November 2010 Welcome to the latest edition of ECOS News CONTENT We have recently been asked to elaborate on private equity or venture capital funds that like ECOS, are active in the renewable energy and/or clean technology sectors with a geographic focus on Latin America. There are some examples but for now, not many exist. There are a great number of investors making commitments in the segments and geographies previously EDITORIAL mentioned; however, the combinations are not exact. One comes across global or international clean-tech funds that also invest in Latin America; or across non sector specific Latin American funds that also invest in clean tech / renewable energies. At ECOS, we feel privileged to have co-invested with fine partners and plan LATIN AMERICA to continue doing so, nonetheless the question remains - why are there just a few sector and market specific - Macro Trends vehicles, similar to ECOS in the Latin American markets today? Market size does not seem to be the issue: Brazil or Mexico (and increasingly Chile or Colombia) have an impressive number of funds and active asset managers (not sector specific). Exit options may be a factor that SUSTAINABLE FORESTRY influences fund managers to not bet on just one sector or one market: “IPOability” is not yet a given in most - General Trends markets, so trade sale opportunities need to be screened as from the moment an investment is made. - News ECOForest Regulatory frameworks seem to be another crucial element; at the end, regulatory measures are the - Portfolio Companies backbone of the creation of many European and North American funds that opted for a sector specific investment mandate. With such support, they can satisfy their investors’ diversification expectations and bundle expertise & know-how, a very important component in technical industry segments. CLEAN TECHNOLOGY Nonetheless, the investment activity is abundant in the region, and our focus (renewable energy, clean tech - General Trends and sustainable forestry) see an ever increasing investor interest. We predict that it will only be a matter of - News ECOEnergy time before the creation of specific fund activities contribute with the booming growth of the region. - Portfolio Companies In sustainable forestry, developments have been somewhat different: most of the timberland investment management organizations (TIMO’s) who do invest in Latin America may not have a dedicated Latin American focus. We believe that biomass is one of the most promising sources for energy generation, and NEWS ECOGEO woody biomass has its share of attractiveness in that context. Most Latin American countries have degraded land suitable for forestry investments, which could supply both European and increasingly also domestic needs with one of the oldest feedstock that we have known: wood. Species improvements will do its own to EVENTS & INFO make investment considerations in this area not only attractive over time, but already at this very moment. Having an eye open on both the sustainable forestry and the renewable energy industries will shed light on how these two eventually converge. Interesting times are ahead! Enjoy the reading! Andreas Eggenberg • Private Equity Development (Growth / Expansion) Capital, occasionally Venture Capital. • Focus on boutique investments in small and medium sized companies, active in selected Sustainable Development niche segments, mainly in Latin America: o Sustainable forestry o Cleantech (Renewable energy, Environmental engineering and services) • Usually minority shareholdings as active investors, accompanying portfolio companies at Board levels (corporate expertise, “door opening” capacities for portfolio companies). • Committed to a triple-bottom-line approach and business ethics, along with the aspiration of above market performance in economic returns of the Fund and its portfolio companies. • Functional and integrative governance, rigorous investment decision making process, meticulous dealflow and network management. LATIN AMERICA TRENDS José Guardiola - CFO LATIN AMERICAN TRENDS By Jose Guardiola & Ricardo Mesa Latin American economies and their outlook for the future remain solid and economists believe the anticipated second half of the year global slowdown won’t be as bad as once feared. Economists expect GDP growth for 2010 in Latin American countries to be 5.8% compared to 3.8% for the rest of the world and 4.1% versus 3.4% for next year´s GDP growth. Central banks have stopped raising rates for the moment in fears this could affect negatively the recovery from the recent slowdown. However, inflation remains reasonably contained at 6.7%. Argentina´s economy is having a very promising 2010 so far as the The USD dollar lost value against most Latin American currencies since December annual variation for GDP growth stands at 7.8% and economists expect 2009 except