EDITOR’S NOTE

The Latin Real Estate Journal (LREJ) is a Latin Markets weekly newsletter and monthly publication featuring interviews with LPs, GPs, government officials and private equity thought leaders active in Latin America. Latin Markets is the world’s 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 LREJ content is copywritten & owned solely by Latin Markets Brazil LLC.

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Latin Markets, 10 W 37th Street 7th flr.New York, NY 10018

Chief Executive OfficerAdam Raleigh

ManagementGiseli AkabociKenneth BaucoKilby BrowneCharles FathersWilliam FrankPaloma LimaZaianna OrtizAmir OukiTim RaleighAhmad Sahar

EditorialSeth Fraser Keoni HarrisonKarishna PerezLarissa GuimaraesMaria RodriguezVirginia SchmithalterJohn ZajasAline Viana

Private Equity GroupAnna GonzalezLiana GriegAna Mello

Real Estate GroupDaniel KimPablo OliveiraAndres OrtizRoy Salsinha

Energy & Infrastructure Projects GroupJavier GrullonCarolina Gomez-LacazetteDaniel Para MataAna Carolina RomeroJavier VergaraJack Schwarten

Hedge Funds GroupBrian RogersMauricio Silva

Institutional Investors GroupCarolina BarretoHugo Della MottaMarcela FonsecaCinthia Silva

Private Wealth GroupHeriberto AcevedoMaria TatisAna LoboGerman Chavez

Where are Investors and Managers looking at Real Estate in LatAm?

I’m pleased to release the second edition of the Latin Real Estate Journal – a monthly magazine designed to distribute the latest industry insight with those of you who can’t always join us at our annual investor meetings.

In the August edition, you’ll find more exclusive interviews with the industry’s leading investors and managers to discuss co-investment mandates, direct investing and how Mexican pension funds are evaluating real estate opportunities. To receive the LREJ weekly newsletter and monthly magazine for free, you can visit our newly launched web site at www.lrej.org.

As always, my thanks to everyone who joined myself and the team for an interview. I’ll look forward to speaking with many of you again soon in Rio for the Real Estate Brazil Forum this September 22-23!

Best Regards,

Amir OukiEditor at The Latin Real Estate Journal

LREJ / AUGUST 20142

OTHER INTERVIEWS INCLUDE:

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18

8

14

Contents

Fred GortnerManaging Director at Paladin Realty Partners

Ram LeePresident at Seven Bridges Advisors

Nelly Campos MonteroGlobal Real Estate Portfolio Manager at Grupo Bimbo

Eduardo ParraCIO at Afore Azteca

LREJ / AUGUST 2014 3

10 Ed Casal, CIO for Real Estate Multi-Manager at Aviva Investors

LREJ INTERVIEWS AVIVA INVESTORS

LARGEST PENSION FUND IN MEXICO TALKS INCREASING REAL ESTATE AND PE INVESTMENTS

12 Christian Orozco, Portfolio Manager - Alternative Investments at Afore Banorte

LREJ INTERVIEWS IVANHOÉ CAMBRDIGE

16 Rita-Rose Gagné, Executive Vice President - Growth Markts at Ivanhoé Cambridge

1. Give us a brief background of the company and your role at the firm.

FG: I’m a Co-Founder of Paladin Realty Partners. We’re almost a 20 year old firm. We probably have the longest track record of any other private equity fund managers in Latin America. We’re in our 16th year investing there nonstop. It’s the sole focus of the firm. We’ve got over 30 people dedicated to the business. We have four offices in the region. We’ve invested in about five billion of real estate assets across now four funds. We’re currently investing on four pan regional funds, seven countries to date, over 150 assets.

2. What has been the focus of this last pan-regional fund?

FG: The current fund will likely have a similar geographic footprint as our last fund. Our third fund, which we closed, had the initial closing in 2008 was $554 million. That included $100 million Brazil only side car and a 454 million pan regional fund that the pan regional fund was about 50 percent invested in Brazil and then half outside of Brazil with the three top markets outside of Brazil being Mexico, Colombia and Peru with about an equal weighting, 10 to 15 percent each. We’ve been active in the past in Chile. We’ve also been active in two smaller countries, Costa Rica which was the first country we invested back in 1998 and in Uruguay which is a country that we got a lot of familiarity with and we’re in both of those countries we’re the dominate low/middle income home builders and we like that status that we have in the capital cities. In terms of product type, about two-thirds of what we’ve done to date has been low and middle income for sale of housing done through programmatic joint ventures with experienced local partners.

Why Middle-Income Housing is Receiving the Lion’s Share from Paladin

LREJ Interviews Fred Gortner, Managing Director at Paladin Realty Partners

LREJ / AUGUST 2014 5

FG: Well, for the business that we pursue in Brazil and the strategies we’ve been pursuing, it’s a strategy that works well even in a two percent growth environment. The fundamentals for the housing business, the homebuilding business in Brazil, are very strong. Part of it is demographic tailwinds. You’ve got a million and a half households being created a year. You still have four million people that are in the middle class and so that’s creating demand for modern housing and there’s still not enough capital out there to finance the development to meet incremental demand let alone dip into the pent up demand that exists. The housing deficits in Brazil depending upon who’s doing the calculation is anywhere from five to seven million units, a similar size in Mexico, a couple million units each in Peru and Colombia and so with only a little over 30,000 units being built in Brazil’s largest market, Sao Paulo, last year you’re not coming anywhere close to making a dent in the incremental demand let alone the pent up demand.

