Guepardo Investimentos’ first fund, a private club absolute-return fund founded in 2001, returned an eye-catching 135.3% in 2003. Established by Octávio Ferreira de Magalhãe (who’d left a job as junior portfolio manager for the “Warren Buffet of Brazil,” Luiz Alves Paes de Barros), the São Paulo-based Guepardo opened its doors to individual and institutional investors in 2004, incorporating with the launch of Guepardo FIA. Since the inception of the private fund in 2001, Guepardo has posted an annualized net return of 41.7% as of December 31, 2010.
Unlike other funds in Brazil, Guepardo does not do long/short, private equity or macro—its core focus is concentrated, long-only investing in companies “trading at deep discounts to intrinsic value and companies facing circumstances in which we can unlock hidden value.”
According to Director Alex Bradford, the company has two funds in its core strategy—an onshore fund for Brazilian investors and an offshore fund (the Guepardo Master Fund) for non-Brazilian investors. As of December 31, 2010 they had AUM of US$225 million.
With an open mandate to invest across Latin America, the fund is currently 100% invested in Brazilian companies. That, says Bradford, is because “in terms of committed equity capital and valuations as a function of the economy’s size, growth, opportunities and risks, we believe Brazil is still the most underrated Latin American economy.”
Guepardo is a “generalist” fund, says Bradford. It has no market cap or sector focus, although in recent years it has tended to invest in consumption-related businesses.
The company applies a “private equity mentality and process” to the public markets, investing in businesses it believes are positioned for long‐term growth, but that are also misunderstood and therefore undervalued by the market.
One such company was OHL, a highway concessions concern. Bradford says the company had a great industry and business model with long-term organic growth, was competitively positioned, and was “temporarily misunderstood and therefore mispriced.” Also important, this market inefficiency was one Guepardo believed would narrow in the near to mid-term.
In the case of OHL, Guepardo felt the market misunderstood the nature of certain concessions the company had won in 2007, that it underestimated the organic growth of traffic volume, and that it had the wrong idea about OHL’s debt situation. As a result, as Guepardo explained to investors in a Q3 2010 letter, “The sell side downgraded the company and the buy side dumped the stock, creating an opportunity for Guepardo.”
Guepardo believes the best strategy in Brazil is to own five to 14 companies at a time. Other holdings in its current portfolio include the fashion retailer Marisa, the animal protein company BRF Brasil Foods, and Cremer, a health products producer. The average investment period is 21 months.
Guepardo describes itself as historically “conservative in growing assets” and it intends to stay that way. The company plans to raise US$200 million in the offshore Guepardo Master Fund then close both the offshore and onshore funds to new capital. At that point it expects to have up to US$500 million in AUM. The minimum subscription to the offshore fund is US$1 million.
Guepardo has begun raising offshore capital now, it says, because it is finding an increasing number of opportunities, “especially in small caps,” in which it would prefer to hold a direct board seat. “Although we do not have a focus on small caps—today approximately 40% of our portfolio is in small caps—historically our most successful investments have been in smaller companies and we want to continue investing in smaller companies going forward.”
And, obviously, Guepardo Investimentos, headquartered in São Paulo, will continue to focus on Latin America, particularly Brazil.
“To effectively invest in Latin America, an investor either needs to be based in Latin America or needs a strong local partner,” says Bradford. “Our strategy is to find types of market inefficiencies that only a local fund can optimally discover and execute.”