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Chief Executive OfficerAdam Raleigh

ManagementGiseli AkabociKenneth BaucoKilby BrowneCharles FathersWilliam FrankPaloma LimaZaianna OrtizAmir OukiTim RaleighAhmad Sahar

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The Latin American Asset Class: Targeting the Opportunitty

Our Institutional Investor Group at Latin Markets travels the world meeting with investors allocating to Latin America and Latin American investors allocating globally.

The Latin Institutional Investor Journal (LIIJ) is the latest monthly magazine from Latin Markets designed to distribute our discoveries with those of you who can’t always join us on the road. In the first issue of LIIJ, you’ll find 10 exclusive interviews – all focused on the opportunity set advisors and investors are targeting in Latin America. We cover topics such as why Chile’s private pension system has

become one of the most stable, profitable systems in the world (p. 4), how the telecommunications and energy reforms in Mexico are leading to new opportunities for investors, (p. 17) and the outlook for Latin America as a whole (p. 5) .

We have just launched our new web site www.liij.org! On the site you’ll find all of our interviews to date and an easy way to subscribe for free to receive the latest insight from investors and advisors around the world. It was a pleasure speaking with those of you who joined me for an interview. I’ll look forward to meeting with you in-person at the 4th Annual Chilean Investors Forum in Santiago, Chile on August 7-8!

All the best,

Carolina BarretoEditor at The Latin Institutional Investor Journal

LIIJ / AUGUST 20142

OTHER INTERVIEWS INCLUDE:

6 16

9

11

Contents

Jay PeloskyFounder of J2Z Advisory

14 Ricardo WeissFormer CIO at FAPES

Marcio FariaCIO at Fundação Atlantico

Bruno Maueler da CruzInvestment Advisor at Fundaçāo Copel

12 Raimundo MartínManaging Director of Iberia & Latin American Markets at Mirabaud Asset Management

Diego MolanoCEO at FundaciÓn Bavaria

15 Patricio EskenaziCIO at Banco Penta

LIIJ / AUGUST 2014 3

10 Henning Gebhardt, Managing Director, Head of Equities for EMEA at Deutsche Bank

The Chilean Pension System

4 Dr. Klaus Schmidt-Hebbel, Professor of the Universidad Catolica (Chile)

Development and Reform in Mexico

The Euroland and Colombia

17 Mercedes Aráoz Fernández, Country Representative at IADB (Mexico)

systems have allowed increasing asset shares to be invested in world capital markets. This has improved risk diversification and returns of pension investments. I expect the latter trend to continue in the future.

5. What is the consensus AFP view of Global Equities vs. Fixed Income? What do the Chilean AFPs think of diversifying into alternative investments?

KS: There is no static consensus view of variable versus fixed-income investments, neither over time nor across AFPs. In fact, several countries that allow pension fund affiliates to choose among portfolios that differ very significantly in their fixed/variable income asset composition, AFPs have to implement or follow the broad asset allocation that their affiliates select.

Dr. Klaus Schmidt-Hebbel will be speaking on

the panel “Historial Lessons on the Evolution

of the AFP System in Chile for Latin America –

Development of an Industry” at the 4th Annual

Chilean Investors Forum on August 7-8, 2014.

against the private pension system, leading to partial nationalization and/or badly designed regulatory reform.

3. How do you see the growth of pension systems in other parts of Latin America?

KS: Some countries – like Argentina and Bolivia – have nationalized their small private pension systems. Yet the large majority of Latin American countries – including Peru, Colombia, Mexico, and many other smaller countries – have adopted pension systems that are similar to Chile’s system. Hence the prospects for further growth of private pension systems and their assets under management by private providers are good in the latter countries and others that may broaden the extent of private pension pillars.

4. Is there a natural bias among the AFPs towards domestic allocations? Does increasing capital need to be allocated globally to provide returns?

KS: Over the years, governments of most countries with privately managed pension

1. In your view, what were the crucial reforms that allowed the Chilean pension system to grow with speed and sophistication?

KS: Chile’s revolutionary pension reform implemented in 1981 replaced a mandatory state-managed defined-benefit pay-as-you-go pension system by a system based on mandatory privately-managed defined contributions. Since 1981 further complementary reforms have been adopted that have strengthened both the mandatory second pillar and the redistributive first pillar and voluntary third pillar of Chile’s pension system.

2. What are the risks of future consolidation among the AFPs?

KS: One risk is that the current parameters of Chile’s contributory pillar (in particular, too low retirement ages and too low contribution rates), which explain why current pensions are relatively low, will not be adjusted upward, leading to further reductions in replacement ratios. This implies a second risk: populist backlash

Dr. Klaus Schmidt-HebbelThe Chilean Pension System

Professor of the Universidad Catolica (Chile)

LIIJ AUGUST 2014: Universidad Catolica

LIIJ / AUGUST 20144

General (Ret.) David H. Petraeus

Chairman, KKR Institute,

Former Director, CIA (US)

FEATURED SPEAKERS

Bruce ZimmermanCEO & CIO,

UTIMCO (US)

Ignacio Saldaña PazCIO,

Afore XXI Banorte (Mexico)

Jose Maria de la Torre Verea

CEO, Afore

PENSIONISSSTE (Mexico)

1. Give us a brief overview of your firm and your career background as well.

JP: I’ve been involved in the financial markets for over 30 years on both the buy side of the business in terms of managing client money and also on the sell side of the business in terms of providing research. Most of my formal career has been on the research side. I began in the early days of emerging markets in the late 1980s with a focus on non-Japan Asia. Then I was hired by Morgan Stanley Asset Management in 1990 and the first assignment I was given was to start a Brazil fund which was a very interesting experience. It was virtually impossible to raise any money, but yet if you go back and look at a chart on a dollar based term, you’ll see that 1990 was pretty much the absolute low in terms of the Brazilian stock market. I learned a very valuable lesson early, which is the time to go out and market is not necessarily the time to buy and vice versa. I spent several years managing money for Morgan Stanley Asset Management first in Brazil and then a year or so later we launched Latin American discovery fund which invested throughout Latin America.