5. And that’s mainly residential or commercial?

FG: The results that you have in order to attract development capital in this space you have very high profit margins relative to homebuilding investments and other markets. So for example, we underwrite to profit margins depending whether it’s low, middle or upper and we are active in all three spaces of 15 to 25 percent taking total sales revenues less all costs including interest and so you can generate opportunistic returns with less than half the leverage of a typical opportunity fund and for a typical housing, middle income housing project in Brazil, the leverage will be in the neighborhood of 35 to 40 percent of the total development cost and so what that means is that if something goes awry, there’s three things can really go wrong in housing project. You either don’t hit the pricing, you don’t hit the cost or the sales pace is off and a lot of either economic slowdown can cause that, a global financial crisis can cause that but the having a project that’s conservatively leveraged means it can weather the storm very well and the opportunities in Brazil just given the backdrop of those conditions remain very attractive today even in two percent growth environment.

that we’ve used as a guide towards what would be a suitable market for institutional capital. First and foremost is rule of law. It’s got to be an environment where contracts are respected, where you can get title to a piece of property cleanly and where you can remove a local partner and exercise control provisions and joint ventures and that’s been a central component of our strategy. We took the same strategy that we were pursuing in the US, joint venture strategy, and brought it to Latin America with the same control provisions, ability to remove partners for any reason and so forth and so we needed to be in countries where those provisions could be actually enforced. The second is stable money and having inflation under control and prudent monetary policy and fiscal policy was critical. Fiscal policy and just a stable sovereign balance sheet was important as well. So, the combination of those two policies was critical. Free trade, and embrace a free trade which with the exception of Brazil which could stand a lot of improvement, all of the countries that we’ve been active in, Colombia, Peru, Mexico, Chile in particular all part of the Pacific Alliance bodes very well in terms of economic growth and then lastly we just look at the at how easy it is to do business of a bucket that we would call deregulation but it’s a general placeholder for how easy is it to hire and fire people and establish businesses to create joint ventures. On all of those fronts, the countries that we started focusing on, Brazil, Mexico and the Andean region, scored very well and in Brazil it’s been a 20 year, a two decade, story of success, a steady (inaudible 8:13) plan was put in place in 1994 getting inflation under control and really setting the foundation for foreign investment and for the growth of business. We made our first investment in Brazil in 1999, our first investment in Mexico in 1998, we made our first investment in Peru in our second fund which was no five managed fund and continued that relationship now through our fourth fund and made our first investment in Colombia about six or so years ago in our third fund and continue to see great opportunities there.

4. As far as lower GDP growth in Brazil right now, how much are you taking that into account for your current investments?

We’ve done a few entity level investments and we’ve done about 15 – 20 percent in commercial. Our approach to commercial has been very selective and opportunistic, very different than some of the other Brazil managers in recent years. We never were really enamored with the high-rise office strategy in recent years and that’s a market that as we’ve heard today is going to struggle over the next few years is over seven million square feet is coming online in an already 15 percent vacant market. What we’ve done in the office sector has been condominiums very successfully and retrofits of existing buildings which are very difficult to find, but when you find them you can get in and out relatively quickly.

The current fund will have a similar geographic footprint with roughly half the fund in Brazil most of the other half in Mexico, Colombia and Peru and a smaller weighting distributed between Costa Rico, Uruguay and Chile.

3. How did you begin your first investment in the region?

FG: It was actually a reaction to a deal that was brought to me. It was a large master plan resort in Costa Rica and we spent… it was not an easy investment to get approved. At the time, the former US Treasury Secretary Bill Simon owned half the firm. He was on our investment committee. He had some firm opinions about Latin America left over from his Treasury Secretary days. Wasn’t too fond of the region, but we were able to convince him on the merits of the deal and it really opened our eyes up to the region because the combination of demand drivers, profit margins and lack of private equity capital chasing opportunities less competition, caused us to spend more time to study the markets and study the opportunities which we did. So after making that first investment and I should point out that master plan resorts are very difficult to do in a seven year fund, so we haven’t done any since, but we did spend a lot of time really doing more of a combination of top down research driven study of the major markets and product types, had a lot of time on the ground, about a half a dozen of us who were studying the different countries and quickly focused on the most investor friendly markets and there’s sort of five metrics

LREJ AUGUST 2014: Paladin Realty Partners

In Colombia and Peru and Mexico that are poised for four – five percent growth going forward, those same dynamics are in play. You got demographic tailwinds, you have millions of people entering the middle class and in all of these markets you have a mortgage market that’s been emerging with longer term, longer tenure mortgages available now to homebuyers that when we started 15 years ago didn’t even exist. Less than half of our buyers 15 years ago were getting a mortgage because the average tenure was the 10 to 15 year range, interest rates were in the high 20s. Now, interest rates have dropped down to plus or minus 10 percent depending upon whether you’re low income or middle income. You can get 30 year mortgages now and so that’s lowered the mortgage payment and thus expanded the universe of homeownership to millions of people who otherwise couldn’t have afforded a home. Those three things have been really driving the housing business. Commercial seems to be much more vulnerable to capital flows and whatever reason institutional capital tends to love to invest in Class A office buildings and that’s a space where a lot of capital float in in recent years and there’s about seven million square feet of space coming online right now in the prime markets in São Palo. You see rental rates come down, you can see vacancy go up. I don’t think it’s going to be the kind of bloodbath that’s been predicted because there isn’t the kind of leverage in that sector that you see in more developed markets, but I do think that some projects are really going to struggle to hit their originally underwritten returns.

6. You mentioned some of the sectors that you’re looking at as far as high-rises and condominiums. Where do you think are the best opportunities?

FG: We continue across all the markets that we’re in. We can grow middle income housing where there’s the deepest tailwinds of demand is one of the best risk adjusted ways to play the growth story in Latin America and that will probably account for two-thirds to three-quarters of what we do going forward. Commercially, you just need to be selective. We like to play the commercial space through condominium structure so that you can mirror the economics of housing platform. We like retrofits of existing buildings where you can get it at a cost advantage relative to some

of the new developments and you can get in and out more quickly than a high rise office building is a five – six year proposition which is to us a very long term kind of investment. We prefer the three to four year duration investments. There’s generally a shortage of all kinds of modern real estate though in these markets as their economies are growing and people are entering the middle class and businesses continue to expand. Whether it’s business oriented hotels, retail, selective industrial opportunities we’re looking across the spectrum but continue to see housing as one of the best ways to play the growth opportunity in the region.

