns we
have been working
hard to convince
our board and
other governance
institutions to make
the first step in
opening foreign
investments abroad.

Please call us to discuss the 3i Brazil investment strategy
Marcelo Di Lorenzo, Partner and Head of Brazil, marcelo.dilorenzo@3i.com, +55 11 2050 5665
Jim Rutherfurd, Partner, Fund Investor Relations, jim.rutherfurd@3i.com, +1 212 848 1432

www.3i.com

3i Brazil
local presence,
international reach
We are a leading international investor with $20bn of assets under
management. We focus on private equity, infrastructure and debt
management across the Americas, Europe and Asia.

We bring over 65 years of experience, industry and operating expertise
and an extensive international network of contacts to the mid-market.

Our private equity team in Brazil is based in So Paulo. They are an
experienced team of local investment professionals bringing local
presence, knowledge and understanding to our investments.

We invest in both majority and minority situations, focusing
on providing growth capital
We are looking to invest $30 million to $100 million per company
We focus on four core sectors: business services, consumer,
healthcare and industrials
We have an outstanding relationships network, providing
privileged access to knowledge, expertise and best practices
across geographies and sectors.

management at PREI?
AM: Globally it is $52 billion gross and $36
billion net. In Latin America our assets are
$3.7 billion gross and $2.4 billion net.
strategy within real estate in Latin
America?
AM: In Latin America we are distributed
evenly between industrial, residential and
retail. We have a small exposure to office
and hospitality and limit our acquisitions to
major metropolitan areas, where the major
economic activity occurs. In Mexico, this is
primarily in Mexico City and secondarily
in Monterrey. Similarly, in Brazil we focus
on So Paulo and Rio de Janeiro. In the
office sector, we limit our exposure because
of the risk that those urban centers will
be overbuilt, leading to excess supply and
rising vacancies. Thats what is starting
to happen in Mexico City right now. You
have vacancies up to more than 10 percent.
People are leasing office space and the
economy is doing well, but the data for the
last two quarters has been decelerating.
3. In your view, how have the
presidents economic initiatives
affected growth overall in Mexico?
AM: Thats the bright spot in Mexico.
Its not so much the fundamental
macroeconomic growth, as it is the
potential to improve structurally based
on the reforms. First it was the labor
reform, and it is expected to be followed by
telecommunications, education, energy and
also infrastructure.
4. What factors do you attribute to
the growth of the Mexican real estate
markets in the past years?
AM: The growth on the basis of the
economy for the first half of the year
was outperforming the world. One
important factor was the improvement
in the competitiveness of Mexico. Its not
necessarily that theyre selling more things,
but that theyre more competitive in relative
terms to other manufacturing countries.
Manufacturers have seen that Mexico is
more interesting. Several car factories are
planning to open in Mexico. You have
companies like GM, Honda, Mazda, and
then Audi who will be building their first
North American factory in Mexico. These
are long term investments that bring
more demand and employment and retail
consumption. Mexico is also competitive
due to the available labor pool. It graduates
more engineers than most of the countries
in the world. Talking about competitiveness,
Mexico is cheap because labor is cheap. If
you look at China, it was outpacing other
countries and Mexico because labor costs
were very low.
5. Do you see labor costs rising in
Mexico as they did in China?
AM: It hasnt happened in Mexico. The
interesting thing is if you look at the real
labor costs and you strip out inflation, and
you look at the real rents -- these things
havent changed. Residential prices in
Mexico are growing by two percent per year.
In Brazil, they have grown by 15 percent per
year, although recent 2013 data shows that
prices are now decreasing. In industrial and
retail, if you strip out inflation, real rents
are the same as they were eight to ten years
ago. Will costs increase? In certain sectors,
yes, potentially. Hopefully it wont be as
exponential as in other countries.
6. Why do you think Brazils prices
have risen up to 15 percent and
Mexicos are only increasing by 2
percent?
AM: In Brazil, prices went up because
much of their economy has been based off
of selling raw materials and commodities
to countries like China and the U.S. This
drew capital to Brazil and people became
wealthier and started buying, and this
translated directly into prices. In Mexico,
its been much more moderate. Housing
will continue to be affordable. If you look
at housing prices compared to income, its
much more affordable than it is in Brazil
right now.
7. In your opinion, what have been
the effects of introducing REITs into the
Mexican real estate market?
AM: The law was created in 2004 and then
nothing happened until 2011. The first
REIT was created in 2011 with Fibra Uno
and it took a year and a half to create a
second one, which was the hotel REIT, Fibra
Inn. And then there was Macquarie, Fibra
Hotel and Terrafina. So the real growth has
been over the past six months, not because
of the number of REITs, but because of
the amount of capital flowing into them.
Fibra Uno raised billions of dollars. The
speed at which capital is flowing into these
REITs is a little concerning. Anytime you
Mr. Munk develops and implements
PREI Latin Americas strategy.
He oversees operations including
property acquisitons, asset
management, property sales, portfolio
accounting and research.
Alfonso Munk
Managing Director &
Head of PREI Latin
America
Prudential Real Estate
Investors
30
INTERVIEW: ALFONSO MUNK
INTERVIEW: SUZANNE ETCHEVERRY
get a sector that grows at exponential rates,
like in Brazil, its a little concerning. Too
much capital is coming in and investors are
looking for income producing assets and
theres not many out there, and this may
drive prices unrealistically high potentially
because everybody is chasing the same
assets. If this trend occurred more over a
longer period of time, it would be more
attractive. I think some international
investors are aware of this trend and have
expressed their concern. Nevertheless, I
believe we are likely to see the number of
Fibras increase to twelve or thirteen in the
medium term.
8. With all of this capital flowing
in, where do you see opportunities
evolving to outside of the major cities?
AM: Its interesting to see where the
country is expanding and to consider the
asset classes you can deploy and develop.
Right now, its primarily residential, retail
and industrial. In industrial, you can build
in Mexico City, Monterrey, Guadalajara,
Juarez and along the border. Terrafina,
the Fibra externally advised by PREI,
owns 146 assets and is in the process of
buying another 87, so it will have over 230
industrial assets, and those are all over the
country. In retail you can put shopping
centers in the smaller cities throughout the
country as well.
AM: Whats interesting is that I can listen
to the opinions of other investors I dont
talk to everyday about where they see
opportunities. I also like to go to the panels
that are outside of the areas we are focused
on such as hotels, or the Andean region.
Alfonso Munk spoke on the panel, Mexico: The
New Growth Story at our Real Estate Latin
America Forum on June 10, 2013 in New York
City.
support US investors in emerging markets
in over 150 countries through three
different product lines: project finance,
which is divided into structured finance
and direct loans to small and medium
enterprises; political risk insurance;
and my group, investment funds. The
Investment Funds group provides debt
capital to private equity funds that invest
in emerging markets countries. In fact, we
are one of the largest sponsors of private
equity funds in emerging markets and
significantly contribute to the development
of the emerging markets private equity
industry. The funds we support make direct
equity and equity-related investments
in companies across various sectors and
stages through emerging markets. Our
support is primarily contingent upon US
equity involvement either at the GP level
(majority-owned by US investors) or at the
LP level (25 percent of OPIC commitment
Ms. Etcheverry joined OPIC in 2001,
and now manages the Investment Funds
Group. Prior to OPIC, she served as
International Trade Policy Analyst at the
U.S. Chamber of Commerce.
Suzanne Etcheverry
Director of Funds Portfolio
Management
Overseas Private
Investment Corporation
1. Please give us some background on
OPIC.
SE: OPIC is the US governments
development finance institution. Our
mandate is to mobilize private sector
investment in emerging markets. We
31
from accredited US institutional investors).
As a development agency, we support
funds that have a positive economic
developmental impact in the countries
where they invest. We are also a self-
sustaining agency, meaning we operate
at no net cost to the US tax payer, and
generate sufficient income to achieve self
sustainability.
2. How does OPIC balance achieving
a certain return and making a
developmental impact within a country?
SE: Every country is different and some
countries are higher risk than others. Were
there to help US companies and investors
who have already identified projects and
raised equity for investing directly into
projects, or have raised capital from private
institutional investors for private equity
investment in emerging market countries.
We are an important piece of the puzzle
when it comes to emerging markets
investments. We help fill the gap where
there is no debt or political risk insurance
available to support US investors in these
emerging markets, and we help private
equity funds to attract sufficient private
institutional capital. Some projects will have
a higher developmental impact than others
and some will have a higher return. We
evaluate every project on its merits.
3. What is your firms experience
SE: On the investment funds side we have a
total current exposure of about $2.3 billion.
Of that we have seven housing funds,
and five of those are in Latin America.
Overall, we are currently providing about
$330 million of support to housing funds
in Latin America, primarily in Mexico
and Brazil. In addition, we are supporting
housing funds in South Africa, and West
Africa (Nigeria and Ghana). Because we
are a developmental agency, our hope is
to support investments that include some
low-income or affordable housing. We
are currently supporting a fund in South
Africa that invests in workforce housing and
several real estate funds in Latin America
that have a low and medium-income
housing component.
INTERVIEW: SUZANNE ETCHEVERRY
4. Which sectors will OPIC be focusing
on in the coming years in Latin America?
SE: Renewable energy continues to be
a focus of ours at OPIC as we follow
the foreign policy priorities of the US
government. Most recently, we launched
a housing call in 2006, and a global
engagement call and an impact investing
call, both in 2011. By the end of this year,
it is likely we will launch another global
engagement call.
5. What is the proposal process for
your group, Investment Funds?
SE: There are two different ways to
come to OPIC. If you come for a direct
loan, financing or insurance, it involves
submitting a proposal and a business plan,
and then the project manager evaluates the
project. On the investment funds side, it is
a competitive process. We issue a call for
proposals from fund managers to apply to
OPIC funding. Fund managers will send a
proposal to OPIC requesting a certain level
of funding. We receive hundreds of these
proposals and then evaluate these proposals
against each other. We hire a gatekeeper
for the selection process, and bring in fund
managers for interviews. We select fund
managers based on track record, experience,
credibility, and ability to raise private equity.
6. In your opinion, why has Latin
America become an attractive
destination for investors?
SE: I think the demographics are very
compelling. Theres a very young population
and growing middle class. Theres a real
pent up demand in the housing sector.
There is political stability for the most part
in countries such as Brazil, Mexico and
Colombia. US and Colombia ties are very
strong with the trade agreement. Latin
America is very well integrated in terms of
foreign trade. From our perspective wed
also like to expand more in Colombia and
Peru. To the extent that US investors are
interested in investing there, we would like
to support them.
32
7. Have you found value in attending
Latin Markets events?
SE: This event is very tight and focused. The
caliber of people is really high and everyone is
very current on what is going on in the region.
Its a very targeted discussion with sophisticated
people.
Suzanne Etcheverry spoke on the panel, Global
Institutional Investors at the Real Estate Latin
America Forum on June 10 in New York City.
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The good news is that I believe the interest
rate in Brazil still has space to fall. Maybe
not now since the inflation continues to be
a problem, but in the near future. By the
end of this process investments in the local
market will be less competitive and going
overseas will be an excellent opportunity to
diversify portfolios.
6. Where are you looking to allocate
in the next two to three years?
RH: Locally we will continue with the
increase of our PE, hedge fund and real
estate allocations. Internationally, when we
start going overseas, I believe we will be
looking into alternative investments such as
hedge funds (mainly long only funds) and
private equity funds. I dont see us investing
in sophisticated funds such as currency that
represent investment strategies that we are
not used to. We will probably start in public
equity funds and then we will look at private
equity. It is also important to point out that
we look for non-correlated investments with
a relation to the stock markets. Our idea is
that if you are going to invest in a segment
which is well represented on the stock
markets, you might as well just go to the
stock market.
valuable attending Latin Markets
forums?
RH: We love to go to these events. Weve
been to at least five LM events in the last
two to three years. We understand that we
must look at international opportunities
as much as possible. It is vital to network,
understand the various strategies, and talk
to people with a different mindset. Pension
funds in Brazil have a very similar way of
investing, so its important to have a good
idea of different strategies. If I decide to
invest internationally, I cant just go to
Google and type who are the GPs in the
US? It doesnt work that way. We must do
our homework before we start investing
overseas and build our own database of
these industry players, so we know who is
the best option for each type of investment.
Roberto Hesketh spoke on the Brazilian Investor
Roundtable at the Private Equity Latin America
Forum on May 9-10, 2013 in New York City.
4. What are the current restrictions
pension funds in Brazil must follow?
RH: The Brazilian legislation for pension
funds, even allowing us to invest overseas,
has some issues that make it difficult for
a fund to actually invest in internationals
markets. The main point is the need to
invest in Funds (not direct investments)
and though a local vehicle. We must invest
in a Brazilian fund, or through a feeder
fund. Because of that, the international GPs
who want to reach these investors must
consider opening a Brazilian structure or
find a good branded partner to represent
them in the country. The second issue is
the fact that Brazilian pension funds can
only invest up to 25 percent of a fund. If
the GPs are preparing a product that targets
pension funds, they will have to find at least
four different investors that are willing to
invest together. This requires four of them
to have the same mindset and expectations.
The solution for this would be for the GPs
to have constant contact with the pension
funds and understand their needs for them
to prepare a customized product. A third
point that is not exactly a big issue but must
be held into account: we have a limitation of
10 percent of our portfolios to go overseas.
The good news is I strongly believe the
legislation will soon be revised. Since a
lot of things changed in the investment
landscape over the last four years, I believe
the legislators will have to address those
issues in a way to make it easier for the
international investments to happen.
5. In your view, why is it important
for Brazilian pension funds to invest
overseas?
RH: The investment landscape for pension
funds in the recent past was completely
dependent on the fixed income products,
such as Federal bonds. You must keep
in mind that those bonds would yield
approximately eight percent over the
inflation a couple of years ago, so there
was no need to take higher risk in order
to achieve the actuarial target of these
investors. Even today, after the decrease of
the interest rate in Brazil, Federal Bonds
still pay between four and five percent
(plus inflation), maintaining this as a good
investment option in Brazil.
Mr. Hesketh joined the pension in 2009. He
served previously as part of the corporate finance
teams at Deloitte, Itau Unibanco, Globalbank,
KPMG and Multicapital do Brasil.
Roberto Hesketh
Private Equity Manager
Fundaao Real
Grandeza
1. Tell us about Real Grandeza.
RH: Real Grandeza is the ninth largest
pension fund in Brazil. Our AUM is $6
billion. We own the pension for Eletrobras
Furnas, a state-owned company in the
electrical power industry. As most of the
pension funds we have been investing, until
five years ago, mainly in public equities
and public bonds. And up to the decrease
of interest rates in Brazil when the public
bonds became unattractive, we started
investing in a lot of asset classes such as
private equity, real estate funds, and hedge
funds.
strategy across asset classes? What type
of funds have you invested in?
RH: We have 72 percent in fixed income,
20 percent in equities, two percent in
private equity (we have four to five percent
as committed capital, and two already
invested), three percent in real estate, and
three percent in loans. From 2005 to 2011
we had only one investment in private
equity that represents an investment of
$40 million. Between 2011 and 2013 we
increased this allocation to $200 million and
we still have space for an additional $200
million that will be invested considering the
new vintages. The first investment between
2005 and 2011 was a sector-based fund in
electricity. In the last two years we laid four
new investments. One is a fund in logistics
and another is in the oil and gas industry.
We invested in an IT fund as well. We
recently approved two other funds: one is a
more a regional fund focused in the south of
Brazil and the other is another IT fund.
INTERVIEW: ROBERTO HESKETH
33
1. Give us some background on ACON
Investments. What are your assets
under management?
BA: ACON Investments is a Washington
D.C.-based middle market private equity
firm. This is our 17th year in business. I
am one of the three co-founders of the
company, and my two other co-founders
and I are still overseeing the firm. We
manage about $2.5 billion and invest both
in the US and in Latin America through
separate funds and separate teams. We have
offices in So Paulo and Mexico City and
were opening an office in Bogota in the
next few months. We also have an office in
Los Angeles for our US program.
2. What is your experience in Latin
America?
BA: We were one of the earliest private
equity groups to invest successfully in Latin
America. We started investing in Colombia
in 1997. In terms of returns in the region
over the last 13 years weve delivered 2.3
times our investors money with a 47
percent net IRR. All told, we have invested
in 25 different companies in nine countries
in Latin America.
3. What is your middle market private
equity strategy in Latin America?
BA: Weve always invested as a pan-Latin
American fund so we can invest anywhere
in the region and target those countries
where currencies are valued properly and
seller price expectations are reasonable.
We think the dynamics in the region
have created opportunities in a variety
of areas. The rise of the middle class and
the stabilization of fiscal accounts have
created a real rise in per capita income and
significant new consumer demand, so were
looking at consumer and retail businesses,
education, housing, and health care. A
significant segment of this rising middle
class is unbanked and has no access to
formal credit. So weve invested in financial
servicesboth non-bank lending and asset
management. Were looking at businesses
that provide services to infrastructure
such as logistics, equipment leasing, waste
management, power and energy services.
First, we want to be satisfied that the macro-
economic and political environments are
favorable. When it comes to sectors were
both top down and bottom up investors. As
I mentioned, we have identified industries
that we think will benefit from the growth
dynamics in the region and we are often
pro-active in approaching such companies
even if they are not engaged in a formal
capital raise process. At the end of the day
were looking for a management team we
can back that wants to invest alongside us
in a growth plan and strategy. One thing
we do different than other private equity
firms in Latin America is to invest in what
we call quasi-equity debt with warrants
to take advantage of where senior debt is
not always available to middle market large
cap companies and there is little history of
local cash flow based lending. This quasi-
equity allows us to invest without requiring
a family group to open up the ownership
structure. This also solves the issue of exits
because its a self-liquidating instrument.
34
INTERVIEW: BERNARD ARONSON
Prior to founding ACON, Mr. Aronson was an International Advisor to Goldman Sachs for Latin
America. He also served as Assistant Secretary of State for Inter-American Affairs under President
George H.W. Bush and President Bill Clinton.
Bernard Aronson
Founder & Managing Partner
ACON Investments
INTERVIEW: BERNARD ARONSON
35
6. What are your thoughts on the
current state of private equity in Brazil?
BA: The Real got overheated and we
thought it was overvalued so we stepped
back for a while. Now the Real has come
down in recent months so we think there
are buying opportunities though we are
keeping our eye on inflation. Brazil is the
prime example of the rising middle class
in Latin America and that creates new
consumer demand in many sectors that
present investment opportunities.
7. What traits do you look for in a
good management team?
BA: We say we invest behind a management
team. We dont buy a business and then
go look for a management team. Its the
managements business plan that were
underwriting and theyre largely going to
be compensated in equity, so our interests
are aligned. Obviously, we are looking for
management teams whose honesty and
integrity is unquestioned with proven track
records, which are willing to bet on the
upside through compensation packages that
are heavily equity oriented.
Latin Markets forums?
BA: Ive been to a number of events and Ive
always been impressed with the speakers
and participants. We have established some
great new relationships at your events.
Mr. Aronson will be interviewing General David
Petraeus, Former Director of the CIA, and now
Chairman at KKR Global Institute, in the Keynote
Interview: A Conversation with General David
Petraeus, at the 5th Annual Private Equity Brazil
Forum on Dec. 9-10, 2013.
4. Can you comment on ACONs
acquisition of Colombian oil and gas
company Vetra Energa as well as other
recent deals in Latin America that speak
to your overall portfolio strategy?
BA: ACON Investments closed its last
investment in ACON Latin America
Opportunities III through the acquisition
of Vetra, the largest private independent
oil and gas producer in Colombia, with
7,500 bpd of production and almost 30
million bbls of 2P reserves. Following our
deep value approach to investing in Latin
America, ACON was able to conclude the
transaction with a purchase price nearly 40
percent lower than comparables.
We had a highly successful investment
we made in Brazil in 2004. We bought
the largest supermarket retailer in Sergipe
province in Brazil called GBarbosa. This
was a region in Brazil we thought was
underpenetrated. The government was
investing a lot of subsidies into lower
income families and we were able to buy
the company at a deep value -- about 2.6
EBITDA, because the owner, Royal Dutch
Ahold, got into some accounting problems
elsewhere and had to sell their emerging
markets and Latin American chains. We
backed the existing management team there
and brought the CEO from the Colombian
supermarket chain we built, Carulla Vivero,
to help us evaluate the opportunity. We
grew stores from 32 to 49 and EBITDA
from $18 million to $58 million in four
years. We also expanded the chains credit
card business and sold half of it to Bradesco.
We exited at 13 times invested capital
and won Latin American Deal of the Year
Award from Buyouts Magazine.
5. How do you benchmark returns in
Latin America and what do you expect
on a first time investment?
BA: Were underwriting equity returns
of 25 percent IRR and up. If you look
historically at the Cambridge or MSGI Latin
American index, weve outperformed these
significantly in the top quartile or better in
the funds we have managed.
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JM: About seven or eight years ago, we were
looking to further diversify our portfolio
and add assets that werent correlated to our
existing investments. We also wanted assets
that could add a hedge against inflation and
protect our clients purchasing power. This
made us look into commodities and real
assets, which then led to the creation of the
group that I run: Natural Resources and
Infrastructure, in 2007.
TIAA-CREF was already investing in some
of these asset classes in different ways,
but we wanted to increase our focus on
these asset classes. Our group manages
investments in agriculture, timber,
energy and infrastructure. A global theme
guides our investments and we like the
fundamentals with regard to demographics
and geography. On the demand side, the
global population is accelerating around a
growing middle class, yet on the supply side
you have a finite amount of resources. The
function of the demand-supply is inelastic
on both sides. On the demand side were
investing in things that provide essential
needs for society. On the supply side it
takes time to move that curve, whether its
increasing food production, energy, etc. As
the demand increases, supply has a tough
time catching up.
We are trying to anchor our portfolio
around core investments. For example, we
are looking to invest in the key factor of
producing food: farmland. Were also trying
to remove volatility in the short term. What
I mean by that is were buying a farm and
leasing it back to a farmer, and this allows
36
1. Give us some background on
TIAA-CREF. What are your assets under
management?
JM: TIAA-CREF was founded in 1918
to manage retirement assets on behalf
of educators and others in the US non-
profit sector. Today we are a leading asset
management and leading financial services
firm with $520 billion in assets under
management.
We have 3.9 million individual clients
including teachers, doctors, and others in
the nonprofit sector.
diversified?
JM: When I consider all asset classes within
Natural Resources & Infrastructure, its
approximately a $10 billion portfolio, and
that is spread across the sectors I mentioned
earlier. $2 billion of that is invested in Latin
America. The overwhelming majority of
that is in Brazil. Brazil is where we felt the
most comfortable learning about Latin
America. As we go forward I would like
to gain broader exposure to the region.
Today we have exposure to places like Chile,
Guatemala, and Uruguay. Moving forward
we would like to gain exposure to Colombia,
Panama, and Peru in a prudent manner.
3. How would you describe the
mission of your department, Natural
Resources and Infrastructure?
us to gain access to a global theme into the
future, while at the same time avoiding
the season-to season volatility inherent in
farming, and to partner with expert farmers
and farm managers. We do that with timber
by deciding when to harvest a tree. If prices
are low you can leave it on the stump until
prices climb. With energy, we buy the assets
that are in the ground with proven reserves.
Were making long term investments on
break even economics. In infrastructure,
were typically looking at brownfield
investments and long term contracts linked
to inflation and tied to a creditworthy
off-taker. Its about going to these key
mature exporting regions with robust and
transparent legal frameworks. We view
these investments as mature, or Class A.
4. Why do you believe it is important
to be invested in agriculture as a core
asset?
JM: Investing in agriculture is important
because we have this challenge of feeding
the world. Today we are at historically low
We need to increase
production to feed
the world and Latin
America is a key
component to that and
will be in the future
even more so.
Jose Minaya
Managing Director & Head of Natural Resources and Infrastructure
TIAA-CREF
Mr. Minaya builds and manages the agriculture, timber, energy, and infrastructure investment
origination programs. He previously worked at AIG Global Investment Group in emerging
markets equity transactions and the investment banking group at Merrill Lynch in M&A and PE
transactions.
INTERVIEW: JOSE MINAYA
$500 million asset is key. We started by
creating joint ventures with established
market players in the region. We acquired
majority stakes in companies called the
Westchester Group in the Agriculture space
and Greenwood Resources in timber. We
formed a JV with Cosan, one of the largest
sugar and ethanol producers in the world.
We created these companies because we
believe you have to be there on the ground
and partner with local people. In agriculture
we have over 150 individuals on the ground
centrally located, helping to deploy our
strategy. That platform allows us to create
scale and bring in other institutions that are
like-minded to collaborate and help leverage
the costs and scale on the ground.
7. What kind of approach do you take
to relationships with your tenants?
JM: For the majority of our assets we are
not the farmers. We are the stewards of the
land. We very much care about the integrity
of the land because we hold a very long
term view. Our goal is to achieve a fixed-
income like cash flow through the life of
holding that asset, but to also benefit from
the capital appreciation of the asset over
a twenty or thirty year period. In order to
benefit from that, the sustainability of that
land is critical. We work in conjunction
with our tenants and farmers. The food that
was being sold before we came around is
still going to the same production facilities
and the same logistics and local community
operations. Were the landlords trying to
improve the productivity around that asset
and in turn, improve the valuation of the
asset.
8. Do you plan on making additional
asset allocations to Latin America in the
coming years?
JM: We currently have $2 billion of
exposure in Latin America, within our
Natural Resources & Infrastructure
platform, and we think Latin America is a
critical component to our diversification.
As we grow our program I hope that we will
continue to grow our exposure globally as
part of our diversification process.
JM: Its clearly the education. I deal in
a private asset class and theres a lot less
transparency in my markets compared
to the public markets. You might look
at real estate, a very mature, transparent
market, and then look to agriculture or
infrastructure and energy, where the
transparency is a lot lower. So going to this
kind of conference and meeting the people
who are making transactions in the area
where we are in the early stages of the J-
curve makes the utility value extremely high.
Jose Minaya was featured in an interview session
entitled, Natural Resources & Agribusiness at the
Real Estate Latin America Forum on June 11, 2013
in New York City.
inventories something like four to six
weeks of food storage. We need to increase
production to feed the world and Latin
America is a key component to that and
will be in the future even more so. Latin
America is one of the few areas where
you can actually increase the amount
of production in a sustainable way, and
investing capital in technology and best
practices can help to accomplish that. The
infrastructure in Latin America is lagging
as compared to the U.S., but as you bring
infrastructure into these regions, production
will also increase. From an investment
perspective, we have this very basic thesis,
which is that you have an inelastic demand
and a very inelastic supply.
5. How do you go about investing in
markets that are truly in the process
of emerging? What is the educational
process?
JM: We look at it as theres no bad
investment thesis out there its more of a
question of what type of exposure you want.
Latin America is a very important region.
When I think of the key exporters of natural
resources such as agriculture and timber, I
think of Latin America as a key contributor
to meeting global supply. From the risk
perspective, were trying to play from the
low end of the risk spectrum and to get an
education on these markets.
We typically want to buy farmland and lease
it back to a tenant. Brazil for example, is
very developed in this regard, with leases
that follow an index and/or commodity
prices. This provides us with a lot of
transparency. We typically focus on the
more mature markets and regions. The
dynamics of the tenant market are not
as developed in other emerging markets.
Typically, we become educated and
experienced in a market, before we look to
invest there. It just may take us more time.
6. What is your preferred investment
strategy and control in an asset?
JM: We invest directly. Its a very local
business but at the same time, scale is
very important. Our ability to bid on a
37
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Tom Heneghan
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9
1. Briefly describe how Terranum

