Around the world with family offices – examining what they want from Brazil
• How do investors across the United States, Europe and Latin American perceive Brazil?
• What role do hedge funds play in the portfolios of HNWIs?
• Which asset classes appeal the most to family offices?
The four panelists represent family clients from offices in the U.S., Argentina, Brazil and Venezuela. Cesar Stange invests about 55% of assets locally within Brazil, and 45% offshore. This figure varies from client to client. His opinion is that Brazil is overpriced, and, thus, has kept local percentages low. Cesar has begun investing in farming in Argentina and the U.S. with great results.
Dave Henry of DKH invests 30% in fixed income with the rest in equities. 50% of this is domestic in the U.S., and the other 50% is abroad. He is very attracted to the excellent fund managers in Brazil, relative to other emerging markets.
Heinz Blennemann from the U.S. has 80% exposure in equities (including long/shorts). A quarter of this is in hedge funds. The breakdown of his portfolio is 30% is U.S., 30% is developed countries, and the remaining 40% is in developing countries.
The panel noted that home bias is more in terms of total assets local versus offshore, as opposed to management. Home bias is different in emerging markets than in developed markets. For instance, Mexican families are very attracted to the U.S. and Europe. Typical Argentinians own their own business and land. To complement this, Cesar Strange offers his clients a portfolio more strongly focused on liquidity, which results in greater preference for offshore investments.
One issue for American investments investing abroad is the higher turnover in countries such as Brazil. The U.S. 40% tax rate on short-term investments (20% for long-term investments) lowers the attractiveness of investments in these countries.
Heinz shares two good tips to do due diligence. One is to take advantage of networks of family offices for peer reviews. The second is to travel to conferences around the world and talk to managers in different regions. It is important to share information to develop trust amongst peers.
In regards to PE and real estate, the panelists are interested in average holdings over one year, concentrated (30-40positions in a fund is too diversified), with a value tilt, and a fund that’s not too large. The panelists were asked if they had $5 million to invest in one geography and one fund, and the choices were: 2xdiversified emerging market long/short, 1xcommodities (precious and industrial mining companies), 1xUS long/short.
By Michael Pieper, Brasil Investment Summit