I was involved in Peru, Chile, Venezuela, Argentina, Columbia and Mexico in the early 1990s and began the Morgan Stanley for Latin American equity research effort. I served as strategist, built out the entire equity research team, and hired everyone. I did that for several years and then moved to another product. I was asked to start Morgan Stanley’s Global Emerging Markets Strategy product. In the mid-1990s, it was the first product for the firm that was both multi-regional and multi-asset. It included foreign exchange and fixed income as well as equities, and it included all of the emerging regions. At that time they were Asia, Latin America, Eastern Europe, Russia, and that of course was just in time for the Asian financial crisis in the late 1990s. I spent a lot of time on that and then in the late 1990s, I was asked to start Morgan Stanley’s Global Equity Strategy product and serve as Global Equity Strategist. My last job at Morgan Stanley was to start Morgan Stanley’s Global Asset

Interview with:

Jay PeloskyFounder of J2Z Advisory

ASSEt ALLOCATIONTO THE ANDEAN

LIIJ AUGUST 2014: J2Z Advisory

LIIJ / AUGUST 2014 7

which is a strong story. You have Brazil which is struggling. You have the Andeans which are to some extent being forced into a new growth path because of China’s slowdown and then you have Argentina and Venezuela which as I mentioned because of their policy mix have really taken them out of the investment universe.

3. Although Brazil and Mexico may be the biggest countries in terms of their economies, Chile has proven to be one of the more stable countries in the region. Do you agree with that? Do you think this will continue in the coming years?

JP: This is very interesting because I just recently did some work on why emerging markets have been so stable, broadly speaking, as an investment class this year given all the bad news. There has been China’s slowdown, violence in the Ukraine, political uncertainty in Turkey, Venezuela’s problems, Argentina’s potential default. You have a laundry list of bad news and yet if you look through the first half of the year, you’ll see that emerging markets in both equities and fixed income have actually done quite well. Why, I think is a very real question and one of the things that you learn if you dig into this a little bit as I have done over the last couple of weeks. Part of the answer I believe, is because of the growth in the domestic asset base in many emerging economies over the last decade or so. I’ll give you one statistic that I think is emblematic of this. In 2002, emerging market institutional assets under management totaled roughly about $2.5 trillion. This is all emerging markets. If you then fast forward to 2012, that emerging market institutional asset base expanded to over $6 trillion. That is 2.5 times growth in a decade and I think that’s one of the things that has really supported emerging markets this time versus 1998, for example, or even 2008. Chile is really a leader in this process, with their pension fund process and the experience and expertise that their pension funds bring to the table in terms of the Chilean stock market. That’s one of the reasons why the Chilean market has actually done reasonably well even though copper, which is commonly associated with the Chile, is down 6 or 8 percent year to date. Despite this, the Chilean stock market is up 3 or 4 percent year to date and over the last 12 months it is basically flattened

and what you see in emerging economies in many aspects is kind of a stag-flationary environment where you have weak growth and sticky and stubborn inflation. Brazil is a prime example of this, with growth of 1 percent or so, inflation of 6 percent, very high real interest rates because of inflation, overly strong currency and a fairly weak economic outlook. I recently was in Brazil a month or so ago and prior to that I spent a week in China really trying to study and see if it was going to crash. China similarly has a decelerating growth profile and is trying to switch from a state led investment boom and very high credit creation to a more domestic demand and consumer driven economy. The process of which, is decelerating its growth rate. This, in turn has had a big impact on other emerging economies which have benefited over the last decade from China’s boom, including many of the Latin economies and some of the Andean economies which are fairly heavily dependent on exports of primary product. Their dependence may be seen with both the effects on the currency and on the financial market results of many of those countries. This is true in the case of Chile and Peru, but Colombia has had more flexibility and it seems to have threaded the needle a little bit better than other countries. On the other hand, there is Argentina and Venezuela which have kind of taken themselves out of the ballgame so to speak with their policy mix, and really aren’t the province of most investors at this particular point in time. As I see Latin America, it really is the case where you have your two big markets which generate a lot of investor attention.