Capital was formed.
GS: Terranum Capital is a Latin America
real estate private equity firm with
offices in New York, Lima and Bogota.
The firm was founded as a partnership
between Terranum, one of the largest and
most diversified real estate platforms in
Colombia, and Daniel Grunberg and I.
Daniel and I worked together at Och-Ziff
Capital Management, where I ran the Latin
America, Eastern European and emerging
markets business for nearly four years. Prior
to that, I was responsible for the Special
Situations business at The Rohatyn Group.
2. What is the theme of your first
fund?
GS: In our first fund, which closed at US
$235 million, we were focusing on the
affordable and middle income housing
segments in Colombia, Peru and Mexico.
Our investment thesis is based on the
imbalance between the supply and demand
of homes in these segments and countries.
Local governments are incentivizing the
demand for affordable housing, but the
actual supply of homes is very limited and
local developers are struggling to find capital
to execute projects. We believe Terranum
Capital can capitalize on this opportunity by
providing liquidity to developers in order to
narrow this housing deficit.
3. How much have you committed to
the fund thus far?
GS: To date, our fund has already
committed approximately $65 million in
affordable and middle income projects in
Colombia, Mexico and Peru. We raised $235
million with a very strong endorsement
from Latin American pension funds and
private groups. We also have US and
European institutional investors. We will
finish investing this fund and hopefully raise
another one, and then in the future maybe
even have different investment strategies.
on your investments?
GS: We are currently in the early stages of
our investment period, and we are expecting
net returns of 15 to 20 percent with money
multiples to 1.5x to 1.8x in projects with
duration periods of two to four years.
5. What is your take on the current
state of the Brazilian real estate market?
GS: Brazil has a large number of established
funds pursuing the real estate market. In
private equity in Latin America there are
about 400 funds, of which maybe 75 are in
the real estate sector and the majority of
these are in Brazil. This excess of liquidity
can be unattractive for other funds like
ours to come in and invest. Furthermore
the economy turned and this has made the
real estate strategy in Brazil a little more
challenging.
6. What current economic dynamics
are driving your investment strategy
in real estate in Colombia, Peru, and
Mexico?
GS: These countries have experienced
annual GDP growth of four to six percent
during the last five years. As these
economies grow and peoples purchasing
power increases, they want to purchase a
home. In most major cities like Bogota and
Lima however, current housing inventory is
low and buyers need to wait a year or more
to buy a home.
Coming from the US you may think, well
I can go to Florida and buy a house, but
in these cities its a big challenge. In the
affordable and middle income housing
segment, the banks and government are
ready to provide mortgages but theres
simply no supply of houses. In addition,
the local developers problem isnt that they
dont have buyers for their homes -- they
just dont have the capital to develop these
homes that people are ready to buy.
7. Right now, why do you believe an
emerging markets real estate strategy is
important?
GS: Emerging markets are following the
path of what happened in the developed
world decades ago. Fifty years ago in the US
there was a shortage of homes, so developers
began to build houses in order to close this
gap and satisfy rising demand. As emerging
markets continue to develop, these
tendencies start to replicate themselves. You
see consumers wanting to buy a house, a
car and educate themselves but the market
supply for these needs are short of the
demand. This is what were seeing in these
countries and why we think our strategy is
important.
Prior to forming Terranum, Mr. Schneider was Managing
Director and Head of Emerging Markets at Och-Ziff Capital
Management.
Gregorio Schneider
Founder and Managing Partner
Terranum Capital
INTERVIEW: GREGORIO SCHNEIDER
39
40
INVESTOR CONFERENCE CALL: KARIM GHANNAM / RAPHAEL ZAGURY
your roles at Deutsche Asset & Wealth
Management.
RZ: I joined the firm two months ago. Im
from Brazil but for the last seven years Ive
been working in the US with ultra-high
net worth individuals. Ive joined Deutsche
Asset & Wealth Managements new Key
Client Partners (KCP) team. KCP provides
selected sophisticated UHNW clients
with Capital Markets solutions, covering
a broad spectrum of DeAWM, CB&S and
selected third party investment products
and opportunities; I lead the coverage of our
Latin American clients.
KG: Our private equity division sits within
our alternative funds solutions group,
which looks after all of our alternatives
business with the exception of real
estate, infrastructure, and commodities.
Since moving to Asia in April, Ive been
responsible for all of our Alternatives &
Funds Solutions business across the Asia-
Pacific region, overseeing the banks hedge
fund, private equity/private markets and
retirement/hybrids groups in the region.I
am a member of the DeAWM Alternatives
and Fund Solutions Executive Committee
and the DeAWM Asia Pacific Executive
Committee. Prior to my current role, I was
Global Co-Head of DB Private Equity &
Private Markets.
2. What is your experience and
portfolio allocation to private equity
internationally and in Latin America?
KG: Our Private Equity and Private
Markets Group comprises Deutsche Banks
$11 billion AUM primary, secondary
and co-investment platform business.
Currently, the majority of the business is
within the primary (fund of funds of private
equity, fund of funds of infrastructure and
segregated managed accounts) and our
leading private equity secondary businesses.
We also have a private equity co-investment
business. Currently, approximately 90
percent of our fund commitments are in
North America and Western Europe. Most
of our emerging markets commitments are
in Asia.
Historically, we enter through the primary
business because that gives us a foothold in
the markets and we get to know the market
players. We then follow with our secondary
and co-investment businesses. Our direct
investments are purely a co-investment
business. We are a GP in a lot of funds, so
we do not want to be competing where we
are an LP.
While we have been closely following
the regional private equity market in
Latin America since the mid-2000s, our
current exposures to Latin America are
concentrated with some of the global GPs.
We are currently looking at a number
of Latin American GPs for potential
commitments in 2014, including sector-
focused, country-specific and regional GPs.
RZ: One thing that weve been successful
with in the US, which wed like to apply
to Latin America, is to connect our
private clients better with private equity
investments.
3. What geographies are your clients
typically investing from? What has been
your experience with advising your
clients on making first time investments
in the region?
RZ: Most of our clients are in large family
offices in Latin America. In the region you
tend to have a higher concentration of
family offices as opposed to outside. One of
the interesting things weve seen in the US is
that there was an explosion of family offices,
and then it shrank because they thought
if they can leverage their relationships
with banks they can invest directly. Its a
very competitive market in Latin America.
Particularly in private equity, this is an area
where we can differentiate ourselves from
our competitors.
4. What sectors and geography are
you focused on in Latin America?
KG: From a geographical perspective, we are
focused on regional GPs, but also consider
country specific GPs if they can demonstrate
sufficient institutional quality. In terms
of sectors, we like infrastructure, energy,
health care and/or the broader consumer
sectors, depending on the individual sub
region. However, our current focus is to
back the right GPs: those that have the
Raphael Zagury
Managing Director
Mr. Zagury is Head of Deutsche Banks Asset & Wealth Management
Key Client Partners and Wealth Investment Advisory Group in Latin
America.
Karim Ghannam
Managing Director
Mr. Ghannam is responsible for all Alternatives & Funds Solutions
business across the Asia-Pacific region. He previously served as Head of
Global Private Markets.
Yoshi Kiguchi
Okayama Metal & Machinery Pension Fund
Mr. Kiguchi manages $500 million in AUM for the Okayama pension
fund in Japan. He has 20 years of experience in investment and risk
management.
INTERVIEW: YOSHI KIGUCHI
flexibility to invest across different sectors
or countries throughout the region and
respond to changing market dynamics in an
increasingly volatile macro-environment.
5. How have you conducted your due
diligence process in the region?
KG: We look at the management teams
longevity, investment strategy, deal-flow, the
quality of its current investment portfolio
and the attractiveness of its risk-adjusted
realized returns. In terms of our approach
to Latin American investing, we are using
a similar approach to the one we used in
expanding our business to Asia we have
a set of well defined and robust global
investment processes that we employ in
Latin America. In addition, we are actively
using Deutsche Banks full network across
the region to help assess some of the
opportunities.
6. What is your typical commitment
range and what type of returns do you
expect?
KG: While we have not committed to a
Latin America focused fund yet, we are
looking to make potential commitments in
2014. Our average commitment to a fund
(regardless of location) is typically $10
million on the low end, $25 million on the
top end for mid-market focused funds and
$75 million to $150 million for the large cap
funds. We expect every fund that we invest
in to generate top quartile private equity
returns.
KG: Latin Markets events have been a great
source for us to meet both Latin American
focused GPs and institutional investors in a
very efficient manner. In general, it is a very
good networking event given that you are
very good at getting like minded investors to
come together.
and prosperity in China in five to ten years,
I believe the US will lead again and this
makes Mexico all the more important.
4. Are there sectors you are currently
focused on?
YK: We are interested in equity in growing
corporations, manufacturing and consumer
goods.
GPs?
YK: We can only hire investment managers
that are registered in Japan. The manager
has to have some kind of partnership or
marketing alliances with Japanese asset
managers.
6. Which panel did you find most
informative at the Private Equity Latin
America Forum in New York?
YK: The Colombia Spotlight and Mexico
Investor Roundtable.
7. Why do you think it is important
for investors to attend Latin Markets
forums?
YK: For investors very far from Latin
America these conferences are useful to get
a lot of different information in one place.
We dont have many conferences like this in
Japan or China!
Mr. Kiguchi spoke on the panel Real Assets
in Latin America at the Private Equity Latin
America Forum on May 9-10, 2013.
management at Okayama?
YK: Our assets right now for Okayama
are $500 million, while the Kyoto fund is
at $550 million, so the total is just over $1
billion.
diversified?
YK: We take a more diversified approach
than other pensions with 20 percent in
global equities, 20 percent in fixed income
products, 20 percent in hedge funds, 20
percent in private equity, and another 20
percent in other assets such as loans and
natural resources.
3. Do you currently have funds
invested in Latin America?
YK: In Latin America we are still
researching. We have already invested in
Southeast Asia, India and China. But we
are excited about making investments in
Latin America. There are few Japanese
investors investing in Latin America because
many are focused on Asia. These countries
represent areas they are familiar with, so
looking to Latin America will be important
for diversification going forward.
3. Are you looking to make allocations
to Latin America in 2014?
YK: Yes hopefully this year. We are excited
about Mexico and Colombia. Mexico is
an important country because it is tightly
linked with the US economy and we in
Japan are starting to believe in the US
recovery in the long term. After the rise
41
1. Can you give us a brief primer on
Weyerhaeuser Company?
MR: We are a 113 year old forest products
company that operates under four divisions.
The timberland division manages 22 million
acres in the U.S., Canada, and Uruguay.
We have a wood products division that
produces lumber, OSB, plywood and
engineered wood products. These first two
divisions represent the largest industrial
forestry and wood processing groups in the
world. The third is a cellulose fibers division
which specializes in specialty pulp. We also
have a homebuilding division which focuses
on real estate development.
2. What is the mission of your
division, Weyerhaeuser Solutions?
MR: The creation of Weyerhaeuser
Solutions is a result of the work we did
with the World Business Council for
Sustainable Development 2050 Initiative.
Fundamentally, the conclusion of the 2050
initiative is that by 2050 there will be an
increase in population to nine billion,
in food demand of 70 percent, in energy
demand by 100 percent, and degree changes
in temperature. In order to feed the people
and generate the amount of energy that is
necessary to have a healthy planet, were
going to have to rely much more heavily on
natural resources such as basic raw materials
for the following industries: specialty
chemicals, transportation fuels and basic
power generation.
As a 113 year old company focused
on natural resources we can provide
operational consulting and management,
business systems and expertise on both
the origination of target assets, evaluation,
operational planning, implementation
and ongoing operational management.
For assets focused in the natural resource
space we can operate the land, industrial
processing and handle the sales, marketing
and distribution of products to local and
global markets.
3. What projects are you currently
focused on?
MR: Our focus has been on Brazil, Western
Europe and the US. Weve been taking on
existing plantations on behalf of strategic
players, and working with pension groups
to develop investment strategies for the
acquisition and operation of forestry and
industrial assets. This is about 60 percent of
our focus.
In the US weve been working with
European companies to develop supply
chain management for energy projects.
Another large area of focus for us is
procurement and management services
to small and medium sized companies
in the alternative energy space or in the
forest products space. We basically give
them scale and purchasing power that they
dont typically have. This started about
three months ago and were seeing a lot of
positive traction there.
4. How does your recent acquisition
of Longview Timber in the northwest
United States fit into your overall
portfolio strategy?
MR: A few years ago Weyerhaeuser
converted into a REIT, and in doing
so emphasized its focus on its core
business which is timber ownership and
management. The recent acquisition
complements the overall portfolio by
bringing in more value to the northwest
where we already have a significant
presence. This allows us to not only
focus on the domestic market in terms
of selling into the lumber and the home
construction business, it also allows us to
be more proactive in the merchandising
for exporting to Asia, primarily Japan and
China. Its an acquisition that complements
the overall strategy of being a REIT and
the focus of being the premiere owner and
operator of timberland.
5. What are the most prominent types
of investments in timber?
MR: For a direct investment, youre setting
up a fund and acquiring an asset to operate
it. Our core proposition is that were not an
actual fund manager. In that scenario we
would work with the fund and group that
acquired the asset and act as the operator
of the asset. The regular investor has
the chance to go on the New York Stock
Exchange and purchase different timber
REITs, but you dont have influence on the
decisions being made. The other model
is the TIMO. Many of the large pension
groups are becoming less enamored with
these because it is rare to have influence
over the asset. Most TIMOs have three to 15
participants and the funds are commingled
with a focus on timber. The asset is
subcontracted to someone else without
going further upstream or downstream.
Value accretion can be a challenge. The
different model were applying in Brazil
is that were creating an opportunity for
Mr. Risco joined the Weyerhaeuser
Forestlands International team in 1998
after working for the Gillete Co. in Latin
America and Europe.
Marvin Ray Risco
President
Weyerhaeuser Solutions
42
INTERVIEW: MARVIN RAY RISCO
INTERVIEW: MARVIN RAY RISCO
private equity funds to buy debentures in
a company. Our role is to be the general
operator of this special purpose company.
6. How do you go about evaluating
opportunities in Latin America?
MR: In this new business were very focused
on what the clients interests are. We try to
find situations where there are good assets
that are underperforming due to operational
or management issues as opposed to
the quality of the base asset. From our
experience over the decades of identifying
base productive capacity, we can do a better
job than most determining what asset has
more potential. So for investors that have
already made underperforming acquisitions
and investments, we can apply technological
know-how to improve the investment and
recapture value that they may be losing. We
can turn assets around by putting in turnkey
solutions, the management teams in place,
and the technical folks on the ground to
grow returns and help mitigate risk.
7. Why is Latin America an important
region for the focus of your portfolio?
MR: The reason were focused on Brazil
right now is because of a couple of mid-
term transitives that are compelling. Firstly,
Brazil has the most productive plantations
in the world. Secondly, theres a huge
internal market which has been traditionally
supplied by tropical woods that is now
facing foresting restrictions, so there is a
gap between supply and demand. There
are also significantly positive social and
economic implications for investing in
forestry products in the interior of Brazil.
You are not only dealing with the capture
of value, but you can deal with social and
environmental issues with the support of the
regional and national government.
Theres a big shift inside of Brazil because
they have traditionally had high interest
rates. Many of the pension groups have
been able to focus on simply buying open
market financial instruments that provided
high returns and today that doesnt exist
anymore. So national and regional pension
groups are looking to purchase hard assets
which can lead to steady returns, and timber
is a great asset class for that.
8. What is your experience with the
regulatory environment in Brazil and
Latin America regarding timber?
MR: Brazil can be challenging in the
agricultural space because of percent
ownership by foreign entities. So if youre
going for a timber play youll have to find
a local partner. With foreign investors we
match them up with an acceptable partner.
Nationally there are strict operating rules
but everyone plays by them so thats not
really an issue. Investments in Brazil tend
to be around the conversion of antiquated
charcoal production into modern charcoal
production with access to lines of credit.
There are projects that are positive in
reducing the deforestation of the Amazon,
incentivized by access to credit from
regional and national development banks.
The reason we went into Uruguay was
because they had a forest incentive law
with subsidies and tax holidays over many
years, which have been adjusted since then.
Colombia has a new and robust forest
incentive and investment program. So each
country is different.
9. In your opinion, what can be done
to increase efficiency and productivity
in the forestry industry?
MR: In order for the world to meet its
demand needs, were going to need to
be more productive with the land that
we have. This translates directly into
managed plantation forests. About 24
percent of industrial wood used comes
from plantations, which represent about
five percent of the entire industrial forest
capacity. This productivity difference bodes
well for us because we bring expertise into
managing these forests. The basic sales
proposition isnt only to identify, acquire
and build an operational plan for the
investor. We can actually operate the asset
and were in the marketplace so we can
monetize the products. Conservation of
natural forests is only possible when theres
an alternative supply of product for those
demands.
10. Have you found value in
MR: I went to one of your events in Rio as
well the New York event recently and I plan
on attending the So Paulo event this year.
My goal is to have the right conversations
with private equity groups to educate them
about what we do. I hear the GPs talk and
we can certainly help them for operating
and setting up strategic relationships. We
want to position our message better and
let people know we are here to help. If they
have questions about the natural resource
space, we should be a logical phone call for
them. Our longstanding brand helps them
with their investors too.
Mr. Risco will be speaking on the Agribusiness &
Timberland Investments panel at The 5
th
Annual
Private Equity Brazil Forum on Dec. 9-10, 2013.
43
1. Give us a brief background on Itau
Unibanco. What are your assets under
management?
GM: I am the Chief Investment Officer
for our pension plans, endowments and
foundations here at Unibanco. We have
close to 15 billion Reais in assets in those
portfolios. Most of them are long term
investment portfolios. We were pioneers
in Brazil in applying the US endowment
investment model in the way we manage
our funds.
2. How have you applied the US
endowment investment model to your
pension fund?
GM: When we are investing over the long
term we need to think of the competitive
advantages we have compared to other
investors. In the long term we are able to
capture liquidity premiums in the market.
If you think about most investors, they
pay a premium to be liquid in short term
assets with lots of cash. I have pension plan
benefits to be paid 100 years from now.
Yale and Harvard Management Company
did a great job figuring this out to capture
value investing in the long term. If you
think about private equity, the difference
between small cap companies is that there
are different stages of development and
governance, so there might be alpha involved.
The difference between investing in small
companies in private and public markets is
liquidity. Liquidity is nothing more than a put
option where the stock prices equal the strike,
meaning you can divest your asset at market
value at any time. If you calculate the value of a
put option where the stock price is equal to the
strike price for ten years on an average return
for private equity considering volatility of
small caps around 30 percent with current
interest rates then private equity without
alpha just as a liquidity premium should go for
more than 300 basis points on small caps. In
the long term if you find a good private equity
fund that can capture liquidity in the market
you can capture 300 basis points in small caps
per year. This makes sense to us as investors
because we have liabilities for the long term.
diversified across asset classes?
GM: In the past five years we were heavily
invested in bonds. 90 percent of our portfolio
was invested in long term inflation indexed
bonds. In Brazil we tend to have a huge home
basis a justifiable one because interest rates
are still very high. We made a big bet investing
in government bonds for a couple of reasons.
The risk for investing in Brazil went down over
the past five years. From a fiscal standpoint,
and during the 08 crisis, Brazil did extremely
well. From a global perspective we are having
the lowest period of interest rates in history
since the Great War.
Right now, we have five percent in equities
and five percent in hedge funds. We mix beta
strategies using ETFs and alpha strategies
where we look for value funds in Brazil. On the
hedge fund side we like long buy strategies and
macro strategies which have provided a lot of
alpha for us in recent years.
4. And private equity more specifically?
GM: We are fairly low on private equity at the
moment because of how our portfolio is set up.
We have changed some of our focus on small
caps after 2009 so now we have three percent
in private equity. We have capital funds with
less than one percent of the funds in the private
equity part of the portfolio. In the last two
years there were better options in the public
markets and it was expensive to invest in
private companies in Brazil. Between 2006 and
Gabriel Amado de Moura
Fundaao Itaubanco
Mr. Moura joined Itaubanco in 2000. He is currently responsible for managing business investments,
pension insurance and pension funds at the frm.
44
There can be a false
sense of security
being so close to the
managers and deals.
INTERVIEW: GABRIEL AMADO DE MOURA
2008 there were a lot of small cap companies
going public that created an opportunity for
five investments that we could do ourselves
rather than going into private equity funds.
Brazilian pension funds opening to
overseas investment opportunities?
GM: Brazilian pension plans have a fantastic
opportunity going abroad. Currently,
there is a carry in currencies and its very
expensive to invest in fixed income outside
Brazil. Investing in bonds and credit outside
of Brazil brings the benefit of diversification
and the cost of the carry. Things have
changed especially in equities. Just take a
look at the valuations we have for some of
the sectors related to consumer staples, and
then look outside of Brazil, and you will
see very competitive valuations. There is a
lower premium when investing in sectors
abroad, so we can potentially build exposure
to different sectors like pharmaceuticals and
technology.
Pension plans will most likely start
investing in the public equities abroad and
then move into different asset classes like
private equity. Brazilian investors are used
to a certain kind of governance but we
should get used to dealing with managers
and not participating as much. There can
be a false sense of security being so close
to the managers and deals. Exposure to
the international model will be good for
Brazilian pension plans.
6. In your opinion, how can the
current system create a false sense of
security?
GM: In private equity, Brazilian
institutional investors want to participate in
the investment of the fund, and every deal
has to go through the investment committee
prior to closing. This should change because
it might create a future problem of adverse
selection, meaning the best managers and
funds are not willing to go through this
complexity. Good governance does not
always mean you need to be within arms
length of the decision making process.
7. What are the advantages of attending
GM: Ive had a great experience participating
and talking at the Latin Markets events. Its
a great opportunity to meet other investors
and firms. Brazilian investors need this
kind of experience to foster an exchange
of information as our financial landscape
continues to evolve.
Mr. Amado de Moura will be speaking on the
Brazilian Pension Chief Investment Officer
Roundtable at the 5th Annual Private Equity Brazil
Forum in So Paulo on Dec. 9-10, 2013.
45
1. Give us a brief overview on Chevy
Chase Trust Investment Advisors and
your role at the firm.
DR: We are a global investment
management firm with $13 billion of assets
under management. I oversee our emerging
markets and Latin America investments. We
take a private equity approach to the public
markets with an emphasis on Colombia
and Peru. In addition to our internal
management, and because we have boots on
the ground, we know who the private equity
players are and if their strategies are sound.
Im constantly visiting the region. Ive been
to Colombia four times this year, Peru three
times, and twice to Chile.
DR: Weve been very focused on emerging
markets more so than the developed
markets over the last few years. We are
becoming more interested in Europe too
and moving toward an underweight in the
US. We are trying to focus on under the
radar emerging markets. When people say
emerging markets they usually mean China
or Brazil. We do very little in those two
areas because its hard to find good values
as everybody is already there. Our favorite
markets in emerging or smaller markets are
the Philippines, Singapore, Colombia and
Peru. Our target for appropriate accounts
in private equity is in the five percent range.
We also invest in real estate and hedge
fund investments for a total of roughly ten
percent.
3. How much is invested in Latin
America specifically?
DR: Around 10 percent. Within our
traditional portfolio it would be five to ten
percent in public equities and then another
five to ten percent on the private equity side
where appropriate. Private equity is a major
focus for us and weve been actively working
with a couple firms. In terms of our private
equity exposure, Latin America is the bulk
of it, even more so than what were doing in
the US.
INTERVIEW:
David Ross
Managing Director
Chevy Chase Trust Investment Advisors
Mr. Ross is responsible for high net worth portfolio management and
investment strategy. He previously served as a Director and Investment
Strategist at Citi Private Bank.
INTERVIEW: DAVID ROSS
In the large developed markets such as the US
its hard to find value. In our opinion, a lot
of the private equity return in the US comes
from leverage and financial engineering. In the
smaller markets and Latin America, private
equity can really be a difference maker by
providing growth capital and management
expertise.
commitment that you make in Latin
America? What returns do you expect?
DR: We look for a 15 to 20 percent return.
We think this achievable with low amounts
of leverage being deployed. In terms of
commitment, our preference is to be around
five percent of the fund.
5. What geography are your clients
coming from? What has been their
interest investing in smaller markets like
Colombia?
DR: Our typical client is a high net worth
individual. It is typically self-made money,
either an entrepreneur or executive, so they
understand business risk and theyre naturally
attracted to patient capital like private equity.
They are also attracted to being in unique
places because they know there is more
opportunity in places where there arent 30
investment bankers on every street corner.
They are US based in the mid-Atlantic region.
6. What has been your process for
selecting funds given that there is a
smaller amount of funds in countries like
Colombia and Peru?
DR: Our approach is to find quality
management and people who know the region
and local businesses. Were focused on the
consumer sector, either in strict consumer
products or the financial services side. The
companies in those countries are smaller in
size and need the capital that private equity can
bring along with the management expertise.
Because of our size, this allows us to participate
in smaller markets and funds and still have a
meaningful investment impact on portfolios.
Were not handing over billions at a time to
a fund, so we can be more specialized and
focused. Were willing to work with smaller
firms or even a start-up firm. Its not so
much the funds historical returns, but their
experience, credibility, and if they have
contacts in the region. Funds of this size are
more likely to be looking at opportunities that
the large private equity firms arent aware of
too.
7. What are your thoughts on reports of
capital flows returning back to developed
markets, away from emerging markets?
DR: I personally dislike the phrase emerging
markets. It tends to be used for three to four
countries, when there are in reality 50 or 60
countries, each with their own dynamic. I
think the skittishness comes from investors
on the foreign exchange side worrying about
future returns because you can have a great
local currency return that gets wiped away by a
currency devaluation for a US investor.
In terms of our investors and process, when
you have a country with an account surplus as
in the Philippines, or a country with a small
account deficit that is covered by foreign direct
investment as in Peru and Colombia, that is
really of no concern to us. The recent currency
move plays into a long term strength for these
countries in terms of exporting. In the last
five years, these countries have been worried
about the Dutch Disease, so what weve seen
in the past couple months has been good for
some of them. We are somewhat concerned
about Brazil because of the current account
deficit and the amount of hot money. However,
the recent steps taken by the Central Bank in
terms of loan sales and currency swaps are
encouraging. We believe that emerging markets
will stop being thought of as an asset class
and instead thought of as a group of separate
countries, each with their own dynamic.
8. Will you be making additional
allocations in the future to Latin America?
DR: Were going to continue allocate to
Latin America. It is one of the most dynamic
regions in the world and has historically been
underinvested in, especially in local terms.
The savings rates have been very low in these
countries, therefore theres a lot of opportunity
to bring capital in to help economies and
companies grow.
Mr. Ross will be speaking on the panel Local
Investments for International Investors at the
Colombian Investors Forum on Feb. 5-6, 2014 at the
JW Marriott Hotel Bogot.
47
We believe that
emerging markets will
stop being thought of
as an asset class and
instead as a group of
separate countries,
each with their own
dynamic.
48
INTERVIEW: MATT JOHNSON
1. Tell us about your division, UBS
Global Real Estate. What are your
assets under management and current
commitments?
MJ: UBS Global Real Estate is the second or
third largest manager in the world in terms
of assets under management for real estate
at $65 billion. Most of that is on the direct
side. Our team (Global Real Estate Multi-
Managers) is part of the indirect real estate
team. Specific to global real estate multi-
managers we have equity commitments
from our investors of approximately
$3 billion, of which we have invested/
committed about $2.8 billion as of March
31, 2013. We will continue to deploy our
uncommitted capital and new capital we
raise throughout the year.
2. What is your current experience in
Latin America?
MJ: We have four existing investments in
Brazil. Weve looked at opportunities in
Mexico, Colombia and pan-Latin America
funds, but by and large we became most
comfortable in Brazil because of one of the
managers there. We also like the size of the
market and the potential exit strategies.
Things are evolving relatively quickly in
Latin America and we will continue to have
our finger on the pulse as we meet with
managers and spend more time researching
new markets. For several of our mandates
the client retains final approval, so if our
clients arent comfortable in the other
markets we wont put them there.
We have some mandates where we have full
discretion too. For example, our Emerging
Markets Realty Fund is fully discretionary.
We have reviewed several opportunities
in Colombia but have not invested there
to date. In deciding where to invest in
emerging markets, you cant just look at
the strong demographic trends or attractive
yield on cost. You also have to factor in
foreign currency risk, exits, history of
repatriated capital, and property rights.
3. What property types do you favor
in Brazil?
MJ: The central thesis of our Emerging
Markets Realty Fund is to tap into this
growing middle class. In China weve
invested in for-sale single family residential
and in Brazil as well, so our largest
weighting in that fund is in single family
residential. We also have exposure to
office, retail and industrial. We are most
comfortable with diversification across
the four main property types. There are
interesting opportunities in the office space
in Rio if you can secure the land. From
a contrarian point of view, people have
become so bearish on office in So Paulo
that some interesting opportunities might
arise if you have modest expectations about
the rents you will receive, and if you build
space that is consistent with the modified
rent expectations.
4. What macro dynamics are you
seeing right now in the real estate
industry in Brazil?
MJ: The cost of developing units is going
up, and the Minha Casa Minha Vida
program is having difficulty keeping up.
What weve seen is that this program is one
step behind the pricing. Its meant to help
lower and middle income with subsidies
and low interest rate loans. The program
has caps on the price of units and it became
very difficult to build units under the caps
and make a profit. The pricing caps have
been reset, but the costs keep going up so
developers face the same dilemma. Because
of the increases in construction and labor
costs youve seen prices going up and more
of the developers focusing on middle-
income buyers rather than low-income
buyers.

