[REPLAY] Rodrigo Bitar – Empty Rooms: Investing in Venezuela (Capital Allocators, EP.268)

Original Release Date: 08/29/2022 On today's show we'll discuss a classic empty room – an opportunity ignored by most investors. In this case, we dive into the investment case for Venezuela, a non-starter for pretty much every institution because of the country's autocratic political regime, sanctions, and headline risk. But alongside those known risks are the potential for significant rewards. Rodrigo Bitar is the Co-Founder and Managing Partner of 3B1 Partners, the leading private equity fund making growth investments in Venezuela. 3B1 invests in high-quality companies with leading positions in basic industries, while looking to capture a change in macroeconomic conditions in the country. Our conversation covers Rodrigo's upbringing in Chile, professional background, and investment opportunity in Venezuela. We discuss Venezuela's sanctions, economic contraction, and dollarization of the economy. We then turn to investing in the country, including sourcing, due diligence, and an example of a recent transaction. We close with a discussion of the upside and risks to investing in Venezuela. Learn More Follow Ted on Twitter at @tseides https://twitter.com/tseides?lang=en or LinkedIn https://www.linkedin.com/in/tedseides/ Subscribe to the mailing list https://capitalallocators.com/ Access Transcript with Premium Membership https://capitalallocators.com/signup Editing and post-production work for this episode was provided by The Podcast Consultant (https://thepodcastconsultant.com https://thepodcastconsultant.com/) Show Notes (3:18) Rodrigo's background (6:50) Family dynamics (10:13) Investible assets in Venezuela (12:03) Impact of Russian oil restrictions (13:38) Surviving economic turmoil (17:27) Private vs. public markets in Venezuela (19:31) Identifying companies (21:51) Due diligence process (23:49) Assessing valuations (25:28) Risks unique to Venezuela (28:09) Conversations with potential investors (32:05) Closing questions

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Ted Seides?

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• 0:46Ted Seides?

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• 2:06Ted Seides?

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• 3:32Ted Seides?

  Hello, I'm Ted Seides and this is Capital Allocators. This show is an open exploration of the people and process behind capital allocation. Through conversations with leaders in the money game, we learn how these holders of the keys to the kingdom allocate their time and their capital. You can join our mailing list and access premium content at capitalallocators.com.

• 3:59Ted Seides?

  On today's show, we'll discuss a classic empty room, an opportunity ignored by most investors. In this case, we dive into the investment case for Venezuela, a nonstarter for pretty much every institution because of the country's autocratic political regime, sanctions, and headline risk. But alongside those known risks are the potential for significant rewards. My guest on today's show is Rodrigo Bitar, the co-founder and managing partner of 3B1 Partners, the leading private equity fund making growth investments in Venezuela. 3B1 invests in high-quality companies with leading positions in basic industries while looking to capture a change in the macroeconomic conditions in the country.

• 4:43Ted Seides?

  Our conversation covers Rodrigo's upbringing in Chile, professional background, and investment opportunity in Venezuela. We discuss Venezuela's sanctions, economic contraction, and dollarization of the economy. We then turn to investing in the country, including sourcing, due diligence, and an example of a recent transaction. We close with the discussion of the upside and risks to investing in Venezuela. Please enjoy my conversation with Rodrigo Bitar. Rodrigo, thanks for doing this with me.

• 5:14Speaker 01

  Thanks for having me, Ted. Happy to be here.

• 5:16Ted Seides?

  I'd love you to take me back to your upbringing in Latin America.

• 5:21Speaker 01

  So I've lived a lot of my life in Latin America. I was born in Chile and my father came to study in the US in the early 70s. So we came here very early in my life. And then my father was participating in politics in Chile. And after the Pinochet coup in 1973, he was imprisoned for a year and then were exiled for 10. And in that period of time, we came back to the US and we also lived in Venezuela, where it was at that moment in time, one of the wealthiest countries in the region, and it had one of the longest democratic traditions in the region. I grew up loving that country and also knowing what political turmoil could be like in my home country and economic upheaval could be like. After we were allowed to return in the 80s, I was in Chile.

• 6:06Speaker 01

  Then I finished my schooling there, did some work, and then I came back to the US to study my MBA together with you. And then I've been in New York since, working in mergers and acquisitions and strategy and finance in Latin America.

• 6:18Ted Seides?

  What first got you interested in the business side?

• 6:21Speaker 01

  Actually, most of my families, both my dad's family and my mother's family, have been in business. And my father was the only politician in the family. He still is to date. And my mother is also very involved in public service. So my family was like the black sheep of the business family. So it was an easy transition. I was involved in politics, running my dad's campaign for the Senate in the early 90s in Chile, and worked in foundations, educational foundation, regional development foundation. It was a natural transition to go into business. It's what I had the most passion for and what I enjoyed the most.

• 6:52Ted Seides?

  So why did you decide to stay in the States instead of going back to Latin America after business school?