7. What are you hearing from international investors as far as their appetite for investing in Latin America?

FG: Well, there’s still just general ignorance or lack of awareness of the region and confusion. So, the headlines that we spend a lot of time explaining the headlines and putting it in perspective and when you get behind what you may read about in the newspapers and you see that the region as a whole and those three top markets, Brazil, Mexico, the Andean region as a whole, they were better positioned enter the global financial crisis and it was one of the first regions to emerge strongly from the financial crisis and the macro fundamentals even with some of the things that are restraining Brazil’s growth, even a two percent growth, Brazil represents one of the most compelling opportunities of combinations of scale and opportunity in the region.

So you have a compelling macro story in terms of looking at other regions in the world probably one of the most macroeconomic environments to invest in. Real estate demand with the tailwinds of demographics, rising prosperity and an evolving mortgage market. The real estate demand fundamentals are among the strongest in the world and that translates into project level economics where the profit margins are multiples above what you would find in a developed market. So whether it’s home building, profit margins of 15 to 25 percent compared to single digit in a developed market. So, you can target opportunistic returns with 30 to 40 percent leverage compared to 80 plus percent in the developed markets or a commercial opportunity where you can underwrite to a 15 percent stabilized return on cost and 500 basis points of development profit compared to 100 to 150 basis points of development profit in

the United States. On a risk adjusted basis the real estate economics are far superior to what you can find in the US and in Europe and the thesis, the drivers behind the thesis have so much more visibility and resiliency than what is driving, for example, the interest in Europe today which is all about distressed pricing if you can find it and an assumed recovery in Southern Europe that may or may not materialize.

So what you’re seeing now is the Europe strategy is driven once again largely by debt and leverage on the right side of the balance sheet and so the term risk adjusted return is kind of thrown out there a lot by folks in the industry and you really do have to peel back the layers of the onion when you’re looking to Latin America compared to other parts of the world to see that on a risk adjusted basis, it’s one of the most compelling opportunities globally, but that doesn’t make for an easy headline. It doesn’t sell newspapers and so we spend a lot of time trying to help investors see through the fog and let the fundamentals speak for themselves.

8. What advantages do you find attending Latin Markets’ events?

FG: This has turned into the premier platform for institutional investors. Looking at Latin America we’ve been pleased to be a part of Latin Markets growth over the years and participate in all the conferences. We think it’s one of the best gatherings of both on the LP side and the GP side in terms of capital looking for opportunities in the region.

Mr. Gortner spoke on the “Brazilian Real Estate

Roundtable” at the Institutional Real Estate Latin

America Forum on June 2-3, 2014.

LREJ / AUGUST 20146

LREJ AUGUST 2014: Paladin Realty Partners

1. Give us a brief background on your firm and your role.

EP: Afore Azteca is a Mexican Pension Fund regulated by the Mexican government. The resources of our funds come from the money of Mexican workers. We have assets under management of $2 billion. We invest in fixed income and equity markets in Mexico or in countries approved by regulators. We also invest in real estate through Mexican REITs called FIBRAS but we expect in a few years to invest directly in real estate assets.

We are also in negotiations with the authorities in order to start investing in private equity funds called CKDs which are the instruments available for institutional investors like pension funds to invest in this kind of assets.

2. Where have you made some of your real estate investments more recently?

EP: We’re currently investing only in Mexican REITS. We invest in REITs whose assets are related to industrial and commercial activities but we also invest in REITs related to office leasing and hotels. We expect all of these sectors to benefit in the coming years driven by the US economy recovery and the structural Mexican reforms. In the near future we would like to invest in health care and residential REITs. I think both of these types of REITs will perform well.

LREJ AUGUST 2014: Afore Azteca

LREJ / AUGUST 20148

Eduardo ParraCIO at Afore Azteca

Afore Azteca CIO Talks Increasing Allocations to Real Estate and Private Equity

LREJ AUGUST 2014: Afore Azteca

our assets in order to invest in these kinds of assets. I also think the demand of real estate assets and private equity will increase because of the economic growth of the energy reform and the improvement in the US economy. The only problem could be the rates. Mexican rates are currently at low levels and if we expect the economy to grow, rates will rise and could affect the performance of these types of investments.

7. What advantages do you find attending Latin Markets’ events?

EP: This is my first time at this kind of forum and I think it is very important. Here, we have live interaction and learn from the experience and comments of the participants. It also gives us feedback on how other investors think and helps us to learn about different types of investment.

Mr. Parra spoke on the panel “Mexican Real Estate

Opportunities” at the Institutional Real Estate

Latin America Forum on June 2-3, 2014.

5. What is your view on the labor arbitrage idea where international investors will benefit off of labor becoming less costly in Mexico than in China?

EP: In the past years, labor costs in China were very cheap but nowadays labor costs have been rising considerably forcing international companies to look for new opportunities. In the past years, companies have preferred to produce in China and import the goods to their countries — even paying high transportation costs. But now, with labor costs rising rapidly in China international companies are looking to Mexico in cities near the border and Mexican workers are increasingly in demand. American companies who use competitive Mexican labor costs also save in transportation costs, so I think Mexico does have this arbitrage opportunity because of its geographic position.

6. Where do you see the most opportunities in the next two to three years? Will you be increasing your real estate and private equity investments?

EP: Yes, the opportunity for the next five years in real estate and private equity has a high potential, first of all, because of the regulatory limit for pension funds on this asset class is 20 percent and we are only invested at about 3 percent right now. So we are under-invested and have to reallocate

3. In which cities are you finding opportunities in real estate in Mexico?

EP: Obviously the populated cities like Mexico City, Monterrey and Guadalajara are really attractive because of the large demand on services. Also the cities close to the border with the US, like Laredo and Ciudad Juarez are attractive because of their high exposure to the industrial sector. There are smaller cities which are growing very fast and will benefit as Mexican economy grows like Puebla, Aguascalientes, Veracruz, Queretaro, Morelia — and finally the tourist cities in Mexico like Cancun, Acapulco, Veracruz, Los Cabos, etc.

4. How can Mexico avoid the same scenario as Brazil, where international investment flooded in and prices went up? How is the scenario different?