You always have to keep your eye on
inflation in any emerging market, but Latin
American countries have had a history
of high inflation. Brazil has been doing a
good job overall in keeping inflation under
control, but you definitely want to monitor
the increases in construction costs.
5. In your experience, how does
investing in Latin America differ from
other emerging markets?
MJ: Brazil is a nice fit between investing
somewhere like India and China because
there is a history of stable property rights
and the government isnt changing the rules
all the time in an effort to stop a speculative
bubble. It seems like almost every month
Im reading a story about the Chinese
government changing rules about single
family housing to curb speculation. In India
there have been a few successful funds,
but overall it has been very difficult to get
things done there. Obviously, developments
in Brazil have to go through an approval
process, but things are getting done, so I feel
more comfortable in Brazil.
When I started reviewing China and India
real estate funds in 2005, very few of the
earlier funds had repatriated capital from
those countries, so the big concern was,
will we be able to get our capital out of the
country? Then, all of a sudden it became
very difficult to get your capital into China,
so you had funds that targeted allocating
up to 50 percent of their fund in Chinese
real estate falling far short of that target. A
few years ago Brazil implemented changes
to the IOF tax (largely meant to discourage
investors specifically seeking to take
Matt Johnson
Americas Portfolio Manager
UBS Global Asset Management
Mr. Johnson joined UBS in 2008. He is responsible for structuring
portfolios for global real estate fund of funds at UBS.
INTERVIEW: FRANOIS RACICOT
49
advantage of the interest rate differential
through a carry trade), but, in my opinion,
the Brazilian government has generally
encouraged investment.
managers in Latin America?
MJ: We want to meet with any managers
that have an institutional offering. As long
as the fund offering is of a sufficient size,
well hear their story and research their
track record, strategy, references, pipeline
and pre-specified deals. We obviously want
to get the best terms possible and ensure the
manager is a responsible fiduciary. If the
manager uses an allocator model we want
to meet with their operating partners. Real
estate is a local business so its important to
get comfortable with the people.
MJ: It is a great opportunity to hear
what Latin America focused groups are
thinking and where Latin American fund
managers are seeing opportunities in their
respective markets. It is also great to have
the opportunity to speak with managers and
investors informally.
continued >>
1. Give us some background on your
role advising pension funds in Brazil.
FR: Im the Head of our Investment
Consulting business in Brazil. Im an
actuary by background and Ive been the
head of this group for almost four years
and with Mercer for 17 years. One of
the unique advantages Mercer has over
other investment consultants is that we
understand both the asset and liability side.
We have about 15 employees and 70 clients
in Brazil. These are 70 pension funds that
we monitor on a monthly basis. We help
them monitor their returns from internal
and external managers and compare returns
to their peers. We review their investment
policy on an annual basis, and help select
managers and review manager structures.
We also do technical studies like ALMs too.
Our role has been to introduce pension
funds to managers and talk with them about
private equity because many dont know
the details of how private equity works.
We work with both Defined Benefit (DB)
and Defined Contribution (DC) pension
plans. Each are very unique with different
needs. Right now, theres a trend in Brazil of
change from DB plans to DC plans.
On a side note, Im from Canada, so it
has been interesting to compare how the
Brazilian market is similar to the Canadian
market.
2. As a Canada native, what
similarities do you see between the
Brazilian and Canadian markets?
FR: Both countries are very large, have lots
of natural resources, and the economies are
very concentrated on commodities and the
financial sector. They have stock exchanges
that are somewhat limited. If you invest
only locally you are limited and dont get
exposure to a number of sectors that you
could if you invested abroad.
Canada is of course ahead of Brazil as far as
sophistication of the financial markets. 20
years ago in Canada you could only invest
10 percent of assets abroad and this is where
Brazil is right now. We used to have very
high interest rates and this is where Brazil is
now as well trying to lower their interest
rates. We can learn a lot of the mistakes
from Canadian pension funds made 20
years ago.
3. Which countries are Mercer focused
on in Latin America other than Brazil?
Mr. Racicot provides consulting
advice to Brazilian pensions and
corporations on a broad range of
issues including employee benefit
programs, funding and accounting
strategies.
Franois Racicot
Investment Consulting
Business Leader
Mercer
Some of the larger
pension funds are
finding theres no way
to have a portfolio of
30 or 35 private equity
funds how can you
effectively sit on the
investment committee
of all of these? Its
impossible.
PENSION
FUND BRAZIL
FORUM
MAY 12, 2014
RIO DE JANEIRO, BRAZIL
REGISTER BY JAN. 3
FOR OUR EARLY BIRD
DISCOUNT
7. What can be done to streamline the
investment committee and bureaucratic
process?
FR: Some managers have told LPs they
cannot be on the investment committee.
Others have created a separate committee
where they dont have as much power, but it
informs them about how their investments
are performing on a quarterly basis. This
has worked quite well actually. Some of
the larger pension funds are finding that
theres no way to have a portfolio of 30
or 35 private equity funds how can you
effectively sit on the investment committee
of all of these? Its impossible.
8. What are some of the
characteristics Brazilian investors are
looking for in managers?
FR: The main thing that pension funds look
for in a private equity manager is to show
experience as a team and track record. This
is where you narrow down the players to
see if, for example, it is their fourth private
equity fund, or if they have an IRR of 25
percent. There are few players who can say
that in the market. When they open a new
fund, they first go to the existing clients, so
by the time they get to your name on the
list, the fund is already closed. Theres room
to grow for new managers but it can be
difficult to build up a good track record.
FR: We have a very good relationship with
Latin Markets. We have attended and spoke
on panels at this private equity event for
the last four years. I believe this is your best
event. You have a great mix of investors and
local and foreign managers. Its a really high
quality event.
Mr. Racicot will be speaking on the panel
Brazilian Pension Investments in Private Equity
at the 5th Annual Private Equity Brazil Forum on
Dec. 9-10, 2013.
sure where their money goes. In the past,
they had hyperinflation and government
interventionism, so they can be a bit more
cautious than other investors.
6. How have you seen private equity
increase and become more utilized in
Brazilian pension fund allocations?
FR: 10 to 15 years ago, when the large
pension funds started investing in private
equity, it wasnt a pleasant experience. There
were a lot of bad managers and only a few
good ones. Some pension funds invested
and lost money. This created the situation
today where pension funds are cautious
to invest in private equity. When they do
invest they want to sit on the investment
committee I guess it makes them feel
safer. This is one of the typical requests
we hear from large pension funds. This
has created a problem for the industry and
the international managers in Brazil. The
managers are saying: How do you want me
to manage a private equity fund if Im going
to have LPs on the investment committee?
The private equity business in Brazil is
much more professional now and has more
good managers than bad managers, in
Mercers opinion. There is a much higher
quality and you can find good opportunities
in the market. Our clients are medium to
small pension funds. They dont have a lot
of expertise internally so for them it can
be complicated to invest in private equity.
Selecting a good manager is very important
in private equity, even more so than in other
asset classes. The large pension funds have
the ability to select a number of managers
and funds so they can build a diversified
portfolio with a variety of funds that invest
in a variety of industries, and a good mix of
vintages. This way, they can minimize their
risk over time. Its more difficult for small
and medium sized pension funds because
they dont have the volume. In developed
markets, pension funds will go through fund
of funds, which are almost nonexistent in
Brazil. This is one thing that is missing from
the incentives for smaller pension funds to
invest more in private equity.
FR: In Latin America, our investments
business is only present in Brazil, but we
think theres room in other countries, so
were currently looking to expand our
activities into Chile and Mexico primarily.
4. How do you see private equity
plays entering Brazil given the current
economic context?
FR: Its hard to say right now. The
economic outlook will depend on the
election next year and what is done by
the future government. Many local and
international investors believe the current
government is not making the proper fiscal
adjustments and that they are focusing more
on the short term than the long term. This
has affected investors confidence in the
long-term growth potential of the overall
economy and led them to hold back on
investments.
5. What are your thoughts on Brazil
opening pension investments overseas?
FR: The capital markets in Brazil are a
small percentage of the worlds capital
markets, so when youre investing 100
percent in domestic equity your home
country bias is huge obviously. It makes
sense for Brazilian institutional investors
to start investing abroad for a number of
reasons diversification being first and
foremost. There are a lot of sectors you
wont find in the Brazilian economy that
you can find abroad, such as health care or
information technology. These are highly
underrepresented in the Brazilian stock
exchange. The fact that the correlation of
the international market with the Brazilian
market is not that high is another important
reason. This can reduce the risk of your
overall portfolio.
Right now pension funds are investing
mostly in vanilla public global equity
funds. Until they start investing in foreign
private equity or any other asset classes like
international real estate, the learning process
may take a while. They need to begin first
with basic asset classes before moving
on to other more complex asset classes.
Brazilians have this mindset of making
50
INTERVIEW: FRANOIS RACICOT
1. Give us a brief overview of Icatu
Fundos de Penso.
FR: We administrate pension funds in
Brazil with almost 2 billion Reais under
management. We manage the funds for 54
sponsor companies in Brazil. Most of these
are multinational companies. We are also
involved in the record keeping business for
affinity groups such as the Lawyers Board
of So Paulo and other professional class
associations who outsource their pension
administration to us.
2. What asset classes and geographies
are you investing across?
FR: We invest mostly in fixed income
and equities. In fixed income we allocate
on public and private bonds indexed to
interest rates (Selic) and some long term
bonds which are indexed to inflation. In
equities, we have indexed allocations to
the IBX (Brazilian Stock Market Index),
ETFs and value investing funds. We have
some small allocation on real estate and
were studying some opportunities in
private equity and foreign investments. Our
allowed investment policy can allocate up
to 70 percent in fixed income, 20 percent in
equities, five percent in real estate, and five
percent in private equity.
3. What sectors are you seeing private
equity opportunities in?
FR: Were seeing opportunities related to
infrastructure and internal consumption.
The public equities sector is highly weighted
in the big exporter companies, so we want
to set up a strategy through non-correlated
index investments in commodity exporters,
especially because we are facing some
concerns related to economic growth. So
we want to focus on long term operation.
We are seeing opportunities in foreign
investments but we are taking a gradual
approach at the moment.
investment you make to a fund?
FR: We usually invest in funds that have
at least 200 to 300 million Reais under
management.
5. What is your expected return
on both fixed income and equity
investments?
FR: In fixed income, wed like to have
something related to an inflation indexation
in the benefit funds at four, five or six
percent. In equities we have a strategy
related to alpha and a strategy related
to beta, whose goals are different but
complementary.
6. What are your thoughts on allowing
Brazilian pension funds to invest
overseas?
FR: The largest pension funds are
researching for overseas investments. We
are also looking at ways to mitigate volatility
and local currency risk as it relates to the
dollar and euro.
8. What is your selection process for
managers in this region?
FR: We have a due diligence process which
evaluates performance weighted by risk and
the background of the managers and the
investment company. In Brazil we dont
have the chance to follow on the track
record of the manager. Sometimes the
investment company is performing well and
when you look at the investment team, the
successful managers changed two or three
times in the last year, and this will probably
impact the future performance. Governance
is a key fundamental for us.
9. As an investor, have you
found Latin Markets forums to be
advantageous?
FR: I have been to several events in Brazil
and one in the US. There is a great exchange
of ideas with experienced people who are
business oriented. This is very important
for us. People are concerned with being
objective and straight to the point.
52
INTERVIEW: FRANCISCO REIS
Francisco Reis
Senior Pension Manager
Icatu Fundos de Penso
Mr. Reis is responsible for pension administration services through
investment structuring, operations and governance fulfillment.
tmf-group.com
Private Equity Services
Why TMF Group?
Operating internationally brings complexity, risk and cost. TMF Group works with
leading private equity, venture capital firms, and portfolio companies to enhance
their global operations, administer international investment structures and support
portfolio companies expanding and operating abroad.
Investing internationally often leads to complex acquisition structures with legal
entities in multiple jurisdictions. Such complexity poses challenges for transparency,
governance and the timely delivery of information required by investors and
regulators. It also requires the necessary expertise and experience of qualified
professionals to ensure transactions are administered effectively and efficiently.
What we can do to help
We offer a comprehensive range of compliance and administrative services that
are critical from a financial, legal and risk management perspective. This helps
our clients to quickly expand into a new country, realize cost-efficiencies within
existing global operations, and improve governance and controls.
Working with TMF Group, our private equity clients are able to use one global service
provider to implement and administer their investments worldwide. Our core legal
administrative, accounting and compliance services support private equity firms
and their portfolio companies to invest, expand, and operate anywhere in the
world.
Who is TMF Group?
We help global companies expand and
invest seamlessly across international
borders. Our expert accountants, corporate
secretarial and administration professionals
are located around the world, supporting
clients to ensure their global operations
and investments are compliant in different
geographical locations.
Talk to us about growing
your business across
borders:
Brazil:
Jase.Choenni@tmf-group.com
+55 113 572 9000
United States:
Dennis.Day@tmf-group.com
+1 305 377 1200
54
INTERVIEW: VICTOR MUOZ
1. Tell us about Denham Capitals
energy focused investment
strategy. What are your funds under
management?
VM: Denham Capital is a global private
equity firm founded in 2004. Our total
capital investment is committed through
six funds $7.3 billion. The firm has offices
in Boston, Houston, London, Perth, and
So Paulo, numbering about 70 employees
of which 35 are investment professionals.
Denham invests in three energy sectors:
power and renewables, oil and gas (mainly
in exploration and production), and metals
and minerals. One of the characteristics
that differentiate Denham from other PE
firms is that most of our senior investment
professionals have ample operational
experience.
2. What geographies are you currently
invested in across these three sectors?
VM: We have investments around the
world, in the Americas, Europe, Africa, and
Asia. Our investment philosophy is to allow
capital to flow to the best opportunities.
For that reason, we do not have quotas per
geography or sector. As a result, during
certain periods of time more capital flows
naturally to one region or to one sector. As
an example, the illiquidity that followed the
global financial crisis (2008/2009) in the US,
coupled with the rise of shell gas discoveries,
lead to larger amounts of capital from our
funds being invested in the US. At the same
time, the boom of Brazil as an investment
destination, which followed the financial
crises and increased asset valuations
substantially, lead to smaller amounts of our
capital being invested in the country during
2010 and 2011. Overall, we look for the
best risk adjusted returns around the globe
whether or not they are found in developed
or emerging markets.
3. What is your opinion on private
equity opportunities in Brazil right
now?
VM: In 2010 and 2011 new funds were
opening offices in Brazil every week and
large amounts of capital were coming
into the country. During that time, it was
difficult for us to find transactions that
made sense because valuations and owner
expectations were simply too high. Over
the last 18 months, however, Brazil has
stopped being a main target for investment
and therefore we are now finding again
opportunities in the market that we can
execute.
4. Why are power and renewables
a focus of your portfolio and what
has been your experience with the
regulatory environment in Latin
America?
VM: Power and renewables is a very
interesting industry and offers many
opportunities in Latin America and around
the world. It is a very local business in part
because regulations are very different from
country to country. It is also very difficult
to store and export electricity. Right now we
have investments in thermal generation in
the Philippines and Africa, wind generation
in Australia, South Africa, and Brazil,
biomass generation in the US and Germany,
geothermal generation in the US, and a
global team developing solar projects in
several countries. In Latin America, Brazil,
Chile, and Peru are of particular interest for
us. Brazil is the largest market and offers
the opportunity to participate in long-term
PPA auctions every year. Chile is smaller
but has a big need for additional power
generation capacity and power prices are
high. Local environmental regulations and
the activism of a large middle class make
it difficult to develop new large projects.
Peru is the smallest market of the three
but its sustained rapid growth over the last
decade has created a need for additional
power generation. In Peru, the availability
of natural gas has kept power prices at lower
levels than Chile. We are also analyzing
Mr. Muoz joined Denham in 2005. He currently oversees the firms So Paulo office as well as
origination, analysis, structuring and execution of investments within Latin America.
Victor Muoz
Managing Director
Denham Capital
management at the Oregon State
Treasury?
AB: Our assets under management are $64
billion and our allocation to real estate is
$7.7 billion. 20 percent is in public REITs
and the other 80 percent is in private real
estate investments. About 30 percent of the
portfolio is for direct real estate and the rest
is through comingled funds.
strategy and how do you evaluate
investment opportunities across
geographies?
AB: Diversification bandwidths are only
provided in our core investments, which
comprise 30 percent of the real estate
portfolio. Value added and opportunistic
real estate strategies are unconstrained,
other than a 50 percent maximum exposure
outside the US, and so we do not have a set
diversification mandate, geography or asset
class directive. The concept is to go where
capital is most needed, on a global basis, and
to achieve the best risk-adjusted return.
3. How much of these international
allocations are in emerging markets?
AB: Approximately 25 percent of our real
estate holdings are international (ex-US).
Most of this is within the emerging markets.
Mr. Breault joined the Oregon State
Treasury in 2006. He previously
worked in Jones Lang Lasalles leasing
and management group for eight
years.
Anthony Breault
Senior Real Estate
Investment Officer
Oregon State Treasury
INTERVIEW: ANTHONY BREAULT
55
Central America, the Caribbean, and
Mexican markets at this time.
5. Other than regulations, what
do you focus on when evaluating
opportunities in the region?
VM: Once you get past the country and
political risk analysis, the size of the
market, regulation, and asset liquidity are
very important factors for us. The size
of the market will indicate how many
opportunities we will be available to
evaluate; the larger the size of the market,
the better the probability of finding a
good investment opportunity. Regulation
is a main driver of economics, returns,
and execution risk. Finally, asset liquidity
is paramount for us. As a fund, we are
always looking for an exit in the end, so the
availability to sell our assets at any point
in the future is very important for our
evaluation.
6. What is your relationship with the
management teams you invest with?
VM: We look for management teams that
have vast experience in the business and
who share our goals of value creation.
In Brazil, we have a local management
team that has developed, financed, built
and exited several hundreds of MWs in
the country. With these teams, we have
developed a collaborative relationship,
aligning our economic interest in such a
manner that we are all pushing in the same
direction.
VM: Latin Markets conferences are a
place where very different people in the
investment sector converge to share views
and opinions on the market. I find this
extremely useful to hear the opinions of
experts and colleagues in different fields. I
was a speaker at last years conference in So
Paulo and met a large number of interesting
people, as well as old friends and new
people in our community. Overall, it was a
great and valuable experience.
Mr. Muoz will be speaking on the panel Sourcing
Investments & Adding Value at the 5th Annual
continued >>
INTERVIEW: ANTHONY BREAULT
Presently, approximately five percent is
allocated to Latin America. We take an
opportunistic value approach and have
dedicated funds in India, Asia and Latin
America in Brazil and Mexico.
In Latin America we took the approach
of going into Mexico first and then Brazil.
