2008 University of Florida Latin American Business Symposium and Career Workshop

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1 2008 University of Florida Latin American Business Symposium and Career Workshop November 7, 2008 INCA Investments Fernando X. Donayre

2 INCA Investments, t LLC Founded in 2004 to implement specialized investment strategies in the Latin American equity markets Assets under management of approximately US$225 million Clients are mainly U.S. and European based institutions and family offices Our investment team is comprised of a Chief Investment Officer, Director of Research and four Investment Analysts We are based in Miami due to the city s strategic location for covering all of Latin America 2

3 INCA s Assets under Management Long Only Funds: Zephyr Latin American Fund investment sub-advisor for US$20 million Latin American Fund launched in February 1997 Zephyr Aurora Fund Latin American sub-advisor for US$30 million invested in the Latin American portion of this Emerging Market manager-of-managers fund Small Cap Funds/Accounts: Small Cap Separate Account US$70 million account launched in May 2003 for a U.S. endowment INCA Latin American Small Cap Fund US$10 million fund launched in January 2008 Long-Short Funds/Accounts: Long/Short Separate Account US$90 million separate account managed for a European family office 3

4 INCA s Investment Philosophy All investment decisions are based on our internal, bottom-up, fundamental research Analysts are specialized according to industries, not countries Invest in companies with a strong franchise and understandable business model Use a long term investment horizon Favor companies with reasonable and below average valuations 4

5 ILASC s Investment Process Latin American Equity Universe 920 Stocks Latin American Equities Daily Vol. > US$100k 425 Stocks Liquidity Screen Analysis Screen Latin American Latin American Frontier Markets Frontier Equities Quality Track Universe Daily Vol. > US$100k Screen Companies 200 Stocks 20 Stocks ILASC Portfolio Companies Latin American Non-Listed Equities Max=10% Fund Assets 5

6 The Latin American Equity Market MSCI Latin American Index Mexico 23.0% Peru 2.7% Argentina 24% 2.4% Consumer Staples 21.5% Telecom 5.0% Cash 0.6% Colombia 2.1% Chile 5.7% Brazil 63.9% Industrials 17.7% Consumer Discretionary 46.5% Source: MSCI (September 30, 2008) Financials 8.7% 6

7 Latin American markets were deeply affected by the crisis in the developed world S&P 500 (34.0%) MSCI EAFE (43.5%) (49.6%) MSCI Latin America Source: Bloomberg 7

8 however, unlike their developed world counterparts, Latin American companies and individuals were not highly levered due to: Relatively high interest costs Lower availability of credit Conservative attitude of companies toward debt Credit to Private Sector (% of GDP) USA UK Spain Japan Chile Brazil Mexico Source: World Bank 8

9 Latin American countries have been improving their economic posture 2.0% Current Account & Fiscal Balance (% of GDP) 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% Source: Citi Investment Research Current Account Fiscal Balance 9

10 which has allowed a significant lowering of External Debt 50.0% 45.0% 40.0% 35.0% 30.0% 0% 25.0% 20.0% 15.0% 10.0% 50% 5.0% 0.0% External Debt (% of GDP) Source: Citi Investment Research 10

11 Compared to other market declines in Latin America the current one has been more severe Emerging Brazilian Burst of Global Market Crisis Devaluation Tech Bubble Credit Crisis Bear Market 10/21/97 to 11/27/98 to 3/9/00 to 5/19/08 to Period 9/10/98 1/14/99 9/30/02 10/27/08 Market Drop -64.1% -30.9% -55.4% -67.5% Duration (months) Low P/E Source: Citi Investment Research and valuations have reached an all time low in spite of an improved economic back drop 11

12 Our View on the Latin American Investment Environment The global credit crisis will moderate GDP growth, but Latin America will not enter a crisis scenario Given the very low valuation levels, we believe Latin American equities present an attractive investment opportunity We believe the best opportunities are in the domestic, consumption oriented sectors (construction, banking, consumer brands) and not the export, commodity oriented sectors (oil, iron ore, steel) 12