These markets are Brazil which we have previously covered, and Mexico, which is a very interesting story. I’m quite keen on Mexico. Mexico has very solid macroeconomic fundamentals. It has a pretty strong corporate sector, it is very close to the United States, and it has policy flexibility to deal with the difficult economic environment. For example, they’re running a budget deficit this year to stimulate growth. Many countries can’t afford to do that because their deficits are already too big. Mexico has that flexibility. It is becoming more and more a very significant manufacturing story particularly around the auto sector. It is a big beneficiary of China’s adjustment process in the sense that China is moving up market, becoming more expensive to produce and therefore a lot of production that moved out of the US and the Americas over the last 20 years may be coming back, especially to Mexico. So, you have Mexico

Allocation Strategy product and that was really an extension of the Global Emerging Market work in that it was multi-asset, multi-regional and also multi-disciplinary. It was the first product that covered both technical analysis, quantitative analysis as well as fundamental analysis. We actually started the firm’s first investment committee which I co-chaired along with Steve Roach who was our Chief Economist at the time and for several years we ran that product. I left Morgan Stanley in 2002, and for the last 12 years or so I have been focused on managing my own capital, which I have done continuously since the beginning of 2003. Throughout the financial crisis I was involved in the markets on a regular basis managing my own capital, which was quite a learning experience that has formed the bedrock of our advisory business, J2Z Advisory which I formed in 2011. It is a boutique operation and we provide independent, experienced, global, multi-asset, customized portfolio strategy and asset allocation advice to institutional investors. Our clients and prospective clients include hedge funds, long only funds, ETF only funds, corporates, endowments, and pensions, and we really focus our attention on the nexus between geo-economics, geopolitics and markets. We believe that our strength and in particular my strength is 20 plus years of thinking globally and thinking multi-asset, and having experience in investing and researching in over 45 countries over the last 30 years.

2. What is your take on the opportunity set in emerging markets and more specifically the Andean region?

JP: Well, I think emerging markets really struggle as do all markets at this point in trying to identify new growth models. If you think about the last 20 or so years, emerging markets have been primarily export and state investment driven kind of growth stories. They’re mainly exporting material and finished product to the west, and to the western consumer. The problem is that this business is slowing, and its growth profile is not what it was in the last 20 years. Emerging markets today, broadly speaking, really suffer from a lack of a growth model and the trend and the focus is to move to a more domestic demand driven model. Of course, moving to a new model is much easier said than done,

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LIIJ AUGUST 2014: J2Z Advisory

LIIJ / AUGUST 20148

should be looking to the non-US developed markets for equity market leadership. I believe the US has been and is in the process of handing over the equity leadership baton from the US to the non-US developed markets. Think about Japan, the UK, then about Europe, and the three things I’ve focused on this year for clients have been the move to the non US developed markets, spread product which includes by the way a dollar denominated emerging market debt, and then also I’ve been quite keen on the gold miners, which has been a very counter consensus call which has worked out year to date so far quite well. Those are three of the major themes and suggestions that I’ve made since the year began.

5. What are you looking forward to at the Chilean Investors Forum?

JP: What I’m looking forward to is really having the chance to engage with different participants and different institutional investors. In particular, I want to test out this thesis I have regarding the reason for emerging market assets to have done so well year to date in 2014 given all the bad news. My thesis is that it is because of the growth in assets within the emerging markets. Chile, as we discussed is a prime example of this - probably one of the leaders in terms of the development of an institutional asset base, and domestic institutional asset base. I’m really excited to spend time with some of the leaders of the Chilean financial markets, some of the other pension managers and investors that I know are attending the conference, and I think it’s going to be a great chance to really test my thesis with real discussions with some of the folks who are making those decisions and thinking about how to allocate assets both domestically and internationally. I hope to be able to add some value in terms of my view of the world as we’ve discussed and my view of opportunities within Latin America and the Andean region, but I’m also hoping to learn from others about how they see the world and in particular how they see the development of institutional assets, and domestic institutional assets, within the emerging market universe.

to buy product that was for the most part produced in Germany and France and some of the other big economies. That too, of course, collapsed in 2008. Thus Europe, the US, and the world at large have really spent the last 5 or 6 years buffering this adjustment process by liquidity, first by the Fed with quantitative easing, then China with its massive credit creation cycle. Both of those are now ending and Europe has stabilized its economy and it is no longer declining, in that it is no longer in recession. But it is barely treading water and thus I expect to see a continued action by the ECB over the next year or so where the ECB will engage in full-fledged quantitative easing. The steps that were taken in the past month or so to go to negative deposit rates and discuss other flexibility within the monetary system in Europe really have not moved the needle. If you look at the Euro versus the dollar, it’s basically flat. The market is telling you that it expects more from the ECB, and given that inflation is at 0.5 percent, that there is a huge debt load in Europe, a massive debt load much bigger than in any other region. Deflation in Europe would be an absolute catastrophe because as we know, with deflation prices decline, but the debt level stays the same and therefore it becomes harder to service. The ECB is not unaware of this risk, and I expect significant monetary easing further which will ultimately, I believe, lead to quantitative easing, which will help buffer the European system. Europe still suffers, as does the US, as do the emerging economies from a lack of a growth model.

When I look at the world today, I see there are two searches going on. One is the search for growth which we’ve just discussed. The other is the search for volatility catalysts in an extremely low volatility world for financial assets. The way I’m breaking it down here in my own work and discussions with clients is the following algorithm or equation: Low economic growth world equals low asset volatility which equals spread product and carries. That’s really how I thought about the investment universe. I’ve been quite keen year to date on fixed income and spread product particularly in the United States and I believe that on the equity side, the thrust has been to find those countries and those markets with the policy flexibility we spoke of and really make an investment recommendation that suggests clients