• 6:56Speaker 01

  I was doing business in Chile right before coming over and I felt that the world was just becoming more globalized. And staying only in your home country and having only that perspective actually limited you and your capacity to do things. So obviously, coming to the US was a way to get a more international viewpoint, a broader mindset, and understand the interactions of the world capital markets and emerging markets, which is where I was participating in. And New York was obviously, in my eyes, the best place to do that from.

• 7:27Ted Seides?

  What are some of those differences, perspectives that you felt you experienced over the last, say, 20 years from working, living in the States as opposed to if you had just done this from Latin America?

• 7:39Speaker 01

  Generally speaking, emerging markets, we follow the lead. There's less innovation, there's less dominance in industries or in finance. So you're like takers in a way. So I thought, why not go where people are generating the new ideas, where the finance is center of finance? And it obviously gives you a different perspective. So you're more, I think, open to creating new things when you see other people doing that rather than just, let's say, following.

• 8:06Ted Seides?

  What's been your path from being an M&A as a banker towards the buy side?

• 8:13Speaker 01

  My M&A activity was mostly mainly with the large family groups in Latin America. So we were always working with the families and thinking with them, how do you expand further? How do you become stronger? How do you move from your country to other countries? How do you, let's say, organize better your group, both from a financial point of view and strategy and executing the M&A that had to do with that? So really, our thought process in any transaction that we did was really from the owner's viewpoint. So we always had the sense what was relevant in doing these transactions. And we really, all of those transactions that we did, we actually always thought as a principal ourselves, although we were not, but it was the mindset that we worked with.

• 8:49Ted Seides?

  What's the importance of families and family-owned businesses in Latin America?

• 8:55Speaker 01

  Much more, I would say, than here because capital markets are not what you have here in the US. And so the core of savings and economic power actually lies in families mostly. So even now, where you have many families that have their financial groups or business groups listed in the local exchanges, it's normally dominated by the families themselves. So it's a key to understanding the region really is working with the families locally and operating with them. It's a key advantage in Latin America at least.

• 9:23Ted Seides?

  So how did you end up transitioning to the buy side from the banking activity you're doing?

• 9:30Speaker 01

  What we're doing on the principal side is in Venezuela. I had done a lot of my M and A career in Venezuela. Since the mid 2000s, we began to see how the economy, actually 2010s and thereafter, how the economy began contracting. And it was a very unexpected event. It had to do with the end of the cycle of the oil prices in 2011, 2012, and the economy began collapsing. And we knew the value of the assets. We knew the production capacity. We knew what the infrastructure that existed there. And when it became cheaper and cheaper and cheaper, we just thought at a certain moment, like, wouldn't this be a great opportunity to buy these assets and hold them? So one of my families that I had been working with for over 15 years is a big family in Venezuela, the Sisneros family.

• 10:15Speaker 01

  And we began this conversation together on how do we take this opportunity and create a buy side vehicle? That's how that started.

• 10:22Ted Seides?

  What is the history of the Sisneros family in Venezuela?

• 10:28Speaker 01

  Look, it's a very interesting history because it's a family that began doing business about 100 years ago. And the difference with the usual families in Latin America is that the normal family would just focus in a single business and they would have, let's say, a company for 80, 100 years. The Sisneros, what they did is that they went into different businesses, but they had a knowledge of marketing and product positioning that allowed them to move into multiple industries. So they have been in television and beer. They own the second largest beer company, in retail, in distribution, technology. And this gives them a very valuable view on how to operate and what's valuable within market. They grew with the country. So when Venezuela was one of the richest countries until the 2000s,

• 11:12Speaker 01

  this was a very dominant family, not only in Venezuela, but elsewhere in Latin America. And the second virtue they have is that they expanded globally. So they invested in Univision here in the US. They had a couple of brands, Spalding and even Flow, there were global brands that they bought outside of Venezuela. They grew in Latin America, in media. So they also have this vision of not only Latin America, but how it interacts with the rest of the world, US Hispanic market, et cetera. So they're very valuable to us in their relationships, in their local know-how, in understanding, you know, businesses that work and businesses that don't, the interaction of Venezuela and Latin America to the rest of the world. So they're very valuable partners for us. And my partner Eduardo, Eduardo Zizneros, he's a delightful guy.

• 11:58Speaker 01

  And I really like working with him, like my wife calls him my boyfriend. So it's been very intense five years and we've worked together for 15, but these past five have been particularly intense and enriching.

• 12:11Ted Seides?

  So when anyone thinks of Venezuela these days, there's a real question of the political regime and sanctions. And why don't we start there with what's happened? And how investable are these businesses in this country as a result?

• 12:27Speaker 01

  So basically Venezuela now is under US sanctions, which limit people's capacity to interact with the Venezuelan government. So you can't buy assets from the Venezuelan government. You can't finance the Venezuelan government. That's why the bonds, as a US person, you can't buy any of the sovereign or PDVSA, the old companies' bonds. You can't partner with the government, but it's limited to that. And a list of people who are in the OFAC list, which are mostly government people. So as long as you stay clear from that, all of the private sector, you can go in and invest. You have to be careful. You have to, you know, have your compliance, which obviously is a big concern for us, but it's perfectly legal to do. Those sanctions, the main effect economically that they have is that they limit Venezuela's ability to sell its oil because it's sold by the Venezuelan oil company.