Oregon has only invested in Brazil and
Mexico to-date via closed end, commingled
fund strategies. We are currently exploring
pan-Latin America fund structures but have
thus far preferred country-specific strategies
due to the ability to better underwrite GP
capabilities and understand associated
country risk.
4. Are there countries you are focused
on in Latin America other than Mexico
and Brazil?
AB: In Latin America I think you need long
term exposure in order to be smarter the
next time and get up to speed faster. I would
be less inclined to do a pan-Latin America
approach rather than a Brazil only focus.
I would rather go into Brazil than Mexico
right now. Im not ready personally, again
due to staffing constraints, to underwrite
Colombia until I have a chance to go
myself and become more comfortable with
investing there.
5. How are both private equity
and real estate a part of your overall
portfolio strategy?
AB: Private equity is our largest private
investment exposure at Oregon, as well as
an alpha generator, and represents about
20 percent of our portfolio. Weve been
doing private equity for about 25 years. Our
objective is total return.
Real estate (11 percent of the portfolio in
addition to private equity) has historically
outperformed the equity markets, so
by default we look at it as a total return
portfolio, a diversifier and a partial inflation
hedge. The idea is to get to that 10 percent
return in the private markets rather than the
standard eight percent.
6. Do you typically invest in first time
funds?
AB: Everything is risk adjusted. We dont
focus too much on the risk profile alone as
a factor, rather what the market is capable
of delivering at any given time. Im happy
going into Brazil and getting mid-teens
returns, or even 25 to 30 percent. We do
first-time funds but we need to invest at
least $100 million in a single investment,
which can be challenging when many
first time funds may be small. If Oregon
is the lead, or largest investor, this would
entail greater degrees of due diligence,
negotiations with the GP for appropriate
terms and rights to ensure we are being
compensated for the capital risk.
fund managers?
AB: Quite frankly, there is a limited
universe of fund managers to select from.
Secondly, a local presence and local
nationals (not the parachute in approach
in the earlier years by the U.S. investment
banks) should be a key component of the
senior management team. From there, we
select fund managers based on realized
track records, corporate transparency and
communication standards, along with
an investment theme in the asset class/
market segment we feel best represents the
strategy we want to execute. The other shoe
is engaging our consultant in the selection
process because were very lean staffed.
Our process can be little longer in places
like Latin America because we dont have
dedicated staff that knows, or concentrates
on a specific geographic market. It can
take upwards of a year getting comfortable
with a market and meeting a manager four,
five or six times. We will need to ramp up
additional staffing for our Latin America
focus so we can be in it for the long term.
allocations to Latin America?
AB: Absolutely. It is a long term objective
and there isnt a pre-determined percentage
I need to allocate there, but we have the
capacity to do it. I have a mature portfolio
that is now at its allocation so I need to have
distributions coming back before I can do
anything of scale.
9. What are the advantages of
AB: The honest answer is that youre
captive to a strategy and listening to that
for a day or two. Its one of the few times
I can focus on one thing for more than a
couple of hours. Otherwise, I have a global
portfolio with 80 some odd funds. A specific
forum attendance allows me to net out a lot
of that noise and I can just think about Latin
America. When I step back Im smarter
and Ive heard different viewpoints and met
general partners with different strategies and
skillsets. It helps me to build my investment
decisions down the road.
Mr. Breault spoke on the panel Global
Institutional Investors at the Real Estate Latin
America Forum on June 10-11, 2013 in New York
City.
56
PRIVATE
EQUITY
ANDEAN
FORUM
SEPT. 9-10, 2014
CARTAGENA, COLOMBIA
REGISTER BY MAR. 31
FOR OUR EARLY BIRD
DISCOUNT
PAST
ANDEAN
KEYNOTE
German Efromovich
Managing Partner
Efromovich / Silva Capital
Partners
INTERVIEW: PATRICE ETLIN
57
Mr. Etlin joined Advent in 1997 and
started the firms investment program
in Brazil. He has 18 years of private
equity experience and is currently the
Chairman of LAVCA.
Patrice Etlin
Managing Partner
Advent International
PE: The growth from 2005 to 2010 in Brazil
was due to the rise of the middle class,
access to credit and increasing consumption.
Now those families are overleveraged.
Consumer credit is 15 percent of GDP
today, and thats the highest in emerging
markets. The families in Brazil right now are
using 22 percent of their income to service
debt, twice as much as in the United States.
Going forward Brazil will need to revamp
its infrastructure and increase productivity,
and not rely only on consumption growth.
Valuations across consumer companies are
declining now. In terms of private equity,
Brazil remains the most competitive market
in Latin America. 2010 and 2011 saw record
fundraising for local and international
managers, reaching a peak of $9 billion
raised for Brazil in 2011. That money started
to be deployed in 2011 and 2012, the public
stock market was active and valuations were
high. This year were seeing valuations begin
to ease, coupled with the devaluation of the
Real, so this is a good time to be deploying
capital. There is some negative sentiment
about Brazil these days, but in our view its
an interesting moment right now to be more
aggressive on the acquisition side.
6. What is your firms outlook for
investing in Latin America outside of
Brazil?
PE: We have been active in Colombia
over the past two years and expect this
to continue. As I mentioned, we recently
signed our second deal in that country,
agreeing to acquire 50 percent of Alianza
Fiduciaria. Our first deal was a leading
pharmaceutical company, Biotoscana. We
are also seeing a lot of deal flow out of
Peru and the Andean region. Brazil and
Mexico will always be a significant focus
for us. Historically, those two countries
have represented 80 percent of our funds
invested capital, and that percentage should
be similar going forward. When Brazil was
overvalued last year, we completed our
largest-ever deal in Mexico with InverCap,
the largest independent Mexican pension
fund administrator. We expect Mexico to
remain an interesting area of opportunity,
and Brazil is still a great hunting ground for
new deals now and for the near future.
Mr. Etlin will be speaking on the Latin American
GP Executive Forum panel at the 5th Annual
technology, media and telecommunications.
Within Latin America, we have a
particular focus on financial services, retail,
pharmaceuticals and infrastructure deals
related to airports and ports.
3. What is your typical equity
investment in a portfolio company?
PE: We have a certain amount of flexibility
across deal sizes, but in Latin America our
sweet spot is an equity check from $100
million to $200 million. We normally
take majority positions in companies. We
look to invest in mature companies that
are entering the next stage of growth by
bringing better management, governance,
and more capital. We dont have pre-
determined allocations of capital to specific
sectors or countries but instead allocate
capital dynamically, seeking to invest
in the most attractive companies based
on a bottom-up analysis. We have been
successful partly because we have the benefit
of being a regional fund. When Brazil was
expensive, we were selling in Brazil and
buying in Colombia and Mexico. Currently,
Brazil is again a good place to be investing,
and we are seeing a strong pipeline out of
our So Paulo office. Weve been taking this
approach over the past 17 years to navigate
the volatility in the region.
4. How does your recent investment in
Alianza Fiduciaria fit with your overall
private equity strategy?
PE: Alianza Fiduciaria is the leading
independent provider of trust and asset
management services in Colombia. We like
this company because its a fee business.
Were acquiring a significant stake in
a leading player where theres a lot of
strategic interest and growth potential, not
only locally but internationally. We have
successfully grown several of our businesses
across the region, creating multilatina
business platforms and generating a lot of
value for our investors in the process. We
are very active in financial services in Latin
America. We have been major shareholders
in banks, insurance companies, custody
and clearing exchanges, and pension fund
administrators, among other businesses, in
different countries across the region.
5. In your opinion, what is the current
state of private equity in Brazil?
1. Describe Advent International and
your role at the firm.
PE: Advent International is one of the
largest firms in the world dedicated
purely to private equity. I oversee the
Latin American program with seven other
partners in the region. I have also been
serving as Chairman of LAVCA, the Latin
America Private Equity and Venture Capital
Association, since early 2012. We manage
$33 billion in assets and have two active
investment programs, Global Private Equity
(GPE) and Latin American Private Equity
Fund (LAPEF). The GPE program, which
raised 8.5 billion for its most recent fund,
GPE VII, in 2012, invests mainly in North
America and Europe but also selectively in
other global markets. The LAPEF program
has been investing in Latin America since
1996. To date we have raised five Latin
American funds, and the latest one, LAPEF
V, is a 2010 vintage fund capitalized at $1.65
billion. We invest across the region from
three offices in So Paulo, Mexico City and
Bogot.
across sectors in Latin America?
PE: The GPE and LAPEF programs both
invest in five core sectors: business and
financial services; healthcare; industrial;
retail, consumer and leisure; and
57 Stars. What are your assets under
management?
GP: We are an independent asset manager
focused on investing in primary and
secondary private equity partnerships,
as well as co-investments, primarily in
emerging markets. We manage about $1.7
billion in assets. Our team collectively has
over 100 years of experience investing in
the international private equity markets,
and a long history investing together on a
senior level. We work with investors such
as US pensions, sovereign wealth funds,
family offices and insurance firms. We offer
both pooled funds of funds and separate
accounts.
2. Within emerging markets, how
much of your portfolio is dedicated to
Latin America?
GP: Our investment strategy is heavily
based on our diligence, research and
experience. Our fund investments focus
heavily on specific GPs while also taking
into account local macro factors. We do
not have bucket-filling requirements by
geography. As a result, we maintain a
flexible approach based on what we think
are the best risk-adjusted opportunities.
Nevertheless, our global funds typically tend
to invest 40 to 50 percent across Asia, 25 to
35 percent across Latin America, 10 to 20
percent across Central Europe, Russia and
Turkey, and five to 10 percent in Africa, the
Middle East and other markets.
3. Which sectors and dynamics have
you been focused on to date in Latin
America?
GP: In Latin America, we focus on five
countries: Mexico, Brazil, Chile, Colombia,
and Peru. The size of the middle class of
these countries has grown considerably
in the last ten years. On a per capita basis
Latin America has some of the highest
income levels across the emerging markets,
and particularly higher than countries
such as China and India. The higher per
capita income often enables investments
in consumer-related industries, as well as
sectors such as health care, education, and
logistics.
4. What private equity strategies do
you prefer to invest with?
GP: We frequently invest in control
growth opportunities, but also consider
credit, special situations, commercial
infrastructure, and real estate. We invest
into fund partnerships on a primary or
secondary basis, but also into direct deals as
co-investors. The larger proportion of our
capital goes into fund partnerships rather
than into direct deals. As a co-investor, we
typically seek to invest alongside our general
partners.
investment for your firm in Latin
America? What return do you expect?
GP: In fund partnerships, we typically
invest $20 to $75 million, with a sweet spot
of $30 to $40 million. In emerging markets
private equity, our investors often have the
expectation of outperforming the public
benchmark by about 300 basis points. The
GPs we work with tend to expect a gross
2.5x or more on a cash-on-cash basis. We
also like to work with managers that are
conscious of the gross to net differential.
While our investors and GPs have these
general targets, we all know it is a challenge
to meet these expectations, and that actual
results may be materially different.
6. Tell us about your involvement in
the Arcos Dorados transaction and how
this deal speaks to your private equity
strategy in Latin America.
GP: At the time of the sale, Arcos Dorados,
or the McDonalds of Latin America, had
more than 1,500 outlets and it was the
only multi-master franchise arrangement
that the US McDonalds had sold. The
transaction was a management buyout, and
we participated with DLJ South America
Partners and alongside the management
buyout lead by Woods Staton.
Mr. Pohren leads private equity partnership, secondary, and direct
co-investment transactions. Prior to 57 Stars, Mr. Pohren served at the
Overseas Private Investment Corporation.
Gene Pohren
Managing Director
57 Stars
58
INTERVIEW: GENE POHREN
INTERVIEW: GENE POHREN
The company grew at a fast rate during
our hold period and went public on the
NYSE. We exited earning approximately
a 9.5x to 10x on the transaction. It was
a great opportunity to invest in a large,
branded, scalable QSR company with
an experienced management team that
was executing a control buyout. The deal
included modest leverage and benefited
from significant multiple expansion at its
IPO. We are pleased our investors gained
access to a world class company that has
superior management, and could benefit
from the consumer growth story available
across Latin America at an attractive entry
multiple.
7. What are your thoughts on the
changing perceptions of emerging
markets, and capital potentially flowing
back to developed markets?
GP: In the big picture, based on factors
like demographics, GDP growth, fiscal
stability, current account deficits, and net
debt positions, most emerging market
economies are still in reasonably strong
positions. A few countries have more acute
fiscal and current account deficits and have
experienced greater volatility in their capital
markets and currencies. As we reflect back
to the late 1990s, when various emerging
market economies experienced economic
crisis, we note that the depth of the issues
then were far greater compared with the
situation now. Further, as measured by
capital flows, emerging markets today
collectively represent more than USD 1
trillion per annum, and also represent
perhaps the faster growing half of the
world economy relative to the developed
world. Post the late 90s, emerging market
performance from 2004-2008 pulled capital
into emerging markets, with average capital
flows rising from about $300 billion p.a.
from 2001-2003, to over $1 trillion p.a.
by 2007. Then, as the US Fed pursued
its quantitative easing (QE) policy and
interest rates moved down toward zero
percent, investors searched for yield and
pushed capital into emerging markets.
With the Fed signaling an eventual end to
its QE policy, investors are returning to the
dollar. As a result, investors have begun
distinguishing among emerging market
economies, but the current situation is
perhaps a wake-up call to all emerging
market economies to maintain the political
will to advance productivity, investment,
and reform, which in the long run is
favorable to investors.
8. In your opinion, how might the
economic balance of power shift in Latin
America?
GP: As I mentioned, we are primarily
focused on five markets in this region:
Mexico, Brazil, Chile, Colombia and Peru. A
country like Mexico is perhaps more aligned
with the US economy than other countries
in the region, and additionally appears to
be pushing forward on important reforms
related to sectors such as energy and
education, as well as reviewing anti-trust
issues. Because the US economy is showing
some improvement, Mexico may also again
benefit from US growth. That coupled with
a very young demographic should help spur
investment and entrepreneurship. Mexico
has also improved from a cost perspective
relative to China. As China has evolved, it
has experienced rising wage rates and other
costs, thereby helping Mexico to remain
competitive on a global scale, and continue
to be an important entry point to the large
U.S. market.
Another dynamic we have seen is increased
trade and investment among Chile,
Colombia, and Peru. South-South trade
and investment will likely continue to
improve over this decade, thus creating
more world class companies and improving
management across the region. Brazil
remains a large and diverse market,
and while growth has tapered below
expectations, the government seems focused
on improving the situation, particularly with
elections looming in 2014.
9. Does Colombia currently have the
requisite institutional capacity for your
firms investment strategy?
GP: Our focus as a firm is to invest in funds
typically sized below $1.25 billion, and
within the Andean region we typically focus
more on funds sized within the $200-500
million range. As a result, we dont tend
to invest in the upper end of the market.
We also find that the smaller funds may
still have larger local teams than the larger
regional funds. The mid-sized country
funds tend to pursue investment into
medium enterprises that need equity for
growth or consolidation. While pricing is
somewhat efficient even in this part of the
market, there is still a lower likelihood of
intermediation or auction type transactions.
10. What advantages has your firm
found attending Latin Markets forums?
GP: We find that Latin Markets is assisting
in an important dialogue among public
policy leaders and local and international
investors to discuss in a real way the
pressing issues and opportunities that can
lift productivity standards and GDP growth
in the region. As longer term investors,
we value that discussion. Latin Markets
does it across asset classes, geographies,
and sectors, and raises the profile of direct
investment. The improved transparency and
discussion helps governance and improves
the prospects for continued regional growth.
This makes it a more attractive climate for
an investor.
59
South-South trade
and investment
will likely continue
to improve over
this decade, thus
creating more world
class companies
and improving
management across
the region.
1. Briefly describe Hamilton Lanes
history as an advisor and private equity
investor. What are your assets under
management?
JD: Hamilton Lane is an independent
financial institution that provides
discretionary and non-discretionary
private equity asset management services
to investors worldwide. With offices
located around the globe, we offer a full
range of investment products and services
that enable clients to participate in the
private equity asset class on a global and
customized basis. We were founded in 1991
and today have over 200 employees and
more than $160 billion in total assets under
management and supervision.
geography?
JD: Private equity is a long-term asset
class, and we invest through various
economic cycles. Fundamentally, we believe
in a diversified approach using in-depth
diligence to identify managers that we
believe can create alpha in various market
conditions. However, we are mindful of
key global events, particularly disruptive
economic events, which may create unique
investment opportunities in the short
term. These key global events may identify
specific strategies and/or geographies to
pursue or avoid. We also believe that over-
diversification in any market, just for the
sake of achieving a certain geographic or
sector exposure, may result in mediocre
returns over the long term. For each client,
we seek to identify an approach that is most
INTERVIEW:
Juan Delgado
Managing Director
Hamilton Lane
Prior to joining Hamilton Lane in 2005, Mr. Delgado served as an Investment Manager at Baring Private Equity Partners.
INTERVIEW: JUAN DELGADO
appropriate for the long-term objectives of
that particular account while being mindful
of external market factors that could impact
a strategy negatively or positively. We firmly
believe that the basic rules of private equity
hold true in all markets. We start with a top
down approach, looking at macro trends
across geographies and industries and end
by using our local resources and research to
uncover and access the premier funds. We
strive to build private equity portfolios using
complementary managers that, together, can
deliver attractive risk adjusted returns through
multiple market cycles and geographies.
3. What is your experience allocating to
private equity in Latin America?
JD: We began investing in Latin America 16
years ago and since then we have committed
more than $1 billion. We invest through
primary funds, secondary funds and direct
minority investments, typically made through
co-investments. On the primary side and on
the direct side, we look to add two or three
investments a year. In Brazil, we allocate about
40 percent to primary funds, 30 percent to
secondaries and 30 percent to co-investments.
Throughout the rest of Latin America, the
money is allocated using a more opportunistic
approach and according to client demands and
needs.
4. What dynamics are you currently
focusing on in Brazil?
JD: In April we held a close on HL Brazil
FIQFIP. The fund is one of the countrys
first fully-integrated private equity fund-of-
funds including primaries, secondaries and
co-investments. By raising this fund were
demonstrating our long term commitment
to the region, and specifically to Brazil where
we have an office in Rio de Janeiro. We
believe there are several optimal conditions
occurring in Brazil right now, including the
rapidly expanding middle class, increased
regulation and an abundance of high quality,
well-managed companies. Currently about 50
percent of Brazils population is under the age
of 25 which sets up a baby-boomer generation
very similar to the one the US experienced.
Additionally, with the preparation for the
World Cup and Olympics in Brazil we are
interested in service-related businesses that will
take advantage of those enormous events by
supplying resources (i.e. cement, water, etc.).
Brazil has a mature economy that presents a
ripe opportunity for investment.
5. What is your outlook for investing in
Brazil and Latin America? Are you looking
to make additional allocations in the
future?
JD: Right now we are seeing somewhat of
a slowdown in economic growth in Brazil
relative to a couple of years ago when Brazil
was booming and a focal point for investors.
At Hamilton Lane, we view this as a positive
because it creates an attractive opportunity for
private equity investors as prices have come
down and investors can pay a much lower
EBITDA multiple than two or so years ago. We
think we are entering a cycle of strong vintage
years for investors.