down a little bit depending on how you use the currency, of course. The currency has lost value. It’s down about 10 percent to about 550 or so to the dollar. Chile is kind of cheapening itself to try and compete more aggressively. In addition, you’ve had the political election cycle which now is finished and therefore should hopefully allow for a clearer policy outlook. Therefore, I think one has to consider that Chile is certainly worth a look as people consider Latin America. But I think the big issue for Latin America in terms of financial assets is that for the most part, negative news flow has turned off the non-dedicated investor. This means that the pool of money that’s moving around looking for investment opportunities in Latin America, in Chile, and in emerging markets broadly, is only from the dedicated money. Meaning, to invest in Chile, you have to take money out of somewhere else as opposed to several years ago when people were enthused about emerging markets, non-dedicated money came in and could go to all different places without taking away from another market. That, I think is one of the issues for Latin America in general. That there’s kind of a fixed pool of interest but it isn’t really moving around. To me what that suggests is that the countries that have the political wherewithal and the social wherewithal to engage in policy flexibility and to develop new growth models will see money coming back into their financial markets. This is the challenge and the opportunity of the current environment as I see it.

4. What other risks do you think we are facing in terms of global recovery?

JP: I start by thinking that the world economy, including both emerging and developed markets, broadly speaking suffers from the same broken growth model syndrome. If you think about the United States, we were a debt fueled consumer economy that ran into the wall in 2008 and is not coming back. I mean, that’s pretty clear. Europe similarly in the European Union with the Euro currency, what happened, of course, was that the southern peripheral countries were able to borrow effectively at developed or core European interest rates, namely German rates. All the rates collapsed much more closely to the German rate and, of course, that spawned a huge debt explosion which was then used

LIIJ AUGUST 2014: Fundación Bavaria

LIIJ / AUGUST 2014 9

DM: We are finding there is a need for new angel investment in Colombia. New business requires expansion but there are not innovative mechanisms to finance them. Globally, there are angel investors who are willing to invest and advise expanding entrepreneurial initiatives. This type of investment is required in Colombia and Bavaria Foundation will create an Angel Investment Network.

7. How can young companies in Colombia become more sophisticated and international in scope?

DM: We have to think not only about Colombia but new initiatives within Latin America. There is a growing market in the region that has new needs and common characteristics such as the emerging middle class, women entering into the workforce, and young people with higher income levels. All of these represent a unique opportunity for new business that think regionally.

8. What advantages did you find attending the Colombia Investors Forum?

DM: We were able to exchange ideas with other companies and initiatives that are promoting economic development and investment. We also wanted to create more cooperation between initiatives in the region.

as finance, marketing and managerial skills. After this, they prepare a business plan and executive officers from Bavaria and consultants decide the amount of capital they are going to receive.

4. Why do you believe it is important to make these investments in the local economy?

DM: This is critical for the future of Colombia because entrepreneurs are what really promote the economic development of a country. Colombia’s economy has been doing well and we need to create an ecosystem so the investment continues to flow. We are bringing new ideas, linking entrepreneurs to the economy and creating new sectors for the future. We have created more than 5,000 jobs in the last seven years.

5. Is there a certain sector you are focusing on in the coming years?

DM: We haven’t focused so far on a particular sector but in the future we want to focus on sustainable development. We also want to focus on agriculture. Lastly, we want to continue to focus on technology innovations and applications. Young people would like to work in this area and we want to support this.

6. What are some of the challenges for Colombia’s economy continuing to grow?

1. Give us a brief background on your role at Fundación Bavaria.

DM: My name is Diego Molano and I have a Master’s in Public Administration and Economic Development. I worked for the public sector as a Presidential Advisor for Social Development, and then as a Director for the Public Institute for Families in Colombia. Now I am the Director for the Bavaria Foundation. Bavaria is the subsidiary of Sabmiller in Colombia. Fundación Bavaria in Colombia leads all the corporate and social responsibility programs.

2. What type of seed capital have you been providing to local companies?

DM: Bavaria created a program called, “Destapa Futuro.” This is an initiative of Bavaria’s to promote investment in entrepreneurs and start-ups. We have invested around $8 million in more than 366 start-ups in Colombia thus far. We have supported around 3,400 entrepreneurs and promoted a network of more than 37,000 entrepreneurs.

3. How do you select the companies you’re going to invest in?

DM: We open a call every year to the public for entrepreneurs who need capital. Those we select are trained in different areas such

Interview with:

Diego MolanoCEO at Fundación Bavaria

DESTAPA FUTURO AND ANGEL

INVESTMENT IN COLOMBIA

LIIJ AUGUST 2014: Deutsche Bank

LIIJ / AUGUST 201410

say we are in bubble territory but I would argue against this because there’s not a lot of construction occurring. It’s mainly on the rental side where it is getting hot.

4. What advantages did you find attending the Colombia Investors Forum?

HG: The investment markets in Colombia have been opening up and this is quite interesting to us. The regulatory environment is very progressive, and local know-how is of the highest quality, which should ultimately benefit the Colombian investor. We’ve also noticed that there has been an underweight to Europe particularly by the pension sector and we’ve been pounding the table globally about the opportunity in Europe. The global financial crisis gave investors pause about investing in equities in general. Last year, those who participated in US equities saw impressive gains, but now, some would argue that the US Large Cap equity market is now fairly valued. We believe that this is not the case for Europe. Our view is that the improved metrics in Europe are not yet fully reflected and will share our insights with the audience at the forum so they can begin to reflect this in their asset allocation. We also look forward to open and frank discussions with the attendees.

economy. Immigrants come to our country to work. Our labor is flexible and there are little bureaucratic hurdles. France is a completely different story. They were doing quite nicely but now have relatively high deficits and the competitive environment is difficult. There is a highly rigid, unionized market and the government is now going after labor. Spain is saying they will do something on the flexibility of the labor market and bureaucracy, and they are seeing the first signs of rebound and stabilization of the labor market. Doing business in Italy entails a very high level of bureaucracy. To open up a firm, you need to wait two months to get electricity. In the smaller countries like Greece and Ireland you are seeing improvements in the fundamentals and the bond markets are opening up. So a lot is changing right now in Europe, but it is clearly getting better.