EP: There is a new regulation for Mexican REITS in which the loan to value ratio should not be above of 50 percent. It should also have a debt coverage ratio of at least 1x. With these measures, Mexican REITs will have more transparent management and this will prevent investors to experiment and create a bubble. It is totally normal when prices go up driven by an increase in demand, but what we should prevent is a real estate bubble as Brazil did. In order to prevent this, regulators should start thinking of new legal measures for international investment.

“The demand of real estate assets and private equity will increase because of the economic growth of the energy reform and the improvement in the US economy.”

LREJ / AUGUST 2014 9

1. Give us a brief background on the firm and your role.

ED: I work for Aviva Investors, the investment management subsidiary of Aviva PLC, a UK-based insurance company. Aviva Investors manages about $400 billion in assets globally, 10 percent of which is in real estate. About a quarter of that is managed within my group, real estate multi-manager, which invests with real estate operators in funds, club deals and joint ventures around the world. We invest primarily on behalf of European pension plans, but also on behalf of clients from the Middle East, United States and Asia. We also manage internal Aviva capital.

In my group we have an investment staff of 21 people across five locations – London, Utrecht, Paris, New York and Singapore. I am the global group head and CIO.

2. When did you begin investing in Latin America?

ED: We began investing in Latin America in 2007, into a fund in Brazil. We followed that with two more investments in Brazil over the following three years. Last year we did a co-investment into a land development business in Brazil. We have not invested elsewhere in Latin America as of yet.

3. What is your take on the real estate opportunity right now in Brazil?

ED: As I mentioned during the panel, in 2007 Brazil was a growth story. It seemed ripe to undergo a step-function change from a non-institutional, non-investment grade country to a country that would begin to attract global institutional capital. At that point in time we were interested in in almost every property type – that’s unusual for us as we typically have a fairly strong view regarding a preferred property type in a particular geography.

Nearly every sector seemed under-built for the existing demand. Hotels, infrastructure, warehouses, housing, office — everything

The Shift from Macro to Micro Investing in Latin America

ed casalCIO for Real Estate Multi-Manager at Aviva Investors

5. Is co-investing a trend that will increase for your firm?

ED: Definitely. We have a number of co-investment mandates. As I said, we’ve done one in Brazil, but we’ve also done a number globally. We like the ability to rifle shoot opportunities that potentially provide deep value.

6. What is your take on the opportunity in Colombia?

ED: The thing that we like about Colombia is that it is also going though a step-function change, from a relatively violent recent past to a more peaceful state. It has a relatively high quality education system, and a relatively sophisticated investment community. It’s an international community. The managers tend to be smaller, tend to be localized, but that doesn’t mean that they’re not professional or they’re not potentially institutional quality.

Also, if you examine Colombia or Brazil GDP, there’s a lot of internal demand. It’s not the China situation where exports are everything and they’re trying to create internal demand to perpetuate economic growth. One factor to consider though is that due to the mountainous geography of Colombia, the major cities are really quite separate. It’s not easy to build highways and train lines — it’s a fractured nation — and so the managers tend to be fractured by geography in the various cities. From our standpoint this is fine – we like to pick our spots.

7. What is your take on the opportunity in Colombia?

ED: The thing that we like about Colombia is that it is also going though a step-function change, from a relatively violent recent past to a more peaceful state. It has a relatively high quality education system, and a relatively sophisticated investment community. It’s an international community. The managers tend to be smaller, tend to be localized, but that doesn’t mean that they’re not professional or they’re not potentially institutional quality. Also, if you examine Colombia or Brazil GDP, there’s a lot of internal demand. It’s not the China situation where exports are everything and they’re trying to create internal demand to perpetuate economic growth. One factor to consider though is that due to the mountainous geography of

seemed relatively attractive. While you had to tolerate development risk, the returns were sufficiently attractive for the effort. I think by and large that played out at the property level. Where we ran into some difficulties along the way was the currency volatility, but we kept investing as the Real declined and so our overall return remained strong. Since we initially invested, Brazil has come a long way. It did achieve an investment grade rating, although it’s since been downgraded a notch. Institutional processes have continued to improve. The consumer has become more of an economic force. Credit formation has expanded pretty dramatically from 2007 largely on the credit card side, not so much on the mortgage side.

The concern we have is that we see the country encountering three important headwinds. First, consumer credit is starting to reach natural limits. Second, national infrastructure (roads and railroads in particular) is insufficient to handle economic expansion. Third, the low-hanging fruit on structural reform has been achieved with still much more that needs to be done. In particular, pension reform remains an outstanding issue. These various pieces put pressure on inflation, which has resulted in tighter monetary policy – a further headwind to the economy. So while the step-function was achieved, it’s harder from here going forward. Now, it’s not to say it can’t be achieved – it has to be achieved. But it’s going to be hard work. And so from our standpoint, we’re not really so much macro investors in Brazil like we were in the past. Today we’re micro investors in Brazil where we see value in specific assets or property type. We remain willing to look at just about any property type in Brazil. There’s still a need for hotels in certain places. The office sector looks like it’s going through a bubble right now, but hopefully some of the planned buildings may not be built. We think the housing sector remains very interesting. We recently invested in a co-investment opportunity in land for housing that we expect to do well. But we’ve learned through the years that we need to be patient and not over react to micro cycles, such as currency swings for example.

4. Are you doing due diligence outside of Brazil?

ED: Yes. Colombia and Mexico both look interesting. We haven’t yet done any work on Peru or Chile as of yet.

Colombia, the major cities are really quite separate. It’s not easy to build highways and train lines — it’s a fractured nation — and so the managers tend to be fractured by geography in the various cities. From our standpoint this is fine – we like to pick our spots.

