Jesus Zamora, Founder and Chairman of Enfoca Inversiones, shares his insights into his firm’s success investing in Peru and his thoughts on how the presidential elections will affect the country’s PE industry.
LAVCA: Please give us some background on Enfoca – how many funds do you operate, and what is your geographic and sector focus? What are your assets under management?
Zamora: Enfoca Sociedad Administradora de Fondos de Inversión S.A. (Enfoca Inversiones) was founded in January 2007 and focuses on sectors that grow at a faster pace than the general economy, principally in Peru, but with a mandate that allows us to invest in the Andean Region.
Enfoca Inversiones manages three private equity funds with total AUM of US$ 503 million. Enfoca Descubridor 1 was launched in August 2007, with investment commitments of approximately US$55 million. The principal LPs are the three largest private pension funds in Peru and an insurance company. In June 2008, capital commitments more than tripled to about US$ 180 million. By the end of 2009, capital resources committed to Enfoca Descubridor 1 were fully invested in six companies. The fund has been expanded since then for the last time to US$245 million of which 73% is invested.
Enfoca Inversiones also manages Enfoca Andean Investments, an investment fund of US$110 million whose limited partners are US institutional investors. This fund is fully invested in four companies that are also part of Enfoca Descubridor 1’s portfolio.
Finally, the first closing of the off shore fund Enfoca Discovery 1 was in June 2010. The principal LPs are global development banks, fund of fund investors and family offices from the Andean region. The fund has US $ 145 million in capital commitments of which nearly US$40 million have already been invested.
LAVCA: What factors led you to start the firm?
Zamora: First, Peruvian democratic and political stability has resulted in an economic model of sustainable growth based on important and increasing levels of private investment. Second, when we started operations, and this is still true today, there was clearly an imbalance of an important number of very attractive investment opportunities and very few investors willing to make such investments. We believed there was a tremendous opportunity for attractive private equity returns given the number of companies that can accelerate growth with an injection of capital, managerial skills, and business strategy.
LAVCA: How many investment professionals are currently employed at Enfoca? How did you go about recruiting talent with the experience you need?
Zamora: There are nine senior investments professionals currently employed in Enfoca. We believe that human capital is the main asset of any successful fund and we devote a lot of effort to recruiting, motivating, challenging and retaining our professional team. We are fortunate in that today Peru is an attractive professional location for experienced Peruvians and therefore our team consists of professionals with successful international careers in management consulting, investment banking, international finance and law that decide to return to Peru given the positive macroeconomic environment.
LAVCA: You mentioned that Enfoca Discovery 1 has attracted investment from multiple DFIs and the Peruvian pension funds. How did you differentiate yourself strategically from other funds? When do you expect to have a final close?
Zamora: We back businesses that are leaders in their sector with proven business models, products or services, and with significant potential for scalability via expansion or diversification.
For each investment, we develop a detailed 5-year business plan and an investment thesis with the key metrics to monitor value creation, and will agree on performance targets for management compensation. The General Partner works to ensure that the funds, the board of directors and management of the portfolio companies are all aligned with respect to the investment thesis and the strategic and business plans to be executed in order to realize such thesis.
As a General Partner, we seek to accelerate the growth and value creation of our portfolio companies by employing operational-oriented strategies as a way to enhance returns from its portfolios. Performance improvement is a fundamental, detailed, and closely monitored practice.
LAVCA: What are you hearing from LPs about their willingness to invest in emerging markets private equity and Peru specifically? How do expectations from your international LPs differ from those of the local LPs?
Zamora: LPs are actively looking to invest in emerging markets. Those LPs that are familiar with Latin America and that have already invested in Brazil are looking to invest in countries like Colombia and Peru. Local institutional investors have already invested in private equity in Peru and they have a different, more favorable, risk assessment of the country but foreign LPs also have a good impression about the economic performance and the perspectives of the country.
LAVCA: Earlier this year, Enfoca made its third investment in Maestro Home Center, a leading Peruvian home improvement and hardware retailer. What unique actions are you taking to add value to the company from an operational standpoint?
Zamora: We focus on identifying, evaluating, and incentivizing talent. We aggressively accelerated store opening programs, and we focused on a few key business ideas that create great value for shareholder. In this respect, for example, we have implemented a very promising joint venture with a local bank to provide sales financing to target clients.
LAVCA: Enfoca also recently did a follow on investment in Talma, an airport services company in Peru. What do you think the advantages are to having a fund that invests across sectors vs. a sector-focused fund?
Zamora: When investing in Peru, Colombia and even Chile, it is difficult to obtain scale when focused only in one sector. We define our focus as growth oriented investing and this allows us to hone in on investment opportunities that have similar opportunities or that require skills from us that coincide.
LAVCA: To date, Enfoca has only invested in the Peruvian market. Given its size, what is your strategy to diversify your investments and deliver expected returns to your investors? Are you looking to expand into other markets?
Zamora: In the short term, we are looking to give our limited partners regional exposure through the portfolio companies. For example, Talma, the leading air cargo logistic company in Peru, has already invested in the second largest air cargo operator in Mexico. Talma´s regional expansion should continue during the following years. Similar strategies might be followed by other portfolio companies. In the medium term we plan to invest directly on a regional level
LAVCA: Peru has made great strides in recent years and, along with Colombia, is considered to be one of the strongest emerging markets in the region for PE investments. How do you feel the outcome of this year’s presidential election will affect that image?
Zamora: We expect that the Peruvian electorate will not vote for a radical change of the current economic model. During the first ballot, almost 70% of the electorate voted for a candidate that would maintain current economic policy. In that respect we do not expect that the presidential election will affect the image of Peru as one of the strongest emerging markets in the region.