3. Where in Europe do you see opportunities for Colombian Investors?

HG: We have been seeing opportunities in southern financials, construction related companies and domestic oriented companies, which can be risky but pay off quite well. We see a cyclical upswing. I’m not an expert in the real estate markets, but the Spanish real estate market is stabilizing and German real estate is red hot. Some

1. Give us a brief background on your role at Deutsche Bank.

HG: I’m the head of EMEA equities which means Europe, Middle East and Africa. My team is focused on 50 percent German equity funds and 50 percent other products. We focused our comments at the Colombia Investors Forum on the opportunity in Europe primarily.

2. What social, political and economic dynamics are you seeing in Europe right now?

HG: The Euroland has started to gain more momentum and compared to other markets it is much cheaper. We have this catch-up potential which you don’t see in other markets, except for some emerging markets. Because of better earnings potential and economic fundamentals, the US and Germany have grown over the last few years. In Europe it is relatively depressed, but we now expect this catch-up potential for countries like Spain, France and Italy.

If you look at the Euroland and exclude the UK you have four big countries: Germany, France, Spain and Italy. These four are one block but each of them is completely different. Germany has a very low unemployment rate and a dynamic

Interview with:

Henning GebhardtHead of Equities for EMEA at Deutsche Bank

The Euroland and Colombia

4. What type of strategies do you prefer, and where do you perceive the strongest opportunities?

BM: Currently, I see opportunities in the fixed income area, but in the long-term I see the increased importance of private equity and some timberland investments. Brazil has a natural advantage when it comes to forestry. Trees grow faster here than

in other countries. North American and Canadian pension funds are investing in this asset class for a long time. It seems stable and profitable and brings diversification.

Private equity brings extremely attractive long-term risk-adjusted returns, if you have the right partners. As the interest rates should get lower in our country, over the long term, I believe that private equity allocation should increase considerably in our industry.

The VC plan is more diversified, but as the defined benefit part of the plan represents almost half of the reserves, we still have the major part of our investments in fixed income. We also invest in real assets, public and private equity. Currently, we are taking advantage of the interest rates rising in Brazil to improve our cash flow matching, with some investments in inflation-linked bonds, for the defined benefit part of the plan. In both plans, we are starting to build a private equity

program, so we are investing very selectively, and being careful about the vintages.

3. How have the calculated liabilities of your plan influenced your investment decisions?

BM: As I mentioned above, the liabilities have an important role in our investment strategy, especially in our defined benefit plan. For example, our defined benefit plan is closed for new participants, and almost all people are retired. Given these characteristics, the commitments to be paid over the years can be estimated with a reasonable degree of accuracy. With this information it is possible to formulate an investment strategy that aims to meet those needs.

1. Give us a brief overview of your pension fund and your role.

BM: I’m the Investment Advisor and Investment Committee Member at Fundação Copel, a multi-sponsored pension fund, whose main sponsor is Copel, a state-owned electric utility company. We manage around $3 billion, and we invest through fixed income, equities, private equity and real assets.

2. How is your portfolio currently diversified across asset classes and geography?

BM: We have two plans. One is a defined benefit - DB - (approximately $2 billion) and the other one is a variable contribution plan - VC - ($1 billion) - in case of the VC, there is a combination that mixes characteristics of defined contribution in the resource accumulation phase and defined benefit in the benefit payment phase.

Currently, all of our investments in both plans are held in Brazil. The DB plan has a liability-driven investment strategy, with a high concentration on fixed income through inflation-linked government bonds and some high quality corporate credit exposure. These are the core investments that give us a nice fit to our cash flow matching. We also have some real assets through forestry and real estate. The plan is fully funded, and its surplus is invested mainly in public and private equities. We don’t see greater changes in the near term for this plan.

Bruno Maueler da CruzInvestment Advisor at Fundação Copel

INVESTING IN BRAZILIAN FORESTRY

“In the long-term I see the increased importance of private equity and some

timberland investments.”

LIIJ AUGUST 2014: Fundação Copel

LIIJ / AUGUST 2014 11

management combined with the flexibility and tailor-made solutions of a boutique. Several high profile professionals joined MAM in the last years. Dan Tubbs, Black Rock´s Head of Emerging Markets kicked off our hiring. Aviva Investors’ Head of High Yield, Andrew Lake, and F&C´s Fatima Luis joined to run our fixed income team. Anu Narula from AXA IM joined to head the Global Equity Team. Renaud Martin from Credit Agricole joined three years ago to run the convertible bonds portfolios. All of them accepted a short-term career risk because we were offering a strong long-term story. We offer the best talent, combined with the best and flexible service.

5. What advantages did you find attending the Peruvian Investors Forum?

RM: We were able to introduce MAM’s capabilities to the Peruvian investors, and discuss with them more about the internationalization of their investments. Mr. Martin spoke on the panel “Alternative

Investments: Local, Regional, Global

Opportunities” at the Peruvian Investors Forum on

March 18-19, 2014.

investors. Due to our history, as well as our parent company and flexibility, it is very easy for us understand the needs of the family offices or multi-family offices and their long term strategy.

