Investment in Latin America: History repeating itself?

Initially, I was delighted to receive the invitation to chair the plenary morning session of the Hedge Funds World LatAm 2008, however, I immediately questioned why I had received the invitation rather than someone from the hedge funds world. Perhaps it was because of my many decades of experience in the Latin American region, and in particular, my knowledge of the many differing business cultures. Perhaps it was also because I advised on a number of problem investments on behalf of limited partners, and do not want a repeat of previous Latin American investment (so called) “strategies” promoted by a number of fund managers that concluded in many write-offs for investors, and negative consequences for portfolio companies.
Many Latin American fund managers and their investors are concerned with the current economic climate in the region. Many regional investors still remember the substantial “write-downs” and provisions for loss reserves. A number of investors had not only written off their investments, but the region as well! Big mistake! “Every adversity has its equal seed of benefit … if you look for it!” (… but with knowledgeable fund managers!)
I was also requested to, “Submit a white paper for inclusion in the conference workbook in order to give delegates a more detailed insight into [my] presentation or panel topic.” Upon receipt of the conference program, I perused the scheduling of the plenary morning session that I would “Chair.” I am only scheduled for a ten minute “opening remarks” which has to include an overview of the topics; set the tone for the presenters to follow; and briefly introduce those presenting keynote addresses or whom are members of the panel discussions. Other than acting as the “Panel Police” and regulating the conduct and time limits of the speakers, (along with the announcement of some remarks and requests of the conference organizers), I remain in my chair for most of the morning! I have therefore concluded that the title, (“Chairman”), is most appropriate!
On a more serious note, it also became obvious that there would be very little time during my allotted ten minutes to provide the delegates with a “more detailed insight” into hedge fund investment in Latin America! That could take many hours, if not days! The Merriam-Webster Dictionary defines “White Paper” as “a detailed or authoritative report.” The conference organizers state that, “providing a white paper is a simple and effective way of increasing your profile at the event, enabling you to demonstrate your expertise and provide useful information that attendees can refer to long after the conference is finished.” I am of the opinion that by definition a “detailed report” could not be simple, and an “authoritative report” can only be an opinion of the reader and not a (modest) author! I have therefore decided to only provide some brief insights with reference to hedge fund investment in Latin America, along with some personal opinion and cautions. (More detailed opinion is possible, but by appointment, only!)

Como la velocidad de la luz es mayor que la del sonido,
ciertas personas parecen brillantes
antes de que escuchemos las pelotudeces que dicen.

As the speed of light is faster than that of sound,
certain people appear brilliant
before we hear their stupidities.

During the last two decades, I have often cautioned investors from being seduced by “silver-tongued” fund managers, (hedge or any other), who in their urgent need to invest funds; take management fees, (“earn” intentionally excluded), and await the outcome of their “throw it all at the wall and see what sticks” or other questionable strategies for Latin American investment. These types of “managers” are really over-priced salespersons who give the experienced investment managers a bad name. Unfortunately the Latin American investment disasters of the last decade are soon forgotten, particularly by some whom “led the charge” with their total lack of understanding of the differing business cultures and models of the Latin American countries.
Now it would appear that some of these same characters, (and/or their clones), have resurfaced …… (and are about to discontinue reading this commentary!) ….. and have additionally concluded that the implied higher risk element of hedge funds is more appropriate to their cavalier investment strategies and attitudes!
A private study and some recent media commentary of the current attitudes of fund managers and their investors suggests a partial breakdown in relationships, particularly on the subject of management fees, information dissemination, and the valuation of portfolio companies and/or strategies. A number of fund managers have attempted to reduce management costs and seek opportunities to protect investors’ funds. Others are only interested in protecting their management fee income.
Current economic conditions require “pro-active” initiatives to protect and enhance investors’ funds. Notwithstanding individual efforts to seek solutions and opportunities, the current situation suggests an overdue need to create an attitude of “educated” analysis of risk and potential reward within this investment sector and the Latin American region.
As we await the economic opportunities within the region, it is important that fund valuation and reporting regimes become standardized and more understandable, thus providing a better environment for introducing investors to the region and also furthering regional economic development. In conclusion, I respectfully suggest you “hedge your bets” by learning more about the Latin American cultures and business methodologies. You will increase your wealth, and enrich your life!

Copyright © 2008 David P. Michaels – Strategic Solutions

David Michaels