8. Are you looking to increase your real estate and private equity allocations to Latin America in the coming years?

ED: Yes. We’re still a believer in the Brazil story and I think we’re coming to become a believer in Colombia. I look forward to exploring Peru. While Chile is attractive from a stability standpoint, it’s generally expensive due to an abundance of local capital. It’s hard to see how we might be as competitive there. I was active in Mexico in the early and mid-90s. Mexico is this perpetual opportunity that seems to have trouble getting to an institutional quality plateau. You’ve had US retailers and shopping center owners coming in and out of the market – it hasn’t been easy. Homebuilders have grown and ultimately gone out of business. Also, in Mexico, the good news and bad news is that it’s next door to the US. While the proximity of a big market is good, the economies have a relatively high correlation. We think about what we are getting in Mexico that we can’t source in the US without the currency risk. It’s an issue we debate about Canada as well.

9. What do you find valuable about attending Latin Markets’ events?

ED: I attended the one in Bogota, and then here in New York. It’s a great opportunity for us to efficiently see property managers that we might have an interest in investing with. Also, we get an opportunity to hear and meet some of the LPs that are looking at the region and learn better what they’re thinking. We play both roles as an investor and also a capital raiser. It’s even an opportunity to meet with some of our competitors and chat about the markets. In many cases we are co-investing in situations around the world – it’s a collegial group of people and this helps you catch up.

Mr. Casal spoke on the “Global Multi-Manager

Executive Roundtable” at the Institutional Real

Estate Latin America Forum on June 2-3, 2014.

LREJ AUGUST 2014: Aviva Investors

LREJ / AUGUST 2014 11

6. What percent of your portfolio do you expect to allocate to co-investments?

CO: For private equity, we are asking for up to two percent of the whole project or co-investment and for other sectors like real estate or infrastructure, we are asking for five percent. That’s a risk policy, so we can align interests.

7. Do you see co-investments increasing?

CO: No, I see it decreasing. We need to become more confident with our fund managers.

8. What is your view on the quality of managers in Mexico?

CO: Well, we have a broad variety of managers. I would say that most of them are talented and most of them have given good results to us, but they’re having some places of not so great results, but those are very new. The oldest is about four years. So, they are still in their investment periods. They are not thinking about exits right now. They have another six years for develop the portfolios. We haven’t see the results yet, but the partial results we are seeing right now are good.

9. What are the advantages of attending Latin Markets’ events?

CO: We see this as an opportunity to bring our firm to these forums, so the people get to know us. We see it as an opportunity to meet fund and portfolio managers.

Mr. Orozco spoke on the panel “Mexican Real

Estate Opportunities” at the Institutional Real

Estate Latin America Forum on June 2-3, 2014.

3. More specifically, what cities are you looking to invest in Mexico?

CO: We’re seeing a lot of activity in Mexico City mainly in office and retail. We are seeing a lot of activity in other cities as well like the Bajío Region which comprehends the Jalisco, Aguascalientes, Guanajuato and Queretara Estates. We’re seeing a lot of industrial activity like logistics and warehouses. We’re seeing a lot of activity, too, in the north of our country in Monterrey and Chihuahua. So, we’re seeing a lot of activity in the north mainly in industrial sectors. In the south we don’t see a lot of activity -- Quintana Roo, Cancun, Chiapas, Oaxaca. We are not seeing a lot of development in those areas right now.

4. What’s your outlook for Mexico’s economy as a whole right now?

CO: Our country has managed to gain some steady feet over the last decade. Mexico wasn’t hit as hard as other countries, and other emerging countries four years ago. So, we are very confident that we are in a very good place to invest and we are expecting that bigger funds and private equity funds to come to Mexico and help us develop things and to invest with us.

5. How do you see the telecommunications and energy reforms improving the economy?

CO: We’re expecting a lot of activity and growth. We are expecting not this year or next year, but once those reforms are implemented, we’re expecting something in the one or two points of extra GDP growth. That’s going to be good because in the last decade we were growing at an average of three, the high twos. So, we’re expecting better from that.

1. Give us a brief background on your firm and your role.

CO: My name is Christian and I work for Afore XXI Banorte, which is the biggest pension fund in Mexico. Currently we have assets under management for about $42 billion as of March of this year. We are a highly regulated entity. Today, I’m working in risk management and managing the portfolio on the side of the risk management team. We basically analyze and do the due diligence for all the deals that come to our pension fund. We currently can invest in private equity funds. This is new to us because we weren’t allowed to invest in those sectors until three or four years ago. We’re now more confident but we are still learning. We are still learning from those assets because in the past, we were a firm that managed government bonds, corporate bonds, corporate, some derivatives, currencies, but that was it. Our current allocation on real estate and private equity is around 2 percent. For real estate and private equity as a whole the investment team has the intention to grow this number in the next years. We cannot invest abroad, but we think that’s about to change. We are expecting that in maybe a couple years or a year from now, we are going to be able to invest abroad.

2. Where do you think this number will begin?

CO: Five or maybe 10 percent. So currently, we are investing mostly on retail, offices and infrastructure. We have internal policies, which tell us that we prefer real estate as a whole because we see that as the less risky asset. Then we prefer infrastructure and at the last level, we prefer private equity. In the side or in the part of real estate we’re investing, as I said, in offices, retail and we are not currently doing a lot of residential.

Christian OrozcoPortfolio Manager - Alternative Investments at Afore Banorte

Largest Pension Fund in Mexico Talks Increasing Real Estate and PE Investments

LREJ AUGUST 2014: Afore Banorte

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REAL ESTATEMEXICO FORUM2014DECEMBER 1-2ST. REGIS HOTELMEXICO CITY

FOR MORE INFO, VISIT WWW.LATINMARKETS.ORG

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LREJ AUGUST 2014: Grupo Bimbo

1. Give us a brief background on Grupo Bimbo and your role.

NCM: Grupo Bimbo is the largest Mexican-owned baking company, with operations in the Americas, Asia and Europe. In 2013 it generated $13.786 billion in sales. Since 1980, Grupo Bimbo shares have traded on the Mexican Stock Exchange. Grupo Bimbo produces over 10,000 products under more than 100 household brands.

It has over 128,000 associates and operates 169 plants (39 in Mexico and 130 abroad), three trading agencies and eight joint ventures. The products of Grupo Bimbo are in more than 2.2 million points of sales across 22 countries, including Argentina, Brazil, Canada, Chile, China, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Portugal, El Salvador, Spain, United Kingdom, United States, Uruguay and Venezuela (on three continents: America, Asia and Europe). Our headquarters are in Santa Fe, Mexico City.