3. How does your firm design its portfolio in the context of developed and emerging markets across asset classes?

RM: With operations in London, Paris, Montreal, Barcelona, Zurich and Geneva, Mirabaud Group’s asset management division focuses on investment management and advisory services, including: * Active management of equity funds (Switzerland, UK, France, Spain, Europe, North America, Asia, emerging markets, global), favoring alpha generating strategies.* Bond management, including convertible bonds and global high yields.* Alternative investment management: Haussmann Holdings, one of the FoHF, has one of the longest and best track records in the world. With a focus on value creation, Mirabaud AM’s investment philosophy is based on long-term principles and high conviction risk-adjusted performance, offered through mutual funds or separate accounts or mandates. Our experience, flexibility, personalized services and outstanding reporting make Mirabaud the right partner for any kind of tailor made solution.

4. Can you discuss some of the recent hires your firm has made to help tailor your clients’ investments?

RM: MAM offers the best talent in portfolio

1. Give us a brief overview of Mirabud. What are your assets under management?

RM: Mirabaud Asset Management is the investment arm of the Mirabaud Group, an independent wealth and asset management group established in 1819 in Geneva, Switzerland. Our culture and identity have always been active management, and demonstrated added value for our investors over time. Mirabaud Asset Management’s values of integrity and alignment of interest with our clients, as well as our entrepreneurial culture, allow us to attract some of the most talented professionals in the fund management industry. Mirabaud AM fund managers benefit from a collaborative work environment and express their unconstrained investment expertise with rigorous risk oversight and disciplined investment processes. At Mirabaud Asset Management, we remain true to the fundamental values consolidated over nearly 200 years as we continue to serve the investment needs of our clients. Assets under management as of December 31, 2013 are $10 billion-- $5 billion in traditional assets and $5 billion in alternative investments.

2. What is your experience in Latin America to date?

RM: Mirabaud AM is just starting to do business in Latin America, with the strong conviction that it is an area with high growth potential in the future. Our plan is to deliver services to two types of clients: family offices and pure institutional

Raimundo MartínManaging Director of Iberia & Latin American MarketsMirabaud Asset Management

SWISS-BASED MIRABAUD AM TALKS LATAM DUE DILIGENCE

LIIJ / AUGUST 201412

LIIJ AUGUST 2014: Mirabaud Asset Management

4. Given current economic dynamics, what is your outlook for Brazil and broader Latin America going forward?

RW: Growth and economic indicators in Brazil have disappointed in the last few years and reflected with bad returns in the equity market. Present forecasts for GDP

and earnings growth are below historic patterns. The perception of investment trends and government management is also not good. On the other hand, valuations are low, like in other emerging markets. Maybe this was the reason for positive momentum in March. if they have liquid or illiquid assets as well.

Mr. Weiss spoke on the panel “Trends in Brazilian

and Global Markets” at the Pension Fund Brazil

Forum on May 12, 2014.

diversification needed? And if so, how can it be achieved?

RW: Historically the maximum allowed liability discount rate was 6 percent per annum in real terms. Interest rates in Brazil were much above this figure shaping asset concentration in fixed income. Real interest

rates in 2011-12 were below 6 percent and regulation demanded the pension funds to reduce discount rates by 25 basis points per year. Had this interest rate scenario remained, either contributions by sponsors and participants would increase, benefits cut or the asset allocation would seek for higher returns and risk. At present interest rates are back to near 6 percent though in the mid-term they are expected to fall. Then pension funds will move to riskier asset classes. Defined Contribution plans might increase investments to equity, corporates, hedge funds or real estate traded funds. Defined Contribution plans can add real estate and alternatives to their range under analysis.

1. Give us an overview of your experience as FAPES CIO and now as a pension consultant.

RW: To be the CIO of a big Brazilian pension fund managing around $5 billion is fascinating. A hands-on approach includes proposing and executing the investment strategy and asset allocation with a long-term view. In addition, macro aspects have to be followed as well fixed income and equity securities and outsourced funds in order to manage the portfolio.

2. How are the Brazilian pension funds’ investments diversified across asset classes and geography? How do you imagine it changing in the coming year?

RW: The great majority of Brazilian pension funds have little more than 10 percent allocated to equity, less than 5 percent to real estate and loans to participants. This leaves more than 80 percent invested in fixed income, mostly in government bonds. The bigger pension funds have a higher allocation to equities - above 25 percent - and some allocation to alternative investments, especially private equity funds. Home bias and regulation has inhibited geographical diversification. In the unlikely scenario of real interest rates being reduced in the near future there could be an asset allocation shift to more risky assets.

3. How have the calculated liabilities of Brazil’s pensions influenced their investment decisions? Is further

Ricardo WeissFormer CIO, FAPES & Member of the Institutional Investors Committee, Brazilian Corporate Governance Institute and Consultant

Will Brazilian Pension Funds Move to Riskier Assets?

LIIJ AUGUST 2014: FAPES

LIIJ / AUGUST 201414

“Interest rates are back to near 6 percent though in the mid-term they are expected to fall. Then pension funds will moves to

riskier asset classes.”

