COLOMBIA - Real Estate & Construction
Managing Director, Exact Invest Colombia SAS
Olli Fischer has for, a decade, worked in Latin America with a focus on real estate development and investment. Prior to relocating to Latin America Olli Fischer, a Danish native, was the Director of Logistics at Ferrosan A/S, a Danish pharmaceutical firm, where he participated in the turnaround of the company. He started his career in top-tier consulting firm McKinsey & Co, where he worked as a Senior Associate. Olli Fischer’s educational background is in Production Engineering complemented with a mini MBA at McKinsey & Co, and professional development courses at the MIT Center for Real Estate.
Exact was founded in 2005 by a Danish investment banker to provide capital for real estate projects, originally in Denmark. However, in 2007, due to market conditions in Europe, we decided to exit Europe and relocate to Brazil. We established ourselves in northeastern Brazil as a key capital partner for leading developers there. Then, in 2013, we decided to pursue business in Colombia.
Our philosophy is to be extremely hands-on. Exact’s background was in fundraising in a retail market, so we have over 200 private investors who want us to be hands-on and protect them against any downside. Our office in Brazil has 18 people full-time to manage roughly $100 million, which means that we have many boots on the ground managing a relatively small fund. That is an important part of our philosophy; to be much more involved in the project than a traditional fund manager. We want to be more of a developer than an investment bank.
For the investors in Denmark, we target annual returns of over 18%, and have been successfully achieving this for the past seven years. The way we look at risk mitigation specifically has to do with our involvement in projects and in applying best practices across them. Many people are involved in these projects, but we are not a passive investor. We participate in value creation when the project is defined, and actively protect the value, which is in the control and execution of the projects.
Generally, it was very clear to us that the next market in Latin America, after Brazil, would be Colombia. Mexico is another animal altogether, and the other big economy, Argentina, is not that interesting for Exact Invest. Chile is substantially developed, and it has large players and easy access to capital. With its growth, the middle class, and stability, Colombia was a clear next step following Brazil. Specifically, we saw in Colombia what we had seen in Brazil seven years before, namely the growing middle class, access to finance for property buyers, and a growing retail market. The reason we are in Tunja is that we want to be in several cities in Colombia. When we went to Brazil, we did not go to Rio de Janeiro or Sío Paulo; there were already large funds and public developers present. We did not want to be a small player in a large market, so we went to Fortaleza and, within seven years, we now consider ourselves the leading fund manager or capital partner for the development sector in that area. While we do want a presence in Bogotá and Medellín, we are very clear that we need to be in the intermediate cities and we want to create a foothold and presence there because that will position us as a leader for the next two decades. Tunja is a relatively small city of about 250,000 people, but there is not that much competition or international institutional capital there. Accordingly, we can position ourselves comfortably for the future, rather than getting into the areas where there is already heavy competition. We are also considering Cali and Barranquilla as two important intermediary cities in Colombia.
Exact Invest always wants to undertake projects together with a local developer. Our modus operandi is just as in Brazil, where we have the capacity to take a project from start to finish. We want to grow into that position in Colombia as well. However, even if we had the capability to do it alone, we always want a local partner. We enter joint ventures at the project level, where the developer and ourselves contribute capital and we develop the project together, with the developer being the operational partner.
The move to Colombia was supported by the IFU, which is basically a Danish government fund. That has been very helpful to us, firstly in persuading other Danish private investors to join us, and secondly in attracting partners in Colombia. It is an attractive proposition to work with institutional or government money, along with which we also bring standards of sound business practice. We are closely focused on corporate social responsibility (CSR), pursuing the requirements for our partners; specifically at the project in Tunja, where we will be conducting CSR training to be financed by the Danish government. We will look at the environmental and social impact on the community, and will advise the developers in their processes to be able to identify CSR risk and mitigate it. It is an additional plus for our projects and partners that we are able to bring this to the table.
Developers have traditionally financed projects by pre-selling units, just as they do in the residential sector. The fiduciary system creates the opportunity for developers to construct and sell relatively large projects with relatively little equity. That then generates the smaller stratified offices, and now because there is a lack of larger office space, funds are going in and financing projects to meet that need. That is what is happening in the office and industrial sectors. Foreseeably, the next wave will be in the residential segment, which could include apartments for rent with a specific strategy, such as student housing or senior citizen housing. These strategies are seen in Europe and the US, but have yet to take hold here.
I believe we are playing a role, although the investment fund or private equity sector is very underdeveloped in Colombia, and still in its infancy. In order to raise funds and deploy capital into projects, the funds are actively promoting Colombia to institutional and retail investors in Europe and the US. In our particular case, we spent two months talking to potential investors in Denmark to promote Colombia as an investment option. I think investment funds are doing a lot of promotional work to raise capital, and that will have a spillover effect on other types of FDI.
The local pension funds have increased their allocations toward local investment funds and hedge funds. That opens up a market for funds like Exact Invest, or others that could be set up under the new rules. For instance, they are setting up a new investment funds structure that can be managed by fiduciary companies, whereby you can capture local pension funds. If that starts to work, the amount of capital flowing in to, for instance, the private equity real estate market could grow significantly. Right now there is relatively little capital flowing in. There are only a handful of large funds, and the amount of capital is not substantial. If the local pension funds can deploy more through new vehicles, it could have a major impact on the market.
I actually think it is a great system, and would go as far as to say that in the period from 2007 to 2009, Europe could have benefitted greatly from copying the Colombian system. For foreign investors and fund managers, it is now a standard and a prerequisite. We will not invest in a project where the cash flow is not managed by a third-party fiduciary, which gives a substantial sense of security.
© The Business Year – July 2014
COLOMBIA - Industry
Sales & Marketing Director, Western States Machine Company
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