We have an extensive distribution network in Mexico and the American continent, with over 52,000 routes. We are also a leader in logistics.

I am currently responsible for the strategic planning, asset management and administration of all the company properties in 22 countries - 2.5K properties – 53.8 million square feet.

LREJ INTERVIEW WITH:

Nelly Campos MonteroGlobal Real Estate Portfolio Manager at Grupo Bimbo

participating and being part of the Real Estate Mexico Forum as I will be able to make personal contacts with leading real estate decision-makers and advisors, exchange information, and stay updated on the latest investment, leasing, development and financing trends and opportunities.

Ms. Campos will be speaking on the panel “Real

Estate for Multinational Companies” at the Real

Estate Mexico Forum on December 1-2, 2014.

industrial real estate that will appear in the market. Adding to this good news, the Federal Energy Reform will accelerate the creation of new businesses and platforms at non-conventional submarkets for industrial real estate.

4. What have you heard from international investor appetite for investing in Mexico?

NCM: In general, Mexico offers an attractive business climate, legal certainty, one of the largest free trade agreement networks in the world, and highly-developed industry groups that offer very competitive costs. Besides the sheer volume of its products, Mexico has stood out in Latin America as a producer and exporter of sophisticated manufactured products. Mexico is also the 14th largest economy in the world and 2nd in Latin America. The average growth of the Mexican economy for the 2013-2019 period is 4 period with a controlled inflation rate of 3.8 percent. Based on this, multinational companies like Bombardier, Ericsson, Ford and Mazda have said that investing in Mexico has been the right decision.

5. Tell us about some of your environmental sustainability initiatives at Grupo Bimbo and why they are important to the company’s goals.

NCM: We have demonstrated our interest and constant participation in caring for the environment through actions that range from reducing the water consumed in our production processes, to researching and implementing technologies in order to reduce our environmental footprint.

In 2002, we implemented our Comprehensive Environmental Management System. In compliance with our commitment to sustainability, we noticeably reduced our environmental impact in three areas: our carbon and water footprint, and in integrated waste management.

6. What are you looking forward to at the Real Estate Mexico Forum 2014?

NCM: I am really looking forward to

2. What is your rationale behind the success of the company in Latin America and abroad?

NCM: In accordance with what our CEO states: “For over 65 years, Grupo Bimbo has aspired to the highest performance standards. Our principles and values, person-centered, have been the integral complement to the success of a responsible, committed, productive and profitable company.”Based on making a commitment to the present and future generations, we integrate corporate social responsibility into the daily operations of production and distribution in the 22 countries where we have a presence, allowing us to align the economic, social and environmental objectives efficiently and responsibly.

3. What is your take on the opportunity set for real estate in Mexico right now?

NCM: While the real estate market in Mexico avoided the severe crash seen in the US and other countries from the global economic crisis of 2008-2009, it did suffer a slowdown. Since then, there’s been a turnaround — with a slowly expanding Mexican economy that has provided internal stability and growing opportunities.

At the end of 2013, Mexico’s industrial market closed with good news. The central region keeps being propelled by third party logistics companies that grow their business and footprint in Mexico City’s surroundings. The Bajio Region has consolidated with new industrial parks related not only to the new car manufacturing plants, but also for new investments related to aerospace, food and personal consumer new plants and expansion of the existing ones. Lastly, in the north region, Tijuana has been occupying vacant space; Monterrey’s submarkets reported positive absorption and Ciudad Juarez is on its way to recovering from low rents and high vacancy.

For the future, the northern region markets will keep gaining traction. Mexican REITs (FIBRAS) and Mexican Pension Funds, CKD’s (Certificados de Capital de Desarrollo), will compete for the stabilized

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LREJ AUGUST 2014: Grupo Bimbo

Rita-Rose GagnéExecutive Vice President – Growth Marketsat Ivanhoé Cambridge

1. Give us a brief background on Ivanhoé and your role at the firm.

RR: At Ivanhoé Cambridge, I lead the Growth Markets team. Before taking on that role, I was responsible for the company’s strategy, portfolio management and strategic partnerships for two years. Essentially, Ivanhoé Cambridge is the real estate subsidiary of La Caisse, which is Quebec’s principal pension fund that has over $200 billion in net assets. La Caisse invests in different types of assets, like real estate, infrastructure, private equity, fixed income, public markets and more. La Caisse manages institutional funds primarily from public, private pensions and insurance funds in Québec. Ivanhoé Cambridge is a subsidiary that is majority-owned by La Caisse as well as four additional minority investors and pension funds.

Ivanhoé Cambridge has more than C$40 billion in total assets distributed across several asset classes, mostly in retail, office, logistics and multi-res/multifamily. We have a large portion of our portfolio in Canada in the retail sector where we are also an operator and developer. In Canada,

countries.

We also maintain a smaller but significant portion of our portfolio in funds. We have great strategic partners that enable us to access some markets where we don’t necessarily want to build a critical mass, or for which we have no expertise ourselves. In those cases, we will go and meet these types of managers and access some markets or asset types that, again, we are not necessarily equipped to execute directly. We build strategic partnerships and we develop co-investments opportunities with those partners. Therefore, we also benefit from getting exposure to markets and transactions.

3. What is your evaluation process for making direct investments and why have they predominately been focused on retail in Latin America?

RR: As I mentioned, we are mainly active direct investors. Because of our active profile, we seek to develop close relationships with the developers and operating companies themselves. Through these partners, we gain local knowledge

and they benefit from our expertise and institutional experience to build up the portfolio. We’re not shy about the development and operational risk because we have this expertise in-house. We look for partners with a proven track record and strong local presence.

We entered into retail in Brazil at the time because it seemed like the best opportunity. Retail was and is still underserved but we entered mostly because we met a suitable partner and we were comfortable with that asset class, being developers ourselves, as well as owners and managers of retail assets for decades.