against the Argentina’s Peso. The USD lost the most value against the 4.4% growth for next year. Colombian Peso (-12.1%) followed by the Mexican Peso (-5.8%), Chilean Peso (-4.2 %), Brazilian Real (-1.8%) and finally gained value against the Argentinean Peso Due to recent positive results, the international credit rating agency (4.1%). Standards & Poor´s raised its credit rating for Argentina´s sovereign debt from B- to B. Inflation expectations have remained similar throughout the year and economists forecast inflation to be at 11.2% by year end and at 11.8% for next year. In Brazil, the economy continues to run very smoothly as economists believe GDP growth for 2010 will be 7.6% and 4.6% for next year. Industrial production annual variation will most likely be 11.9% compared to -7.4% during 2009. Inflation has remained under control at 4.7% and forecast for next year are around 5.0%. The economy continues to grow supported by strong fundamentals including retail sales expanded 10.9% in July and unemployment falling to a historic low of 6.7% in August. Chile continues on a strong recovery trail as economists believe GDP growth will be 5.3% in 2010 and 6.0% for next year. The economy had benefited much from high copper prices which promise to reinforce exports going forward. Cooper prices increased in September by 9.5% to reach US 3.65 per pound which is the highest level since late 2008. Cooper accounts for more than half of the country´s total exports. In Mayor Latin American Stock Markets have increased compared to same period last addition, economists forecast inflation will close the year at 3.5% and year in a strong way with an average growth rate of 27.0%. For the same period, next year will be 3.2 Mayor Stock markets in Europe and USA had an average growth rate of 3.0%. Since Colombia´s economic performance and outlook continues to be solid as the end of March 2010, Stock Market growth rates for Latin American countries are: economists believe GDP growth will be 4.4% this year and 4.6% next Argentina 11.3%, Brazil -0.2%, Colombia 21.3%, Chile 27.6% and Mexico 1.6% year. Inflation is expected to be 3.0% this year and 3.8% next year. At (LatAm average 12.4%). USA and European countries: Swiss -8.6%, Dax 0.9%, the sector level, the acceleration was lead by the services sector due to FTSE -1.5%, Madrid -4.1% and NYSE -1.5% (group average -2.9%). an increase in commerce from 4.3% in the first quarter to 5.4% in the Compared to same time last year, this upward curve was higher a year ago than second. Colombia’s biggest concern however is the unemployment level today as yields were higher Argentina´s government bonds continue to offer the currently projected to finish the year at 11.8%. Mexico´s economy . continues to improve as economist forecast GDP growth for this year will highest yields in the region with a 10.1% yield for a 7 year bond. Meanwhile, Brazil be 4.5% and 3.4% for next year. and Mexico offer very similar yields at 5.0% and 5.1% for a 30 year bond respectively. Chile doesn´t have any long-term bonds and their 3 year bond offers a Inflation remains stable and therefore the Central Bank decided to 3.3% yield. remain on hold with their interest rate for the moment. Economists forecast inflation at 4.5% this year and 3.9% next year. Ecos will continue to search for business opportunities that make economic sense whilst minimizing the environmental and optimizing the social impacts in Latin America. We will continue to invest and solidify our reputation as a good investment partner and a co-investor in the region. More info: [email protected] SUSTAINABLE FORESTRY Claudio Cabezas – Investment Manager Benefits of Environmental Services "buyer" of a well -defined environmental service and natural forests. Such approach has been taken to a Whilst environmental services have been heard or the use of land which produces such service. level of declaring it a national forestry competitiveness of for quite some while in the context of In parallel, similar services have been gaining a argument, considerably restraining deforestation and sustainable forestry operations, only recently has lot of attention in the natural or native forests increasing forest cover at the same time. At one of Ecos’ this concept gained momentum to be taken in sector, where the main efforts have been geared portfolio companies, Ecoforest Panama, a project consideration when analyzing opportunities in towards the implementation of mechanisms of conserves and maintains 4,000 hectares of natural forests the forestry and timber sectors. Valuable deforestation avoidance by means of the sale of bordering the Panama Canal in addition to a large Teak environmental services provided by forest carbon credits (on some of the services listed plantation. Continuous commitments to train and educate ecosystems commonly include (list not above).