Considering the dramatic increase in the number of players in the industry, the regulations for operators have started to increase and will continue to do so. This will generate more sophistication in the banking system in Chile with more concentration of players. More restrictions to enter the market will decrease the number of competitors and increase the returns of the industry. At the moment, the best strategy to compete in this industry is through differentiation in terms of innovation. I believe that the wealth management market has to become more involved with and participate more directly in the real economy.

4. What advantages have you found attending Latin Markets’ Institutional Investor Forums?

PE: It is always interesting to exchange ideas with other executives in the industry and to listen to the main concerns of the audience. Sometimes we don’t have enough chances to interact with each other and having a large audience asking relevant questions, gives us the chance to learn about their interest and opinion in an efficient manner.

Mr. Eskenazi will be speaking on panel “Managing

the Chilean Private Client” at the 4th Annual

Chilean Investors Forum on August 7-8, 2014.

estate market, when investors sought stability in this sector. This caused an increase of about 50 percent in the value of real estate in the last four or five years, which has been another attractive factor for allocating locally. Now we’ve started to see prices in the real estate market starting to stabilize. This tendency of investing mainly in the local market has slowly started to shift in the past few years and we believe it will continue to evolve toward a less differentiated diversification between domestic and international markets.

3. How has the private banking industry in Chile evolved over the years?

PE: Our industry has changed considerably in recent years. The main change has been the increased competition in terms of number of suppliers. Today there are almost 50 broker

organizations, which in my opinion, is an excess considering the size of the Chilean market. I believe this structure will change in the future through mergers, and this will reduce the level of competition and increase profitability in terms of operator commissions. Also, in recent years, the number of financial advisors has increased considerably.

1. Give us a brief overview of Banco Penta. What are your assets under management?

PE: Banco Penta was founded in 2004 with a strong focus on private banking and wealth management. We manage approximately $6.5 billion in assets.

2. How is your portfolio currently diversified across asset classes and geography? How has your diversification strategy evolved over time?

PE: Typically, Chilean investors have had strong preference investing in local markets for three important reasons: attractive returns, economic stability and tax incentives that benefit domestic allocation. At this moment, we have approximately

40 to 50 percent of our clients’ portfolios allocated to local markets. About 35 percent is invested in domestic fixed income and 25 percent is invested in international stocks, mainly in North American and European markets. As a result of the last economic crisis in the region, there was a boom in the local real

Interview with Patricio EskenaziCIO at Banco Penta

LIIJ AUGUST 2014: Banco Penta

LIIJ / AUGUST 2014 15

“More restrictions to enter the market will decrease the number of competitors and increase the returns of the industry.”

LIIJ AUGUST 2014: Fundação Atlantico

LIIJ / AUGUST 201416

Marcio FariaChief Investment Officer at Fundação Atlantico

ACROSS THE CONTINENT:

FROM BRAZIL TO CHILEa liquidity risk. However, we carefully analyze our cash flows and ALM studies, in order to make sure we always have maturities in excess of disbursements.

3. As a potential investor in the Chilean Market, what are your views on current opportunities in Chile?

MF: Most Brazilians, including myself, consider Chile a very well managed and safe country, and, probably as a result, with assets priced accordingly. But the Chilean capital markets are not large enough to accommodate a significant amount of investments without disturbing asset prices.

4. What is your expectation for our upcoming Chilean Investors Forum 2014? What would you like to take away from this event?

MF: I believe Brazil is still too much inward looking, foreign trade being a good example. In addition we still are very shy to invest abroad, especially if compared to Chilean institutional investors. But there is a definite trend towards investing abroad, and Chile seems to do it very successfully. I came here to learn.

Mr. Faria will be speaking on the “Risk Management

& Core Competencies Executive Roundtable” at the

4th Annual Chilean Investors Forum on August 7-8,

2014.

1. How is your portfolio diversified across asset classes and geography?

MF: Currently we invest only within Brazil. There are several reasons for doing so, but the main reason is we are able to benefit from Brazilian Treasury bonds (similar to the US TIPS) high yields, over 6 percent per annum above inflation. This is more than a perfect hedge for most of our liabilities, as the major portion of them are still defined benefit, indexed at inflation plus 4.5 percent per annum. In addition, in order to seek an upside, we invest in hedge funds, Brazilian corporate bonds, aiming at yields around 100 bps over the equivalent duration Government bonds, domestic equities and also a small amount into private equity funds.

2. What are the key hazards you most commonly identify in portfolio construction and how do you manage that risk?

MF: Since we mark to market all our assets, government bonds price variation introduces a strong volatility in our investments, which is not so easy for most participants to understand. Of course this is not a risk in a credit sense, since the bonds will be redeemed at maturity. It is more like

“Most Brazilians, including myself,

consider Chile a very well managed and

safe country...”

LIIJ / AUGUST 2014 17

LIIJ AUGUST 2014: Inter-American Development Bank

underserved rural and marginal urban areas, expanding into “frontier markets” where it has least developed, and ensuring transparency in its operations.

4. What has been the due diligence process?

MA: The MIF is a special fund administered by the IDB and is part of the IDB Group, which also includes the Inter-American Investment Corporation (IIC). The MIF operates through a variety of financial instruments including loans, equity investments, and grants.

It is MIF policy that all its operations are carried out in an environmentally and socially responsible manner, and in accordance with the established policies and procedures of the IDB. The main channels for both equity and loan investments made by the MIF are through financial intermediaries (FIs), which include regional, national and sectoral investment funds, banks and other financing mechanisms that act as the MIF’s vehicles to provide funding for small and medium enterprises (SMEs).