“We seek to develop close relationships with the

developers and operating companies themselves.”

we are vertically integrated: investment, operations, leasing, asset management and development.

2. And where have you invested internationally?

RR: An important portion of our investments are in the US, mostly in the office sector, representing about 22 percent of the global portfolio. There, we own and manage a growing office portfolio with our strategic partner Callahan Capital Properties. In Europe we have an office in Paris with about 30 professionals. Our European investments -- about one-fifth of our global portfolio -- are located mostly in Germany, France and in the UK. Our European portfolio is currently being repositioned in Paris and London and we have some retail assets in Germany, Spain and some office in Germany.

We also made our first investment in a logistics platform, PointPark Properties, based in Eastern Europe, which has assets in six or seven countries in Europe where we will be capitalizing on the rise of e-commerce trends. And finally, Ivanhoé

Cambridge is invested in growth markets such as China and Brazil. We’ve been active in China since about 2006 in a few vehicles, including a shopping center, interest in a residential partnership and funds.

In Latin America, we are mainly invested in Brazil with the Carvalho family through a platform called Ancar Ivanhoe, which is a retail portfolio. The platform owns and manages over 16 properties and manages another five properties for third parties. So it’s one of the largest platforms in the Brazilian world, and we are actively looking to expand or diversify our presence in Brazil, Mexico and other Latin American

4. What was the rationale behind entering Brazil specifically with your first investments?RR: We liked that market, the timing was good and we met the right partner in a promising asset class. The country was going through significant economic growth and tens of millions of people were joining the middle class and consumption was on the rise. Our philosophy was really to access that country and build a long-term relationship and knowledge of that market.

Our real estate investments are all in shopping malls for the time being but Brazil is a country where we want to develop a stronger presence and we are considering investing in other asset classes.

5. What has been your experience investing in the Andean region?

RR: We think that it can be an interesting market and we’ll be looking at expanding our footprint in other areas in that region and more generally in Latin American countries if appropriate opportunities present themselves.

6. What advantages did you find attending the Institutional Real Estate Latin America Forum?

RR: It was a great networking opportunity with major players from the Latin American markets. It was a great way to meet all the relevant managers, investors, and developers to deepen our market knowledge and network in a short period of time.

Ms. Gagne spoke on the panel “Canadian

Investors” at the Institutional Real Estate Latin

America Forum on June 2-3, 2014.

LREJ AUGUST 2014: Ivanhoé Cambridge

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Silicon Valley people, but I think there’s an opportunity to grow internationally in emerging markets. I do think there’s an opportunity in lots of emerging markets both in Asia and Latin America and Eastern Europe, but particularly in Latin America and Asia for a firm like ours that runs a portfolio that’s diversified. People will say, why not diversify their investments from their home EM country and have someone like Seven Bridges run a more developed market oriented, alpha oriented portfolio?

3. Where did you invest previously and where are you currently investing in emerging markets and Latin America?

RL: When Landis and I joined Howard Hughes, private equity was about 20 percent of the whole fund, which is actually a lot. Their previous CIO made a great bet in ‘02 and put a lot of money into EM, though this was mostly in the public markets. So we were always trying to make that trade-off between really three assets – public equities, real estate and private equity. We didn’t have much of a focus on real estate within the US at the time either. We didn’t have a focus in EM real estate, but because it’s an asset, and it’s a relatively simple asset, there were times we felt like it was one of the easiest ways to just play on the basic growth of the country. It’s not as complicated as a company. So we didn’t have a big focus on real estate in the US. We would do it opportunistically. The main thing we did is we logistics in India. So we were generally looking for things where we thought there was a real market dislocation or where the market really needed something that wasn’t there. We looked at retail a lot because retail is the natural way to play to the consumer. The hard part about retail is that real estate is so location specific – more so than industrial or an office. On the logistics side it was easier because it was really more about who knew the

Seven Bridges, Larry Cohen. Larry had been the Managing Partner at EhrenKranz Partners, one of the largest and oldest multifamily offices in New York.. Larry has also been the chair of the Brown University Investment Committee. He wanted to create a different model based on the outsourced CIO model.

I met him through an endowment colleague and it was a good opportunity to take what I had done at a much larger endowment and apply it to smaller endowments. I joined with the team that he largely already built with people from Harvard Management Company, Carnegie, Man Group and Goldman Sachs. I joined Seven Bridges in August of 2013. We have three partners. Larry is the CEO, I’m the President, and Rich Gardner is the CIO who runs the investment team and focuses more on managers. I focus more on asset allocation and what’s interesting in the world. I’m very much more focused on what should we be doing next and what should we be focused on. Where should the marginal dollar go.

For example, should we be looking at distressed in Europe? I’ve looked at that for a long time. Or things in Latin America. I’m the only one on the team that has experience across all assets and I have the most EM experience too. We have money in EM mainly on the public side. A lot of it is long-short, but we have a comingled private equity fund that we call our opportunity fund. The thing with EM private equity is if I can’t access it through the public market somehow, I’ll consider accessing through privates. But I don’t want to lock up just to lock up. So I’m always assessing emerging markets across all asset areas and liquidity parameters.

2. What is the geographic make up of your investors?

RL: It’s mostly US. Actually, a lot of it is from Silicon Valley. Our biggest clients are all

1. Give us a brief background on your career experience in private equity and the creation of Seven Bridges Advisors.

RL: I spent the past 14 years mostly in the endowment world. The first four years I was at the UPenn endowment and then the next nine years I worked at the Howard Hughes Medical Institute, which is around a $17 billion fund. It was actually the largest in the country for a long time before Gates created his. At Howard Hughes I did a little bit of everything. In American football terms, I was sort of the free safety. I was the generalist managing director for the CIO, having worked with the same CIO at Penn and Howard Hughes. When I got to Penn there were no alternatives, so I was part of the team that built that up. Part of that team is Narv Narvekar who now runs Columbia University’s endowment, the head of hedge funds for the Moore Foundation. There were several other people who are now CIOs who were part of that team: a sort of a Penn diaspora. I went with Landis in 2004 and did a little bit of everything. Specifically in private equity, I was less focused on the more programmatic portion.