Peru, Chile and Colombia have now caught
the attention of investors much like Brazil
did several years ago. These countries have
worked hard to improve their international
image, create domestic reforms and attract
money from international investors. We think
that Mexico will also gain more interest from
international private equity investors going
forward.
6. Has your firm found value
participating in Latin Markets forums?
JD: Hamilton Lane Chairman Hartley Rogers
was a keynote speaker at the Private Equity
Brazil Forum the last two years, and has
consistently reported this conference to be
well-attended and a great event for the Latin
American investment community. Vice
President Filipe Caldas, based in our Rio de
Janeiro office, also speaks highly of this event.
Im very much looking forward to participating
this year.
Juan Delgado will be speaking on the panel, Emerging
Market Manager Selection and Monitoring at the 5th
2013.
61
We began investing in
Latin America 16 years
ago and since then we
have committed more
than $1 billion.
1. Please give us a brief overview of
VBIs first two funds. How much equity
do you currently have committed to real
estate projects?
KW: VBI started in 2006. We raised our
first dedicated private equity real estate
fund in the 08 and 09 period with about
$200 million in commitments. We raised
our second fund in the 11 period and that
was $500 million. We are largely divested
of the first fund and the second fund is still
in its investment period so we have more
investing to do.
Our investors are typically 60 percent
U.S. institutions and 40 percent European
institutions. In both cases our clients tend to
be public pension plans, corporate pension
plans, endowments, foundations, fund of
funds, and high net worth individuals.
diversified across property type?
KW: We generally invest in retail, housing
and logistics. In our last fund vintage
(2008-2010) office was a large part of
our capital allocation and profits. But we
anticipate a very limited allocation to the
office sector looking forward because you
have an oversupplied office market. Our
current investment focus is providing
preferred equity to developers that may
have overextended themselves within retail,
housing and logistics.
3. In addition to rising real estate
prices, what are you seeing in the
Brazilian real estate markets right now?
KW: For the remaining investments of our
second fund, we are looking to provide
capital where capital is scarce. Right now,
the currency is weakening, cap rates are
rising, and real lease rates are falling. So
everything is falling except for residential
unit prices. The reason theyre not falling
is because thus far they have kept up with
construction cost inflation. Were not in
a bear market, but were in a correction
period like many emerging markets are
right now. This should provide some
opportunities to enter projects higher up on
the capital structure.
4. How do you plan on navigating
these challenges?
KW: The past two or three years have
been difficult for us because prices have
been rising and rising. Buying at the top
is something weve been reluctant to do.
For our current fund, weve evaluated
dozens of shopping mall, housing, logistics
and office sector investments, and thus
far we have committed to about 10
projects, representing less than half of our
available commitments. Were entering an
environment where capital is increasingly
scarce and developers have bitten off more
than they can chew, but this is actually an
opportunity for capital to be well-rewarded.
Were very much embracing this tougher
environment.
In a concrete manner, what were really
most interested in is to be a source of
preferred equity or mezzanine financing
(depending on the deal structure)
for developers that might have been
overly optimistic and need additional
commitments to increase capital. While we
maintain that strong real estate demand
is a driver of long-term property values,
whether it be for housing or quality logistics
properties or regional malls in under-
retailed areas, the success or failure of a fund
with a seven to ten year life is determined by
shorter-term factors. Investment selection,
creative deal structuring, project design and
contract execution are the most important
drivers of returns for the next several years.
The tail winds of rising lease rates and
property valuations wont be there to bail
sub-optimal execution.
5. What do you think can be done
from a macroeconomic standpoint by
the Brazilian government?
KW: Not very much. The problem is that in
the last decade youve had improving terms
of trade as commodity prices have gone up,
as well as massive amounts of liquidity with
the Fed and the European Central Bank
keeping interest rates at zero. Despite these
two positive factors, there has been very
little structural reform in a place like Brazil.
The real hard work hasnt been done. There
has been a lot of stimulating demand but
not a lot of work on infrastructure and tax
reform. Were it not an election year, the
government could affirm its commitment
to fiscal austerity and prudent government
spending, enabling interest rates to come
down once the dust from the current
global monetary adjustment clears. But
this will be tough over the next year, since
there are presidential elections and the
governments popularity is waning (notice
the demonstrations on the streets of the
primary capital cities). So the government
will likely continue to buy the loyalty of
lower income voters.
6. How do you see the infrastructure
sectors performance affecting the real
estate sector?
Mr. Wainer co-founded VBI in 2006.
He previously served as a Founding
Partner of Vision Brazil, establishing
the real estate private equity practice.
Ken Wainer
Founding Partner
VBI Real Estate
62
INTERVIEW: KEN WAINER
INTERVIEW: KEN WAINER
63
9. What about outside of Rio and So
Paulo?
KW: If youre patient you can develop
malls and limited service hotels just to
name two interesting investment segments
outside of the main capital cities. There
are very vibrant consumer economies in
secondary cities, though those cities havent
had the benefit of capital flow where Rio
and So Paulo have. The learning curve and
leasing for developing malls will be slower,
but its steady and still an opportunity.
10. What is your overall outlook as a
real estate fund investing in Brazil?
KW: Frankly, the more pain there is in the
markets, the greater opportunities we have
as a fund. The euphoria of 2010 and 2011
was bad for us and we knew it all along.
The tougher the market becomes, the more
rewarded capital will be. So we like to see
capital drying up and vacancies because
that is an opportunity for us to make
investments on more attractive terms for
our LPs.
in attending Latin Markets forums?
KW: The real estate event was the largest
union of experienced and exposed real
estate investors in Brazil. Out of several
conferences Ive attended, this is the
conference where the vast majority of the LP
capital was there. And this is what attracts
all the GPs and developers. This is definitely
the event with the largest collection of the
most relevant and active LPs in Brazilian
and Latin real estate private equity.
Mr. Wainer spoke on the panel, Whats Next for
Brazilian Real Estate? at the Real Estate Latin
America Forum on June 10-11, 2013.
be emerging markets. Of those emerging
markets, Brazil should be a substantial
portion because over the long term the
demand story holds true. Brazil is an
important country in emerging markets
because its the seventh largest economy
in the world by GDP and the magnitude
that you can invest in is substantial. If you
have a long term horizon and continue with
allocations in the coming years, you wont
have to worry about the currency because it
will dollar cost-average over time.
8. You mentioned earlier the
oversupply in the office building sector
in So Paulo. How do you see this
evolving in the coming years?
KW: Theres going to be high vacancy levels.
Rio and So Paulo are really the only areas
where you can build high specification office
space. Few tenants will pay high enough
lease rates in other markets to justify
the high construction costs. So Paulo is
becoming rapidly overbuilt, particularly
in the southern region of the city. So my
view is that there will be vacancies in the
southern part of the city and the more
central regions will recover quickly.
Theres roughly one million square meters
that will come online in the next three
to four years and thats 20 percent of the
existing stock (and well more than 20
percent of the Class A stock). Landlords
in So Paulo are already starting to
introduce grace periods during tenant
fitting out, improved delivery conditions
(including raised floors, hung ceilings, AC
ducts, lighting fixtures, etc. in the delivery
condition), and discounting the first few
years of the tenancy, enabling face rents
to stay at elevated levels despite declining
developer margins.
In Rio, its similar but most of the
development is concentrated in one area
-- the port area. We see very few barriers to
entry and lots of land available in Rio. The
scarce resource is air rights, which is owned
by one party: Caixa Economica. If you
depend on one company to coordinate the
development of the entire Rio port area, its
going to be an interesting show.
KW: The lack of investment in
infrastructure has made it difficult for
the country to grow without generating
inflation. Were seeing capital leave Brazil,
so for us its a great time. There is a huge
amount of pent-up demand in Brazil and a
middle class that needs more housing, malls,
and retail of all kinds. But that demand is
also creating inflation. The real opportunity
is financing those developers who bought in
over the past few years, who need capital for
their projects and, and whose shareholders
are pressuring them to reduce leverage and
generate cash flow. Well come in and help
them. Our capital may be expensive, but it
is better than the alternative. Its not a story
of demand. Its a story of opportunistic,
intelligent investing on a micro level.
7. Many foreign investors continue to
invest in Brazil because there is scale,
institutional capacity, and familiarity
with the economic and political
framework. Do you think relying on
these factors is sustainable for Brazil to
continue to attract foreign investment
going forward?
KW: There will always be reasons to invest
in Brazil. Whether youre a large European
insurance company, or a large pension in
the US, its very reasonable that youll have
an allocation to real estate, maybe eight
to 10 percent of your assets. Within that,
half will be foreign and the other half will
What were really most
interested in is to be
a source of preferred
equity or mezzanine
financing (depending
on the deal structure)
for developers that
might have been overly
optimistic and need
additional commitments
to increase capital.
64
INTERVIEW: PIERRE FORTIER
1. Give us a brief overview of La
Caisse. What are your assets under
management?
PF: We manage the money for around 30
depositors and public entities. We are the
pension plan for the population and civil
servants of Quebec. We began in the 1960s
and currently manage C$186 billion. To
give you an idea, Quebec has less than eight
million people, so it is a large amount of
money for such a small amount of people.
We manage one of the 10 largest real estate
and private equity portfolios internationally,
and were one of the first to invest in real
estate and infrastructure.
2. How much of your portfolio is
dedicated to private equity?
PF: We are very purist in our private
equity views. Our allocation is at 10.5
percent or about C$20 billion. We dont
include infrastructure in our private equity
portfolio, but that is about C$8 billion.
3. How is investing in Latin America a
part of your overall emerging markets
strategy?
PF: Seven percent of our portfolio is
currently in emerging markets and we want
to increase that to 10 percent. The Canadian
economy is highly correlated to the
emerging markets. In emerging markets we
mainly invest in Latin America, China and a
small amount in Turkey. We have a significant
investment in Brazil through our real estate
fund. In private equity we have different funds,
for example, it might be a local fund like Patria.
4. What is your preferred private equity
strategy?
PF: We like to focus on co-investing. We have
been investing in emerging markets for over
20 years and have done everything you can
think of in that time. As we have increased
our exposure, the best model for us is to select
a high quality manager in the mid to upper
market and do a co-invest with them. We dont
think investing directly out of Montreal into
Latin America is a good idea.
5. What is the typical amount you invest
in a fund?
PF: Normally wed like to invest C$100
million. Many funds arent that big in emerging
markets, so we are willing to go down to C$75
million. Considering Latin America is a larger
emerging market than 20 years ago, we have
seen more managers with experience, and
because we rely heavily on them to deploy
capital in the region, we remain very selective.
6. Do you invest in first time funds?
PF: We have done two in the past and we will
continue to do so if the manager has a good
track record. Fund of funds are not a good tool
for us because we like to co-invest. We dont
want to be too far removed from the GP.
7. What economic dynamics and sectors
are you focused on in Latin America?
PF: We dont want to invest in a fund that
is sector-focused. We prefer managers that
are involved with consumers rather than
commodities. This is a way to diversify our
portfolio because the Canadian economy is
highly related to commodities. If we want to
invest outside of our country its not to find the
same drivers as in Canada.
We are investing in Brazil because its a sub-
continent in itself. We have also taken a look at
Chile, Peru, and Colombia in companies that
have operations in more than just one country.
8. In your opinion, how is the Canadian
economy correlated with emerging
markets?
PF: Just take a look at the Brazilian real or
Canadian dollar. We have the habit of moving
in tandem vis a vis the US dollar and we
both focus on oil and gas and commodities.
Market perception is that Brazil and Canada
are on similar footing and this is true also for
countries like Colombia, Peru and Chile.
9. What is your opinion on the so-called
hot money flowing out of Brazil, and the
talk of a shift in emerging market capital
to developed markets?
PF: Im a pure private equity guy so we are
contrarians by definition. When people are
leaving a market, and prices are decreasing,
and there are better entry points for the
currency, its a good thing for private equity.
10. Is the Private Equity Brazil Forum
your first Latin Markets forum?
PF: Yes, So Paulo will be my first Latin
Markets event and Im looking forward to it
very much. Ive heard great news and I want to
see it for myself.
Mr. Fortier will be speaking on the panel, Emerging
Market Manager Selection and Monitoring at the 5th
2013 in So Paulo.
Mr. Fortier was appointed VP of
Investments in 2004. He has 30
years of experience in corporate
fnance, mergers, consolidations and
acquisitions.
Pierre Fortier
VP of Investments
La Caisse de Depot et
Placement du Quebec
1. Give us a brief overview on the
Illinois Municipal Retirement Fund. How
many members do you currently serve?
DS: We are one of more than 600 public
pension funds in the state of Illinois. We are
the second largest pension in Illinois and
are not funded or managed by the state of
Illinois. We serve about 3,000 separate units
of local government, which includes most
cities, municipalities, counties, and school
districts in Illinois. In aggregate, we have
about 400,000 members and retirees. IMRF
is funded by three sources: its members,
its employers, and investment earnings.
Historically, our investment income has
provided 60 percent of the contributions to
our retirement system.
diversified across asset classes and
geography?
DS: As of July 31, 2013, the total IMRF plan
has $30.6 billion in assets. We have $13.8
billion in domestic equities, which is 45.2
percent of the total. We have $6.19 billion in
international equities, which is 20.2 percent
of the total. We also have $8.26 billion in
fixed income, $814 million in real estate,
$1.22 billion in alternative investments
and $308 million in cash. In addition, we
manage approximately $426 million and
$728 million of unfunded commitments in
private equity and real estate, respectively,
as of August 30th.
3. How do you think of your portfolio
with regards to developed and
emerging markets?
DS: We dont divide our private equity
allocation between developed and emerging
markets. Within private equity we have two
dedicated separate accounts, and then we
have a direct program of $185 million. The
two separate accounts are $1.1 billion in
aggregate commitments. Our direct funds
program is all US currently. The current
allocation to alternatives is four percent
and the target is six percent. Were likely to
increase this allocation based on our asset
liability modeling study.
4. What is your current experience in
Latin America to date?
DS: Our current international private equity
exposure is through one of our separate
accounts, which has a global mandate. In
the future, we may pursue international
private equity opportunities via our direct
program. Were analyzing managers in this
space, including their different strategies
and track records. International private
equityincluding investment opportunities
in Latin Americawould further diversify
our portfolio and capture growth
opportunities outside of the US.
5. What is your timeline for making
additional investments? What has been
your due diligence process?
DS: Potentially, we could make new
allocations within the next two to three
years. I have met with managers during
the Private Equity Brazil Forum in 2010
and 2012 as well as in our offices. We
are located in Oak Brook near Chicago
OHare International Airport, which makes
it convenient to meet when managers
travel to the US. Our separate account
managers cover the space as well, and share
information about whom they are meeting
in the region. We utilize a formal RFP
process to add new managers.
DS: Our commitment size ranges from $5
million to $100 million into a real estate
fund. Typically, initial commitments to new
managers range from $25 to $50 million.
Actual commitments are determined on a
case-by-case basis.
on your investments in private equity?
DS: For IMRF, private market returns need
to be higher than a liquid public markets
portfolio. Our benchmark for alternative
investments is 9 percent. When we look at
private equity investments on a standalone
basis, we like to see at least 2x invested
capital and 20 percent net for a buyout fund.
Thats just a guideline though, and return
expectations vary with investment strategy.
Private equity is all about how you set your
asset allocation at the portfolio level. It is
attractive because its a return enhancer, but
in order to generate those high returns, one
must be ready for a long-term commitment
to the asset class. Your risk-return profile
and funding level should determine how
much you can allocate to the private
equity asset class. We are very well funded,
currently at 86 percent, so we are able to
commit to a long-term asset class and can
handle the illiquid nature of the asset class.
8. Have you found advantages
attending Latin Markets Private Equity
forums?
DS: I attended the PE Brazil Forum in 2010
and 2012. When youre doing due diligence
and research in the region, you want to see
the various general partners and strategies,
and this is one place where you are able to
meet so many people. Being on the ground
floor and learning about the opportunities
and challenges in the region is always
important.
Ms. Shah spoke on the Global Pension
Roundtable at the 2012 Private Equity Brazil
Forum in So Paulo.
Ms. Shah served previously as
Managing Director of Private Equity
for the New York State Teachers
Retirement System.
Dhvani Shah
Illinois Municipal
Retirement Fund
66
INTERVIEW: DHVANI SHAH

