Aiming at the long term, manager sorts out Brazil as a priority under its investment plans.
Interview with Gary Garrabrant, Jaguar Growth Partners’ Managing Partner
Back to the market after breaking up the partnership with Sam Zell in Equity International, Gary Garrabrant founded Jaguar Growth Partners two years ago. Focusing on investments in emerging markets, the company has expressed interest in countries such as India, China and especially Brazil. So much that it chose São Paulo to inaugurate in October 2015 its first office outside the United States.
Right from the start, the company devised a plan to raise US$1 billion to be invested in emerging markets. Gary prefers not to make comments on the current status of the process, but ensures that Brazil is a priority in terms of fund allocation. Let us see:
GRI Magazine: Why did you choose Brazil to open the first Jaguar’s first regional office?
Gary Garrabrant: As institutional investment managers, we acknowledge the value of having active presence in our target markets. We are focused exclusively on emerging markets, and, right now, active in Latin America. My partner, Thomas McDonald, and I have a long, successful history in Brazil. Opening our office in São Paulo confirms our commitment with the country, and, most widely, with Latin America.
GRI: Has Brazil’s current political/economic scenario caused you to somehow review your plans in the country? How do you perceive the Brazilian market at this moment?
GG: We have a long-term perspective, and, in this sense, we could not be more excited with the opportunities available in Brazil. We expect that the challenging political and economic process which Brazil is going through will eventually bring substantial benefits for Brazil and Brazilians at various levels, including transparency, cost efficiency and access to resources. We understand that this and the next years will be a transition period for Brazil that will open up significant opportunity to those with experience, expertise and relationships. Jaguar is in an optimal position to capitalize these opportunities.
“We understand that this and the next years will be a transition period for Brazil that will open up significant opportunity to those with experience, expertise and relationships”
GRI: Do the lessons learned by you and your partner throughout the years help you best understand the current scenario in Brazil?
GG: We have learned many things over the past 20 years investing in and building companies in emerging markets, including Brazil and other Latin American countries. We have learned that focus and patient are critical. These qualities have led us to see more clearly the environment and future opportunities in those regions, while less experienced players tend to get distracted by short-term influences. Energy and resilience are also essential characteristics, because they qualify us to be successful in challenging scenarios. I further highlight the role of notable local operational partners, which are the pillars of our business. We have learned the importance of identifying and developing these relationships with our partners in both high and low cycles.
GRI: Soon after being incorporated, Jaguar set a goal of raising US$1 billion to invest in emerging markets. At what stage is this process?
GG: We cannot disclose this right now.
GRI: Does the company intend to create other funds? Something specially addressed to Brazil?
GG: We are committed to building a substantial long-term business in Latin America, including Brazil, which will include multiple investment management vehicles. We plan to have presence in Asia as well, including India, and then Latin America. All those initiatives will be sustained by experienced, completely dedicated investment management teams and portfolios both in New York and within each such country. With such new initiatives, we expect to take our investment activities beyond operational platforms, including credit activities and others, all of them always relating to actual assets – in globally emerging markets.
GRI: How much is Jaguar expected to invest in Brazil this year? And the next years?
GG: We cannot disclose any deals on investments right now. However, we have direct experience in home, retail, corporate, logistic, hospitality, self-storage, specialized finance and asset management in Brazil. We expect to be active in most or all of these areas. As a result, Brazil should be a significant part of our activities in Latin America. As opportunistic investors, we do not allocate by country or industry.
GRI: If you had to choose only one industry here, what would that be?
GG: We are currently focusing in fundamental industries, such as retail and storage sheds, distribution and logistics. We are watching very closely the mood of consumers in Brazil, which will determine the performance and success of those businesses.
GRI: Looking to Latin America, in particular Brazil, what do you expect in terms of holding equity interests in local businesses?
GG: In general, we focus on existing companies, both publicly- and closely-held companies, working in collaboration with local partners. All of these are growing companies benefiting from the growth of the middle class and concurrently with increased consumption. Companies may be in an initial or more advanced stage – in the case of the latter, particularly, which are in a situation of distress. The rate with which the scale of the real estate capital market real estate has grown also increased out activity as institutional investment manager. We usually look to opportunities beyond US$50 million.
GRI: Which Brazilian regions are your priorities?
GG: We usually invest in companies operating in most or all regions of Brazil. However, I stress that the current scenario has surely made us to prioritize the primary markets, especially the Southeast.
GRI: What do you see as a proper investment return in our market currently?
GG: We focus on opportunities with return rate between 20% and 25% per year for all emerging markets. The current environment in Brazil suggests that proper results are at the top of that interval or above it in some segments.
“Brazil is in a favorable position as compared to other large emerging markets”
GRI: Has the devaluation of the Real increased the attractiveness of investments here? To what extent?
GG: We monitor all the main global currencies under a valuation perspective. As risk managers, we are aware and sensitive, but we are not market timers. The exchange risk in Brazil can be better managed naturally by means of an underlying investment structure, rather than externally, which has prohibitive costs in the long run.
GRI: Brazil is a country of specialties when it comes to foreign investment. What are the main challenges you face to invest funds in Brazil?
GG: We feel attracted to emerging markets for a number of reasons, which are high barriers to enter those markets, which actually limit the growth of competition. In Brazil, we invest and monetize investments by means of local and foreign institutional investors, the local and international stock markets and strategic buyers. Neither the investments nor monetization processes have been challenging in Brazil. We found and established close relationships with first-line partners in Brazil, building together a series of market leading companies. Based on our experience, Brazil is not more challenging than other emerging markets and has a number of extraordinary partners and business opportunities.
GRI: Considering your experience in India, China and various Latin American countries, how do you compare Brazil to them?
GG: Brazil is in a favorable position as compared to other large emerging markets because of many qualities and characteristic, including geography, size of the population, especially young, aspirations, entrepreneurship, quality of partners and number of opportunities. The current scenario also added unprecedented value to that list of attributes.
GRI: If you had to select one single market in the world to invest over the next five to ten years, what that would be?
GG: Brazil, for the reasons I have just mentioned, and then India, which has the same qualities, but is much more complex.