Allstate Investments made its first fund commitment in Latin American in 2007. LAVCA recently spoke with Director Ross Posner about Allstate’s future strategy for the region.
Posner: Allstate Investments manages over $100 billion of capital on behalf of Allstate-related entities. We are a multi-asset class investment manager, and our private equity portfolio approaches $3 billion of exposure, managed from our two offices in Chicago and London.
LAVCA: Tell us about your interest in emerging market? How do your commitments to Asia compare with those to Latin America?
Posner: Currently, the majority of our focus outside of North America and Europe is in the emerging economies. We have been growing our private equity exposure to these regions since 2006. We actively invest in both Asia and Latin America and are exploring other emerging market opportunities. Latin America continues to represent a smaller portion of our portfolio than Asia. We incorporate a number of factors when making private equity portfolio allocation decisions, including size of the respective economies, growth drivers, and the dynamics of the local private equity and capital markets.
LAVCA: Do you expect a shift in your focus away from developed markets such as the US and Europe in favor of a greater focus on emerging markets?
Posner: We have been allocating more of our portfolio to emerging Asia and Latin America over the last several years. This is consistent with our diversification goals, as well as our desire to have exposure to economies with relatively higher growth. Every investment has its risks, but we view well-managed secular economic growth in many of the emerging markets as a solid foundation from which to generate strong, asymmetric risk-adjusted private equity returns.
LAVCA: How do your expectations for returns differ for developed and emerging markets?
Posner: We believe that there must be a return premium for the risks associated with investing in emerging markets. These premiums vary based upon market-specific risk factors. From a portfolio construction standpoint, we also believe that there is benefit when we think about portfolio diversification and correlation with our investments in developed markets. Further, a great deal of our time is spent on manager-specific evaluation to ensure that we’re focused on those managers that deliver alpha to our portfolio rather than emerging market beta alone.
LAVCA: When did you first invest in Latin America? Are there specific Latin American countries that interest you?
Posner: As an institution, Allstate Investments has been an investor in this market for some time. We made our first private equity fund commitment in Latin America in 2007. This commitment was to a Brazil-only manager and has generated strong risk-adjusted returns to date. We expect to make additional investments within Brazil and potentially in other countries, most likely via a pan-Latin America strategy. I just returned from a trip earlier this month to three countries in the region.
LAVCA: What would be a typical size of a commitment that you make to a fund? Do you have a preference for regional, country-level or sector funds?
Posner: Our future fund commitments within Latin America will range between US$25 million to US$75 million. We currently have country-specific investments and are evaluating augmenting those investments with regional exposure. The funds in which we invest in Latin America are multi-sector oriented. One advantage is that the fund managers can rotate across opportunities based upon relative risk/reward characteristics. These funds are usually thematic in their investing style by focusing on several underlying strong macroeconomic trends.
LAVCA: Do you invest in any secondary opportunities?
Posner: We are not currently purchasing secondaries in Latin America. We would be willing to do so with managers in which we are already an investor.
LAVCA: What changes do you need to see in Latin America before you start allocating a greater percentage of your funds there?
Posner: We are currently considering whether to increase our Latin American allocation, although we remain cautious about the risk of over-allocation of capital to this market. Before investing more, we’d certainly like to see improved economic stability in the region. We are focusing our efforts on experienced managers who will execute an investment strategy tomorrow that is similar to the successful one they deployed today and yesterday.