We had managers we had known for a long time, doing middle market US private equity -- really basic stuff in my view. I focused more on where there was an opportunity to do something different or maybe there was a market dislocation, or inefficiency. HHMI did a lot of in energy private equity which seemed to be an inefficient market. I spent a lot of time in the emerging markets in general across public and private equities. About every 18 months I would go to India, Brazil, Hong Kong, China, or a Russia and see what was going on in the world and look across all assets – private equity, real estate and public equities. So I after nine years at Howard Hughes, I connected with the founder of

The FORMATION ofSEVEN BRIDGES

LREJ Interviews Ram Lee, President at Seven Bridges Advisors

LREJ AUGUST 2014: Seven Bridges Advisors

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7. And where are you right now with your PE investments?

RL: We have one PE fund that invests with managers. The last PE fund was focused just on US energy because that’s really where we saw the opportunity. That’s been doing phenomenally well. There’s a real inefficiency in the energy boom in the US. We think that there could be some international opportunities both potentially in EM and particularly in European distressed. That’s more of a private, illiquid play. So, that’s a more broad investment coming out of the opportunity fund. That goes for real estate too.

8. Are you actively looking for managers now for new investments?

RL: We are although it’s less manager driven and more markets driven. We’re trying figure out what assets are selling at, where it seems like there’s the greatest opportunity to add value particularly to buy things cheaply or if we think there’s less money chasing it.

9. As far as a timeline, is there a point where you can see yourself making a pan regional allocation to Latin America or country specific?

RL: In private equity or real estate, we’re more likely to do Brazil. That’s just the reality. In real estate actually, I’m willing to go to what might be considered riskier markets. I consider the asset to be less risky. Real estate is very tied to the economy and if you can get in at very good cap rates, it can be an attractive way to play it. There are a fair number of players compared to other markets, but it’s still pretty underpenetrated.

10. What advantages have you found attending Latin Markets’ events?

RL: I definitely meet managers that may not have been on my radar. It also focuses me for that moment on what is happening in LatAm and opportunities there outside of public markets. Just taking the time to focus on the combination of macro and micro opportunities is helpful, with good speakers and presentations is helpful.

Mr. Lee spoke on the panel “Non-Profit and

Government Organizations” at the Institutional

Real Estate Latin America Forum on June 2-3,

2014.

advantage. That being said, that’s a little bit more on the public side. I think on the private side it’s very hard to be pan-regional. It’s hard to have good networks in Mexico, Colombia, Peru and Brazil. It’s possible, but you actually have to have someone on the ground in a couple of those countries. It’s hard to compete with cash in Brazil for equities. The question is, are things really still cheap in privates? Fortunately it appears in Latin America they still are.

5. How is forming relationships with managers and companies in Latin America different than other regions?

RL: I think they’re a little bit more… I don’t want to say more commercial, but Latin America and particularly Brazil is very oriented toward a strong majority shareholder who’s driving things. They really feel like that everything has to have an owner and someone who’s responsible and they look to that person like you’re responsible for this company. Other places don’t really want that. They don’t want it to be all one family, not so personal. If I like you one year, but next year I don’t like your business, I’m out. It’s not personal. But in Brazil it seems like the people… it’s a little more personal.

6. What is your take on investing in the public versus the private markets in emerging markets and Latin America right now?

RL: PE is such a longer term orientation that six months of flows doesn’t matter. Valuations all get pegged off of public markets in all markets and the private market is related. So it does affect short-term valuations, but the flows aren’t the same. People commit. They’re committed. Private equity for us is really an opportunistic play. Many investors have sort of a private equity benchmark that they have to pay attention to and if emerging markets is in the benchmark they have to think about filling that box. We don’t have to fill the box. We don’t have any private equity benchmarks. So, we’re only going to do it if we think there’s a special opportunity to make money there. The truth is that if I thought I could get the same return and risk vs. reward with more liquidity I wouldn’t invest in private equity. I would never lock up if I thought I could get it somewhere else. I’m happy to have zero and there’s a max amount I’d be willing to have which in general for most portfolios is in the 10 to 15 percent range.

multinational companies and had those relationships and could give them what they wanted. That was a little easier for us to ascertain and figure out who was connected that way. It’s a little hard on the ground to figure out who really knows which side of the street you should be on. We also had little bit of office and a couple other things, but the main place that we put money was in Indian logistics. We didn’t do much Indian private equity. It’s the most over-penetrated private equity market, I think, in the world. You can see by the private equity amount raised and when you look at Latin America and you compare it to the amount of private equity in Asia, even adjusting for the different sizes of the country or GDP, Latin America is very under-penetrated with private equity. India is the poster child for having more private equity than they can ever know what to do with, which is why all those firms wind up buying public equities. Not all of them, but a lot of them wind up buying public equities.

At Seven Bridges, we currently have investments across EM. We have more of our money right now in Asia than any other part of EM. The two areas I look at most seriously are Brazil and actually South Africa. It’s an inefficient long-short market. It’s not a long opportunity there, but it appears to be a pretty inefficient market and it’s a market no one else looks at. Brazil is more likely to be long. It’s just more of a long theme, though Brazil has a higher probability of social unrest. Not necessarily political problems, but there’s social unrest.

Each country has its own risks. Brazil has mostly social risk. There are politics and corruption, but there’s corruption everywhere. Brazil has a real functioning capital market, which is not true in China. Although there’s obviously a lot of activity, it’s controlled and India is a fairly closed market, too. There’s a lot of activity, but the government makes it hard for foreigners. We don’t have much money in Latin America right now. Mexico may be interesting for the first time since I’ve been an investor. I think Mexico has actually gotten itself together. The fact is they seem to be reforming the oil & gas sector. This is very important for the country to do in terms of actually allowing some foreigners to be involved because they just don’t have the expertise. That is a huge tailwind.

4. What has been your experience with the talent of managers in Latin America?

RL: I think that pan Latin managers have an

LREJ AUGUST 2014: Seven Bridges Advisors

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