Siguler Guff is a multi-strategy private equity investment firm with over
$10 billion of assets under management. Siguler Guff manages and co-
manages several direct investment private equity funds and multi-manager
funds, each targeted at carefully defined areas of market inefficiency. The
Firm also provides discretionary private equity advisory services through
Siguler Guff Advisers, a registered investment advisor. Siguler Guff
serves over 450 institutional clients, including corporate and public
employee benefit plans, endowments, foundations, government agencies,
sovereign wealth funds and financial institutions, and over 500 high-net-
worth and family office investors.

A Pioneer and Leader in the Emerging Markets
+ Over $3 billion of capital commitments in the Emerging Markets
+ Manager of largest pool of multi-manager fund assets in the BRIC
markets; growth equity, buyout, venture capital and PIPE investments
target the enormous untapped potential of the domestic consumer
markets in Brazil, Russia, India, China and other select Emerging
Markets
+ First BRIC private equity fund-of-funds
+ First private equity fund-of-funds manager to establish an office in
Mainland China (2006)
+ First U.S. private equity fund investing in Russia (1995)
+ Experience as a specialized fund-of-funds manager and as a direct
investor
+ Over 250 years of combined Emerging Markets investment experience
+ Local teams in Shanghai, Mumbai, So Paulo and Moscow provide
deep market insights
+ Large, dedicated team of over 30 Emerging Markets investment
professionals (including investment professionals at Russia Partners, an
affiliate of Siguler Guff)