These MIF operations are characterized by a number of factors including: (i) they

than $30 billion, which makes it the largest recipient of IDB loans and disbursements in Latin America and the Caribbean, and constitutes the largest volume of funding in the history of the bilateral relation.

3. The IDB has a mandate to invest only in opportunities that provide assistance to micro and small business – what sort of equity funds does this allow access to?

MA: The IDB was a pioneer in promoting microfinance in this region. Over the past two decades its Multilateral Investment Fund (MIF) has underwritten the expansion of leading microfinance networks and fostered many of the innovations that enabled the development of this dynamic industry.

From the first experiments of providing tiny loans to poor women in the early 1970s, microfinance has grown to become a sophisticated industry. In Latin America and the Caribbean alone, some 600 microfinance institutions have lent around $12 billion to more than 10 million low-income clients.

To increase financial inclusion, the IDB and the MIF are now helping the microfinance industry address challenges such as reaching

1. Give us a brief background on what’s your role at the firm/institution.

MA: The Country Office in Mexico, under my leadership is responsible for: (1) engaging in dialogue and managing relations with the Mexican Government; (2) managing the Country Strategy and its implementation; (3) originating programs and projects; (4) designing and overseeing the execution of projects in the portfolio through the active participation of sector specialists and the application of standards; (5) supporting the strengthening of country systems in the areas of financial management, acquisitions, follow-up and evaluation; and (6) promoting the image of the Bank in Mexico.

2. When did the IDB first begin investing in Mexico?

MA: Mexico is one of the founding member countries of the IDB. Since 1959 the IDB and Mexico have shared a history of more than five decades of uninterrupted work, long-term commitment and common goals with equitable and sustainable development. Over the past 50 years, the IDB has approved operations for Mexico for more

Interview with:

Mercedes Aráoz FernándezCountry Representative at Inter-American Development Bank (Mexico)

DEVELOPMENT AND REFORM IN MEXICO

7. What is your outlook for Mexico and Latin America moving forward as economic and political dynamics continue to evolve?

MA: Our region has a very bright future. Latin America has one of the best demographic pyramids in the world, which gives us the opportunity to bring economic development and wealth to millions of persons that currently live in poverty. This will make the middle class grow, which in turn will make the local markets larger and bring higher consumption and growth rates to the region.

The only way by which we can overcome poverty, and provide better education, health, security services, is after a decade or more, of strong economic development.

8. What are you looking forward to at the Mexico Investors Forum?

MA: It should be an occasion for those interested in investing in Mexico to learn more about the new opportunities in key sectors of the economy such as infrastructure, telecommunications, energy, financial services and tourism, to name a few.

Ms. Fernandez will be speaking on the panel

“Mexico Macro Outlook: Leadership in Growth” at

the Mexico Investors Forum on November 12-13,

2014.

obesity and diabetes. Thus, overall, this first 18 months have been quite outstanding.

In the next 12 months, we should begin to see how these reforms are implemented and begin to bring more public and private investment in the economy, fostering economic growth and productivity.

6. Reflecting on your experience as a minister in Peru – what are the most important changes in policy and regulation that have driven growth in the entire region?

MA: The first change that has occurred, after many years of economic crisis, is that our governments learned that sound macroeconomic and fiscal policies were mandatory, and the basic foundations for economic growth. Today, basically all the countries of the region have healthy public finances. The IDB was key in this transition and in pursuing a different economic paradigm in the region.

Also, free trade has made the region more competitive. There are firms that are “Latinas” – from Chile, Peru, Colombia, Brazil, and Mexico that compete across the board in very different sectors.

And third, commercial agreements have been quite important to enhance the rule of law and economic certainty of our economies; private investment (foreign and domestic) has grown, creating jobs and opportunities. The rules we adopt with other countries (Europe, Asia, North America) have become the benchmark for domestic performance of our national institutions. This is another key factor underlying the changes in the region.

are focused exclusively on micro, small and medium enterprises; (ii) they offer a diversified array of financial tools including minority equity investment; and (iii) they are managed by private sector fund managers that must be competitive while managing a high risk portfolio.

These characteristics require that the IDB’s environmental and social management policies and practices be adapted to reflect these various factors, while maintaining the overall policy goal of ensuring environmental and social soundness and sustaining the financial security of individual investments. The IIC undertakes similar initiatives as the MIF and has developed a set of environmental guidelines for FIs, which serve as the basis for these guidelines.

5. What is your view on the president’s reform plan for Mexico?

MA: The Administration of President Peña Nieto is pushing a long needed bold agenda of reforms to increase productivity and competitiveness in Mexico.

The reforms have been part of a very open political negotiation process, within the Pacto por Mexico, with the two main

opposition parties, PRD and PAN. President Peña has been quite successful in building the legislative coalitions for these reforms.Mexico is a very open and competitive market, however, it has key sectors of the economy where there is a need for more competition.

But the reforms are not only important in the economy, there is very ambitious infrastructure program, as well as a strong social agenda, with the Cruzada contra el Hambre, education reform, and important health programs, like the strategy against

LIIJ / AUGUST 201418

LIIJ AUGUST 2014: Inter-American Development Bank

“In the next 12 months, we should begin to see how these reforms are implemented and begin to bring more public and private

investment in the economy...”