The Latin America PE/VC Report recently spoke with Brad Young, Partner and Head of the Americas at Altius Associates about its interests and allocations to funds in Latin America.
LAVCA: Please give some background on Altius Associates. What are your assets under management? What is your diversification strategy, by asset class and geography?
Young: Altius Associates is a global separate account and fund of funds investment firm focused solely on private equity and private real assets across many categories and geographies. Altius has approximately $18 billion in assets under management and operates from offices in London (UK), Richmond, VA (US), and Singapore. Since inception in 1998, Altius’ mission has been to create tailored global portfolios of underlying funds that outperform industry and client benchmarks. This has been accomplished through diversification (sector, geography, strategy, vintage year, etc.) and selection of top managers, as determined by our proprietary research and tiering methods.
LAVCA: Roughly what percentage of your portfolio do you generally allocate to emerging markets private equity? To Latin America?
Young: Altius tailors its clients’ portfolio to fulfill the unique needs of each individual client; therefore, the allocations to emerging markets private equity varies by client. For a well established private equity program of an adequate size, Altius would generally recommend emerging markets exposure of 5 – 15%. The primary emerging markets of focus for Altius and its clients have historically been Asia due to the relative depth and maturity of those markets versus other geographies. However, Latin America is becoming an increasingly important and maturing region for private equity and Altius would expect to increase its exposure to Latin America going forward.
LAVCA: What can you tell us about your performance in 2009 and thus far in 2010?
Young: Altius’ performance in early 2009 remained subdued following the decreases seen across the market in 2008. A lull was seen in fund activity for the first three quarters of the year as managers remained cautious of pricing in the PE environment. A similar scenario was also seen with valuations remaining low over the same timeframe, dampened further with the advent of mark-to-market valuations. Distribution activity began to increase in 2009 Q4 and returned to 2007 levels in 2010 Q1. We are continuing to see robust activity and valuation increases across its funds into 2010 and expect performance to return to the high levels expected from this asset class.
LAVCA: Globally, what emerging market geographies or countries are of particular interest to you right now? What about in Latin America specifically?
Young: As mentioned, historically Altius and its clients have focused on Asia. Again though, Latin America is becoming an increasingly important and maturing region for private equity and Altius is certainly interested in and reviewing private equity fund opportunities in Latin America. We have a bias for country focused funds or pan-regional funds serving countries that have attractive long-term trends and where private equity fund managers can add significant value while taking advantage of the macro-economic growth trends. Brazil is particularly interesting due to the abundance of potential investments, opportunity to professionalize companies, relatively stable political environment, and strong demographic trends. We also believes there are compelling trends that may allow for strong private equity opportunities in Mexico, Colombia, Chile, Peru, and other smaller Latin American economies, but the depth of several of those countries may not be enough to support a country-specific private equity fund of institutional size at this time and are therefore generally focused on pan-regional funds in Latin America.
LAVCA: What changes do you need to see in Latin America before you start allocating a greater percentage of your funds there?
Young: There are a number of things we’d like to see happen in Latin America – managers continuing to do deals of type and size that they have had success with, longer and more credible track records for groups raising funds, improvement in market depth and the broadening of the track record beyond commodities.
LAVCA: How do you go about sourcing investment opportunities? Do you ever invest in first-time funds?
Young: We take a pro-active, research-based approach to sourcing investment opportunities, instead of waiting to be contacted by GPs that are in the fund raising process. Altius maintains a database that has over 4,000 private equity firms which it continually monitors to maintain awareness of which firms will be in the market over a certain time period. We meet with over 400 GPs each year and believe we see the vast majority of credible opportunities in the market at any given time. While Altius has invested in first-time funds it is generally rare and under extraordinary circumstances. While many first-time funds do have significant potential, we generally like to see firms progress over time and exhibit a proven record of success as a newly formed organization.
LAVCA: What is a typical size commitment that you make to a fund?
Young: Altius does not typically secure a standard commitment size on behalf of Altius solely, but rather will work to secure a commitment for each individual client based on a predetermined portfolio plan. Our clients differ to a large extent by portfolio size, a typical commitment to any particular fund could range in size from less than $5 million to greater than $100 million in total Altius client commitments.
LAVCA: How do you see the allocation to private equity in general and to emerging markets private equity in particular changing over the next 5 years?
Young: Globally, I anticipate an increased interest in some countries in Africa. In regards to Latin America, I’d expect allocations to increase if substantial track records are realized and a deeper pool of capable managers with the ability to absorb capital is developed. I’d also expect to see the interest in fund of funds for Latin American to rise.