www.sigulerguff.com

NEW YORK + BOSTON + CHICAGO
SO PAULO + SHANGHAI + MUMBAI + MOSCOW
1. Tell us about Makena Capital and
how your investing strategy mirrors
an endowment model. What are your
current assets under management?
MB: Makena was founded by principals
of the Stanford Management Company,
which invested Stanford Universitys
endowment. We manage money in the spirit
of an endowment, or what we like to call a
private endowment manager. The idea is to
offer the same kind of services that leading
universities can afford to institutions
that cant afford a large team or would
like to add existing capabilities to invest
internationally across asset classes. We have
greater than $15 billion under management
in pooled vehicles where we invest across
asset classes like equities, private equity,
fixed income, real estate, hedge funds, etc. I
sit on the asset allocation team as the global
strategist reporting to the CIO. We also
manage currency and a number of other
portfolio components. As a strategist, I
travel the world and talk with our clients,
many of which are large sovereign wealth
funds. I write all of our macro, strategy
publications and white papers.
2. What is the makeup of your client
base across institutional profiles?
MB: Sovereign wealth funds comprise
a major component of our firms assets
under management and are a cornerstone
of our firm. Endowments and foundations
also represent a sizeable portion of our
investment base, as well as national pension
funds and family offices. More than half
of our capital is ex-US, so we take a global
perspective. Being on the west coast,
we are closer to Latin America than our
sovereign wealth fund clients, so we can
bring a different perspective and act as a
conduit into the region. Because we are an
endowment style manager were thinking
long term. Were not focused like many
hedge funds on whats going to happen in
the next three months. We seek to invest in
multi-year, and in some cases, decade long
themes.
with private equity in Latin America to
date?
MB: We have private investments across
multiple asset classes. Private equity, real
estate and natural resources are typically
where we do most of our private investing.
We have spent a lot of time in Latin
America, mostly focused on Brazil, the 800
pound gorilla in the region. Recently weve
been spending more time looking at other
markets including Mexico and Colombia.
4. How much is your typical
commitment in Latin America and what
type of returns do you expect?
MB: The size of the commitment depends
on the type of manager. For smaller
commitments, we employ a concept we call
a farm team manager. If its a new manager
with less of a track record or is not as well
known, but we know the team, we like what
theyre doing, and the due diligence checks
out, we might invest a limited amount
initially, adding to our position over time.
If theres a more proven manager that we
like that has a great track record, has timed
things properly, is savvy not just in their
own sector but within the whole economy,
and we believe is well-positioned for the
future, we may make a larger commitment.
traveling to the region and doing due
diligence?
MB: We have a top down and bottom up
view. Our teams will go down and scour
the region and meet managers. We have a
very strict due diligence process on both
the investing and operational sides. We
also have a top down approach where we
look at interesting geographies and help
the bottom up team locate opportunities.
I recently returned from a week-long trip
to Colombia with the real estate and asset
allocation team. In the first half of the week
we met with the portfolio manager of the
largest pension fund, the central bank,
the business association, and members
of local think tanks. After that, we met
with a series of managers, having a better
informed conversation as a result of our
earlier meetings. We make an effort to
have a geographical asset allocation in
68
INTERVIEW: MICHEL DEL BUONO
Mr. Del Buono reports to the CIO on
global investment strategy, currency
and risk management.
Michel Del Buono
Global Strategist
Makena Capital
Management
The joke I hear from
locals is if you had
Brazilian private
enterprise and
Mexican government
policies you would
have the Asian tiger
in Latin America.
INTERVIEW: MICHEL DEL BUONO
69
adopted rules similar to Canadian mining
laws. They have a well-run economy and
quite a diversified economy despite recent
focus on mining and oil which have driven
export growth. Infrastructure could be a big
boost to growth in Colombia, because the
three or four principal cities are essentially
islands that you have to hop to by plane.
There could be a lot of productivity growth
if they fix the infrastructure problem,
by connecting these cities with modern
highways. Colombia has been a very steady
grower, and this kind of stability attracts
long term investors like us.
8. What is your current timeline for
making additional allocations to Latin
America and private equity?
MB: We continue to invest in emerging
economies, which of course includes Latin
America. Brazil is going to continue to a
key part of our Latin American strategy
simply because of the size and relative
liquidity of the economy. At the same time,
as weve discussed, were also looking into
other regions in order to complement and
diversify our Latin American exposure.
focus on the emerging middle class, and the
domestification of the economy, if you will.
We adjust the weighting of these countries
by looking at their share of global GDP
rather than solely the share of market cap.
7. Which opportunities are you
focused on in Brazil specifically with
private equity? And outside of Brazil?
MB: One of the big areas of focus in Brazil
has been real estate -- some residential but a
lot in commercial and specifically industrial.
Brazil has fairly poor infrastructure, and
there has been a lack of capital being
allocated to those sectors, so we partnered
with some managers that were purchasing
land to create warehouse facilities, cross
docking facilities for trucks, etc. This helps
imports coming into the big cities or exports
going out of the industrial regions to the
rest of the world. Weve found with the
smaller economies like Colombia where
the public equity markets are not very big
or liquid, it can make sense to start with
private strategies where you have risk
control, and can be very selective with
projects. In general, our private equity
tends to be focused on small to mid cap
opportunities.
Lets say you buy a chain of dry cleaners in
Palo Alto. Is the fact that there is a recession
in China going to affect it? Not much. If
you buy a building in Bogota, the buildings
value is primarily driven by economic
activity within maybe one to five miles.
In terms of economic themes outside Brazil
weve been looking at Mexico for three
years now. In our view, Mexico is on the
right path. It has a central bank that acts
rationally and a solid fiscal policy. The joke
I hear from locals is if you had Brazilian
private enterprise and Mexican government
policies you would have the Asian tiger
in Latin America. You have the new
government coming in with solid reforms,
driving potential GDP growth 100 to 200
basis points, which would be a big boost.
In Colombia and Chile, there has been a lot
of restructuring of the economy and very
clear rules-based, predictable policy making.
For instance, in the mining sector Colombia
conjunction with our standard asset class
based allocation. We dont have a targeted
weight for each country, but we do work to
identify interesting regions and grow our
investments there.
perceptions toward emerging markets
shifting in light of account deficit
situations in some countries, and the
Fed eventually raising interest rates?
MB: We continue to believe that emerging
markets are an interesting place to be. I
think there are a few things to be aware of
though. The growth in import demand from
developed markets out of emerging markets
is slowing. From 97 to 07, imports into the
US and Europe were growing around seven
percent annually. Since the recession, its
been growing at about 50 basis points per
year. We see these headwinds continuing to
face emerging markets; therefore, they have
to reorient toward domestic consumption.
This is a very slow and risky path because
you have to try something new and abandon
what you know, especially in China. When
you rotate away from export led growth, and
toward internal demand, the focus tends to
be on services. Services are skill intensive
so you need education and enforceability of
contracts. In Brazil and India, there are large
service sectors. Brazil is basically a closed
economy: Imports plus exports as a percent
of GDP are roughly the same as the US.
Theyre a much more domestic, services-led
economy than a country like China. The
problem in Brazil is the income distribution.
Moving forward, a lot depends on how
much the country spends on educating its
people to enable more skill-based growth.
EMs are still the driver of global growth,
but in order to get the right exposure it has
to be more focused on the domestic aspect.
For example, the increase in the wages
of the middle class depends on growth
in the service sector. Weve developed an
index internally that focuses on domestic
industries and weights countries differently
than just using market cap. If you only use
market cap, you end up with a lot of these
export giants dominating your index like
Petrobras, Samsung or Vale. These are the
things you dont want if youre trying to
PRIVATE
EQUITY LATIN
AMERICA
FORUM
MAY 19-20, 2014
NEW YORK, NY
REGISTER BY FEB. 28
FOR OUR EARLY BIRD
DISCOUNT
1. Give us a brief background on the
investment program and initiatives at
the Helmsley Trust.
RH: The total value of the trust is $4.2
billion. As we speak were expecting another
$700 million to come into the trust because
were liquidating an investment. This would
be our portion of the Empire State Building.
Our programs span across health, education,
human services and a range of place-based
initiatives. About 70 percent of our work
is in the health area and this ranges from
disease-based programs to healthcare
delivery in rural areas to basic medical
research. Our national education program
focuses on better preparing K-12 students
for college and careers, as well as promoting
higher graduation rates and better education
options for college students in the so-called
STEM (science, technology, engineering and
mathematics) disciplines.
Our place-based initiatives include a
conservation program that focuses on bio-
diverse hot spots globally that are threatened
because of tourism or unsustainable land
development. We also have a program in
Israel that supports the countrys leading
research institutions and health care
infrastructure, and a program for at-risk
children in Sub-Saharan Africa.
across asset classes and geographies?
RH: Rather than allocate to specific asset
classes, we have three broad categories that
are designed for a specific purpose. We
have return generation, inflation sensitivity
and liquidity risk mitigation. The last
one is an investment in short maturity,
high quality US bonds to ensure that we
have sufficient liquidity to operate the
trust during a financial dislocation in the
markets. The inflation sensitivity portion, as
its name implies, includes investments that
are sensitive to inflation and deflation. In
that category, we have some private equity
investments, some of which are invested
internationally. We have a private equity
investment in a mining limited partnership
that invests in some emerging markets in
Africa and Latin America, and energy-
related investments, some of which are
invested in Africa.
The return generation category is
designed to be the workhorse of the
trust. We have private equity and private
capital investments along with long-only
investments in hedge funds. Rather than
having specific allocations to specific
categories, the way a traditional foundation
or pension fund may allocate, we invest
on the basis of our broad themes. Within
these themes we locate the capital gaps.
One of the broad themes which leads us to
emerging markets is the growing middle
class.
We approached this theme through a
combination of private equity and venture
capital in specific regional, country funds
in the emerging markets. Then we overlaid
some long-only public debt to complement
it. So we went to both ends of the risk
spectrum. Within private equity and venture
capital, we invested in a Latin American-
based fund, an Israeli-based fund and a
Chinese-based fund. In Latin America, it is
a pan-regional fund and return generating
strategy that focuses on Brazil and Mexico.

