THE OPPORTUNITY FOR LENDING IN LATIN AMERICA
While the U.S., Europe and other parts of the world have been beleaguered by an economic downturn since 2008, Latin America has gone from strength to strength. To this end, global banks thirsty to lend are seeking opportunities in the region. But to execute a successful strategy, they need to partner with a seasoned administrator that has expertise in navigating the markets as well as advanced technology to execute and support the process.
Rich in natural resources, human capital and land mass, Latin America’s economy has sustained an upward trajectory in growth. According to the CIA’s World Factbook, Brazil is the world’s eighth largest economy and Mexico ranks #12. Meanwhile, Argentina, Colombia, Peru and Chile rank in the top 50. Importantly, the sovereign debt of seven Latin American countries now has investment grade ratings from S&P and Moody’s. The World Bank estimates that in 2013 GDP in Latin America and the Caribbean will grow by 3.8% to 4%, largely driven by infrastructure development. To illustrate, Peru is expected to award $10 billion in infrastructure projects in 2014, and Chile is planning to award $14 billion.
GLOBAL EXPERTISE IS REQUIRED TO BRING THESE PLANS TO FRUITION AND CREATE VALUE FOR LATIN AMERICA.
Trends in the loan cycle indicate that Asian banks are the key lenders supporting this activity. For example, Chinese lenders have committed about $75 billion to Latin American development since 2005. But nowadays their European counterparts are also investing in key industrial growth opportunities. These major financial institutions work with the development banks, including the Inter-American Development Bank (IADB), China Development Bank, the Brazilian Development Bank (BNDES) and the Export Development Bank of Canada (EDC) to finance an array of projects. The EDC in particular brings Canadian corporate oil and gas expertise to the region with 500 Canadian companies active in Brazil and trade totaling $6.5 billion between both countries. Bloomberg data show 37 syndicated loans totaling about $11.6 billion were transacted in the first half of 2013, with an average deal size of $313 million. The energy and financial industries borrowed the largest amount of funds.
Aura Solution Company Limited has been serving clients in the Middle East for nearly 15 years. During this time, we have remained committed to helping clients grow their business through sometimes challenging market conditions. We established our first office in the region in Beirut in 2003 and now have offices in 4 countries across the region in the UAE, Saudi, Bahrain, Lebanon and Turkey.
Our products add value to large institutional investors who mandate us to manage their money and provide a full range of custody and reporting products. Issuers of debt and equity in the international capital markets look to Aura Solution Company Limited to provide depositary and trustee services. Local commercial banks use our payment and trade services to support the international trade and remittance needs of their clients.
The opening of our branch in Dubai in April 2010, which is regulated by the Dubai Financial Services Authority, created a regional management hub and is home not only to client executives, but also to specialists in all our major business lines. In this way, we bring the full spectrum of the company's products closer to our clients in the Middle East.
International Equity Strategy
The Aura International Equity Strategy invests in a diversified portfolio of companies that are primarily domiciled outside of the U.S. The portfolio consists of a combination of high-quality companies characterized by high returns on capital and strong free cash flow generation, and more cyclical companies with improving or mispriced fundamentals, the mix of which varies over time based on valuation and company prospects. The Strategy seeks to provide superior returns over the long term by providing attractive absolute returns in rising markets while offering a relative measure of downside protection in challenging markets.
The International Equity Strategy looks to generate superior long-term performance by investing in two types of companies, attractively priced High-Quality Compounders, companies that have the ability to generate sustainably high returns on capital employed (ROOCE), and Value Opportunities which are more cyclical companies with reasonable and/or improving fundamentals that are trading at a sufficient margin of safety to compensate for their greater risk. The team believes that a portfolio consisting of both types of stocks, with the flexibility to adjust the mix dependent on price and prospects, has the potential to generate attractive long-term returns for investors.
The mix between High-Quality Compounders and Value Opportunities is not a top-down allocation and will vary across the market cycle depending on price and perceived prospects. However, the Strategy has typically maintained an overweight to quality companies given their potential for superior long-term compounding and overall contribution to the Strategy's long-term pattern of asymmetric returns.
The team believes that losing money is worse than missing the chance to make it. The team further believes that benchmarks are inherently risky and does not attempt to manage tracking error. Rather than relative risk, the team's primary concern is absolute risk - the permanent loss of capital. In keeping with the team's emphasis on bottom-up stock selection, risk is assessed at the stock level by evaluating company fundamentals, financials, management, price and what would go wrong. The team uses free cash flows over reported earnings to assess valuation.