Private capital makes sense for this to fund
start-ups of local businesses that are focused
on local consumerism, health care, financial
services and technology.
3. When did you make this first
investment? What was the due diligence
process?
RH: We made the investment in July 2011.
We looked at a number of funds and the
fund we went with had return generation
as its objective. It was more of a hybrid
orientation than some of the other funds in
terms of venture capital, buyout and pipe
investing. Our investment program isnt
that old so this was a good first step.
4. How much is the typical size of a
commitment you make to a fund in
Latin America?
RH: We dont have a hard and fast rule
about it. We look at the risk return
characteristics of the fund and make a
determination on that and the kind of
exposure we want. We do this in the context
of the size of the fund. We dont want to
dominate a fund or be such a small portion
where were not important.
on investments in the region?
RH: Its not so much the regional return
per se. We really look at the underlying
investment. For the first combination
investment I described, were going to have
lower expectations on returns, as opposed
to the next investment if we decide to go for
a pure venture capital fund. We compare
it to venture capital in the US and add a
premium since wed be incurring currency
risk, and then a premium beyond that
because the venture capital market in Latin
Ms. Hewsenian previously served as
CEO at Clay Finlay. She also served
20 years at Wilshire Associates as an
Equity Principal.
Rosalind Hewsenian
Helmsley Trust
70
INTERVIEW: ROSALIND HEWSENIAN
INTERVIEW: MATTHEW CURTOLO
71
America isnt as well developed.
6. What is your outlook for emerging
markets given reports of account
deficit troubles in some countries, and
capital flows potentially returning to
developed markets?
RH: We start out viewing opportunities
the same everywhere. We begin with broad
themes and then we identify where there
are capital gaps. There have been instances
in certain parts of emerging markets where
capital is flowing back to the US. What we
do is to try and assess why this is occurring
and then determine if this is a risk we
are willing to bear. When capital leaves
it is possible to get better pricing on our
investment, because were moving in where
others are moving out. Our view is that
now that people are moving out, it could
be more interesting. But we dont want to
rush in with everyone else because prices get
pushed up as everyone piles in and you get
mediocre performance results.
7. What is your timeline for making
additional allocations?
RH: Were going back to Latin America in
December and doing some pan-regional
due diligence in Mexico and Brazil. Were
looking at a number of different ways
to invest, and talking to economists and
money managers. We do very intensive due
diligence in the region.
8.How is the Private Equity Brazil
Forum a part of your overall due
diligence in the region?
RH: The private equity event is part of a
much broader trip throughout the region.
We want to hear other market participants
and see if we can triangulate with what
weve been hearing from others and make
new contacts.
Ms. Hewsenian will be speaking on the Global
Foundation & Endowment Roundtable at the 5th
2013.
long only platform, a hedge fund platform
and a private equity program for clients that
can handle illiquidity. The private equity
program is set up like a series of rolling
fund of funds. Clients participate in the
program for no incremental fee and pay
no carried interest. Its a great value-added
service compared to our peers and 85 to 95
percent of our client base participates in the
program. From an investment perspective
on the PE side, we run a single vehicle at a
time rather than separate accounts.
MC: The program is set up within a
structured framework designed to provide
clients with diversified exposure to the asset
class. Within that framework, we tend to
be relatively opportunistic. Were looking
anywhere from early stage venture, to the
growth stage on the emerging company
side, through all levels of buyouts, and
various debt strategies such as distressed,
mezzanine, and some senior credit. We
invest in private real estate and real assets
like infrastructure, agriculture, metals and
mining, and also the opportunistic end of
private real estate.
As far as rough percentages, 40 to 50
percent of that is in buyouts, 15 to
20 percent is across the other three I
mentioned: venture/growth equity, debt and
real assets. Globally we have been fairly US
heavy with 60 to 70 percent, and roughly
15 to 25 percent in developed Europe, and
the remainder in the rest of the world with
some exposure in Asia and South America.
We also pick up some rest-of-world
exposure from our global managers on the
buyout side.
3. How long has your firm been
MC: We originally took a bit of a wait and
see approach with Latin America, making
our first commitment to a dedicated Latin
American fund in April this year, though
some of our other managers have made
investments in the region, as mentioned.
1. Begin with a brief overview of
Hirtle Callaghan and the outsourced CIO
model.
MC: We were founded by former Goldman
Sachs professionals Jon Hirtle and Don
Callaghan 26 years ago as one of the early
pioneers in universal asset management, the
now fashionable outsourced CIO model.
Currently, we have about $20 billion in
AUM. Our clients are comprised of small
and medium sized institutions and high
net worth families that may not have the
scale and are looking for a full service,
hands on, investment office. In terms of
the OCIO model, we provide a full range
of services, including asset allocation,
modeling and decision-making. We have a
Mr. Curtolo joined Hirtle Callaghan
in 2011. He sources new investment
opportunities and leads all aspects of
due diligence for the firm.
Matthew Curtolo
Senior Analyst
Hirtle Callaghan
continued >>
72
INTERVIEW: MATTHEW CURTOLO
MC: I think the character of the companies
you can own is quite a bit different in Latin
America on the private side versus public
companies. As I mentioned, the public
exchanges are dominated by a few of the
biggest companies, which do not truly
reflect the growth that most investors are
seeking when they allocate their investment
dollars to the region. For us, being able to
gain exposure to smaller companies that
truly embody the growth story in the region
is critical.
allocations in the coming years to Latin
America?
MC: I am confident that we will make at
least one more allocation over the next 12
months. Ive spent a lot of time over the
last year and a half researching the region
and my conclusion is that managers really
matter. Not that this isnt true in most
markets, but more so in Latin America. So
finding the right manager is going to trump
the need of putting a dollar to work in the
region because theres a much smaller group
of managers who have that local presence
and the execution history. In the next two
years well definitely continue to allocate in
the region, but not necessarily on a country
specific basis.
10. Lastly, how have Latin Markets
private equity events factored into your
allocation process?
MC: The team and I have attended several
Latin Markets events. In Latin America, its
tough with a small team to see the managers
you want to see and the local players, so the
private equity event this past May was great
for networking, relationship building, and
knowledge building. We continue to look
at your events as very helpful to us in our
ongoing investment decisions.
6. What is your economic outlook for
Latin America?
MC: Because our dollars can be allocated
across strategies and geographies, we focus
on the risk-return opportunity. The frenzied
fundraising market of the past few years in
Brazil is clearly not sustainable. The capital
already raised is tougher to invest at the
moment. I do think we will get to a normal
level and there will still be a reasonable
fundraising amount in those markets. A lot
of that is driven by investor sentiment of
private equity and diversifying portfolios,
with an eye to growth.
Country by country its tough to say,
though I dont see significant headwinds.
Brazil went through the aforementioned
fundraising wave and now the economy
has seen some slowdown, but there are still
significant pockets of growth. Colombia and
Peru are the hot places where some people
see the next Brazil, so well see how the cycle
turns and how funds in those countries raise
capital. There are certain dynamics right
now that put a ceiling on how much capital
can be raised there, but I certainly think
were on the upswing.
7. How has volatility factored into
your investments in the region?
MC: This is part of the reason that we
wanted to invest in a pan-regional fund as a
first entre in to the region; to be diversified
from an overall portfolio perspective, and in
a fund that has deals in Mexico, Colombia,
Peru and Brazil. The currencies have not
shown a lot of correlation historically so
there is some insulation there. Theres
enough dispersion between favorable trends
in each country so volatility is not as much
of a factor. When we think of our exposure
beyond the regional funds into more
country-specific funds, well certainly look
more at volatility.
8.In your experience, what
advantages does private equity have
as an asset class, specifically in Latin
America?
4. What was the due diligence process
in Latin America? What sectors and
economic dynamics is your allocation
focused on?
MC: Given the diversified nature of our
pool, we wanted an investment that could
touch a lot of different areas, and a group
that was going to provide us broad pan-
regional exposure. Our clients also have
some exposure through the long only side
so we didnt want to be duplicative of their
existing investments. The good thing is, in
most areas of Latin America the flavor of
exposure you get from private equity is very
different from that on public exchanges.
Particularly in Brazil, the Bovespa has a
much different exposure more natural
resource and financials heavy than what you
typically get in private equity. We wanted to
invest in the themes of the growing middle
class: consumption, infrastructure, and
financial services (emerging spaces where
credit didnt exist 10 years ago). We also
focused a lot on governance. While Latin
America has become more developed, the
enforceability of contracts and the rule of
law can be in question, so finding a group
that had more of a Western governance
approach regarding both structure
and reporting helped to make us more
comfortable.
commitment you make to a fund in
Latin America?
MC: Every private equity vehicle that
we raise is a different size, driven by our
internal client demand. If were making
one to two commitments in a vehicle to the
region, it would be about 15 to 20 percent
and a single commitment could be about
5 to 10 percent. From an underwriting
perspective, given the risk and different
private equity environment as opposed to
ten years ago, were looking for the money
multiple rather than IRR. I remember
someone telling me: dont think about an
IRR in Latin America -- we think about
owning these companies forever. Of course
liquidity matters though, so were expecting
at least a 2x LP return.
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74
INVESTOR CONFERENCE CALL: QUILVEST PRIVATE EQUITY
investment for Quilvest in Latin
America?
MS: We arent fixated on the specific size
of an investment as we like to be flexible
enough to tailor our commitment size to
each particular situation incorporating a
variety of factors into the level of exposure
we are willing to take. Practically speaking,
we gravitate towards a range of $15 to
$50 million. Given that Latin America is
generally an access constrained PE market,
as an LP it is important to be systematic,
consistent and proactive about forging
early relationships with the core group
of mid-market funds that exist. Its really
where ever we see the best opportunities.
In 2005 and 2006, Brazil was an attractive
destination and we gained interesting
exposure there. However, later we saw
valuations increase, and Peru and Colombia
became more attractive.
DA: Small to mid-market funds usually
do not have a lot of track record, so
we frequently look at co-investment
2. What is your experience to date
with private equity specifically in Latin
America?
DA: Since the 1990s Quilvest and its core
shareholders have put about $1 billion to
work in Latin America. In the last three
years we have focused on the Andean
region in Chile, Peru and Colombia, as we
view them as strong outliers in the region.
Historically, Brazil has been the larger
market with more GP depth. We started
investing in the mid-market, but many
of the successful mid-market teams have
risen a bit too fast to the more crowded
upper mid-market and large cap range.
We originally focused on Brazil with local
managers, exploring different opportunities.
We recently invested in a Latin America
agribusiness local player that is mostly
focused in Brazil. In the next couple years
were going to see some headwinds there
affecting various sectors, but we believe that
the agribusiness sector will still grow well.
1. Briefly describe Quilvests history
with private equity in emerging
markets and your current assets under
management.
MS: Quilvest was born from industrial
success in Latin America and today has
become a leading global private equity and
wealth manager with approximately $22
billion in AUM. Globally, we now have 13
offices around the world, with London,
Paris, New York, Dubai, So Paulo and
Hong Kong being our PE front office
locations. Private equity has been a core
focus of the group for much of its history,
with our first investment in the category
being made over 40 years ago. Today we
manage approximately $4.5 billion in
private equity through both fund and direct
investment activities. Within that figure,
the emerging markets represent close to
$1.0 billion of the PE assets we manage
on behalf of our balance sheet and third
party investors. Latin America has been a
core and strategic segment, representing
approximately 25 to 35 percent of our EM
exposure.
Mr. Arippol focuses both on fund
selection for the firms Global Emerging
Opportunities PE Program and
co-investments in Latin America.
Daniel Arippol
Principal
Mr. Saluja oversees the firms Hong Kong
office. He also co-manages QS GEO PEP.
Maninder Saluja
Partner
Mr. Heneine is co-head of Quilvest Private
Equity in Emerging Markets. He oversees
PE investments in Asia, Latin America,
Eastern Europe, the Middle East and Africa.
Carlos Heneine
Partner
INVESTOR CONFERENCE CALL: QUILVEST PRIVATE EQUITY
75
area that is less competitive by definition,
but you have to be out of So Paulo getting
your feet dirty, so you end up meeting fewer
of the big names along the way.
7. In your experience, how does Latin
America differ from other emerging
markets?
MS: Latin America is not as much of a
hyper-growth market as compared to some
other emerging markets. For example, GDP
growth in Latin America ranges roughly
from three to six percent versus five to eight
percent in developing Asia. Within PE, most
other emerging markets have been growth
equity oriented, whereas Latin America has
had a high degree of control investments
throughout its history. This has created a
different dynamic for LPs knowing that
you will more consistently get your money
out of these markets. Finally the number of
funds that exist in Asia dwarf the number
that exist in Latin America, which has made
the region a fairly access constrained market
for LPs seeking exposure to middle market
funds.
8. Lastly, have you found certain
advantages attending Latin Markets
forums?
DA: Weve had a great experience on the
speaking and attendance side. In terms of
networking, finding new funds that are
prospecting and new contacts on the macro
side it has also been very helpful.
MS: Ive always been impressed with the
way you guys approach the markets globally.
Its been interesting to see the growth and
types of speakers that attend. Its amazing
how systematic and consistent youve been
with the types of attendees who have come.
Mr. Arippol will be interviewing Amaury Junior,
Founding Partner & CIO at Vision Brazil
Investments at the 5th Annual Private Equity
Brazil Forum on Dec. 9-10, 2013.
smaller markets than Brazil and Mexico
and are also at earlier, different stages of
development, so there are fewer PE players
within these countries. We wanted to play
on the rise of the consumer theme and
find the right parties to work with not
necessarily pan-Latin American players
who have opened an office to cover
the market, but ideally local funds that
have a deep understanding and history
within the market. Were evaluating some
opportunities in Peru now. Peru and
Colombia are not growing as fast as they
did but they will recover in the next 12 to 18
months. You dont have the same reasons
for slowdown in Peru as in Brazil. You dont
have exports being hammered by currency,
and the same level of consumer debt or
dependence on protectionist policies to
help domestic industries. Furthermore, in
the Andean region there are consumption
variables that have yet to reach the level of
other Latin American countries.
6. How would you say this speaks to
how your firm evaluates opportunities
and navigates challenges in both Brazil
and the Andean region?
CH: We have always tried to be a step
ahead of the large pools of money because
no matter how risky a macro environment
or company, we firmly believe the biggest
enemy of returns is overpaying. If you buy
at a reasonable price, that is always a way to
survive. If you wait a little longer you lose a
turn but you still do well. This by definition
means getting into markets before everyone
else. We were in Brazil early and did well.
We looked at Colombia and more or less
ended up going in with the crowd, but with
a good team. We also invested earlier in
Peru.
In 2011 in Brazil, there was such a large
amount of money raised and this meant
nothing good would happen to prices. In
that kind of situation, you need you say to
yourself, what about Nicaragua or Bolivia?
But of course there is a limit to this line
of thinking because there are just some
markets that are too small. So you need to
keep looking at funds that are in the small
to mid-cap to stay away from competition.
You need to keep looking at themes. Our
latest fund investment, Aqua Capital
Partners, is an agri-fund which isnt an
opportunities in parallel or as a prelude to a
fund investment as this is usually the most
insightful type of diligence experience. Our
co-investments have a significant degree of
ticket size flexibility.
CH: In aggregate we have put about $70
million into a Mexican deal over the last
decade. However that is unusual and we
normally do deals between $5 million and
$20 million and try to stay in the middle
market. Because were not a fund that has a
certain life, or requirements to do a deal of a
certain size, this allows us to do whatever is
warranted given the opportunity.
4. How do you see Brazil faring
against these economic headwinds?
DA: Brazil is an outlier in Latin America
in the private equity space. It has survived
up cycles and down cycles and we believe
it will survive the current down cycle. A
few years ago, the government decided to
combine a more populist direction with
credit expansion, increased protectionism,
and other short term initiatives that have
not helped prepare it for the next five
years. As Brazil has slowed, more attractive
countries have come to the fore now like
Peru and Colombia. So Brazil is paying
for some of its mistakes in these areas.
Like Brazil, Peru and Colombia benefitted
from the expansion of commodities, but
they continued improving macro policies
and opening their markets, and this is
why they are going to bounce back more
quickly and grow more sustainably. In the
middle market in certain sectors such as
agribusiness, telecom, media and technology
there still are great opportunities in Brazil
for the right specialized player. Health
care is another area where there are still
opportunities, though the regulatory
framework is more uncertain. Financial
services and special situations may also offer
opportunities to specialized GPs. Weve
also been looking into energy though it is
more difficult to find the kind of IRRs we
typically look for.
5. Could you speak more to your shift
toward investing in the Andean region?
CH: Peru and Colombia are significantly
So Paulo, Brazil - Private Equity Brazil Forum
Mexico City, Mexico - Real Estate Mexico Forum
Boston, MA - New England Institutional Investor Forum
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February 5-6, 2014 - Bogot
Peruvian Investors Forum
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PE Investing in 2014

Where are Leading Investors

1. Briefly describe how Terranum

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