• 13:12Speaker 01

  And that's why you see when you look at economic activity the last few years, from selling two and a half million barrels a day post sanctions Venezuela went down to 400,000 barrels a day. So an 80% drop in oil production. And obviously, that decreased all of the economy with it. So the economy contracted since 2012 until 2020, like 85%. That is the biggest drop in economic activity in any country that is not in a war. And that's the opportunity that we saw. So the recovery of Venezuela is also linked in part to the lifting of those sanctions. And the lifting of those sanctions, the US has said, will be linked to Venezuela following in a more democratic path and holding fair and free elections in the future. So that's the basic

• 13:55Speaker 01

  tension of democratic process versus softening of sanctions, which we believe are walking in the right direction.

• 14:02Ted Seides?

  What's been the impact of restrictions on Russia's exporting oil reserves on the relationship with Venezuela?

• 14:09Speaker 01

  So Venezuela has the largest oil reserves in the world. It has more of it than Saudi Arabia. It's got like 20% of the global share of oil. Saudi Arabia has 17. So it's a very wealthy country from a natural resources perspective. It also has gold, minerals. In the Russia-Ukraine war, although it's a terrible thing, has been positive for Venezuela because you need countries who can produce extra oil to get Europe and the US out of Russian oil. The countries who can have that spare capacity and reserves are basically Saudi Arabia, Iran, and Venezuela. And of those three, Venezuela is an easy partner with which to work in expanding the oil production. Because as we said earlier, oil production currently is at like at 900,000 barrels a day. They used to produce 3 million, three

• 14:53Speaker 01

  and a half million at the peak. So they have a lot of capacity, part of which needs some investment, but it's there and the production capacity is there. All the refiners in the south of the US were done to refine Venezuelan oil. So it's a very easy relationship. So basically, the war what is generating is a demand for Venezuelan oil. OFAC just authorized two European oil operators who operate in Venezuela, Eni and Revsol, to begin exporting back to Europe that had been sanctioned earlier. And they allowed Chevron, the US company who's operating in Venezuela, to have a dialogue with the government about expanding its license and its future operations. So we think that's going to be something that should create more production and more export of Venezuelan oil to the Western world.

• 15:37Ted Seides?

  So you mentioned this massive 80, 85% contraction in GDP.

• 15:42Ted Seides?

  How do businesses survive in that type of economic turmoil?

• 15:47Speaker 01

  Not all of them survive. And we're looking at now at targets that we're looking at, we look at the survivors. So you have to have, obviously, it's what we look for in the companies that we like. You have to have good management teams, you have to have good processes, you have to have dominant market shares, brands that are well-recognized. So all of the companies in the country underwent like a very long and difficult period of contraction. Normally, we have seen revenues and profitability dropping 90% plus, 90 to 95%. These are companies that we knew earlier, that we knew the amount of investment they had received. You look at what a similar company in the rest of Latin America looks like, and obviously, you're looking something that's a tenth

• 16:27Speaker 01

  of the value of what it was or what it should be. And that's what made it a compelling situation for us. They survived, they learned to survive, they would generate less cash, therefore, they would invest less and, you know, deplete its working capital. And so now they're basically like much smaller version of themselves. And what we're doing is providing capital and support to bring them back up. But generally, it's companies that are very well-positioned with very good management teams, who still are cash flow positive, who are still profitable. They're the leading brands in their specific sectors in the country.

• 16:59Ted Seides?

  So before we turn to how you're doing this, I'm also curious about the currency. What's happened with the Bolivar and how do you think about investing in that situation?

• 17:11Speaker 01

  The country in that period of contraction had a hyper-devaluation and hyperinflation. Okay, so inflation reached a peak of more than 3 million percent a year, which is a number difficult to, I still don't understand it. You would look at numbers and company performance, it was just very difficult to read. But then like two years ago, a little bit more, maybe two and a half years ago, people began pricing goods in dollars. Venezuela had always been a very dollarized in the minds of people. Many assets were priced in dollars, houses mostly. And again, because it had a very historical, strong relationship with the US. There's a funny thing, Venezuela is the only country in in South America that plays more baseball than they play soccer in the country. That's because of the historic linkage with the US.

• 17:54Speaker 01

  So people began two years ago to use the dollar as a means of exchange because the bolivar was so devalued that even physically, if you wanted to hold enough paper money to go buy something, it was an uncomfortable situation. So people began gradually pricing things in dollars, trading in dollars. And that started growing, growing, growing. The government eventually made the dollar a legal tender. And currently, over sixty, seventy percent of transactions in Venezuela are done in dollars. So people have, they can transfer dollars amongst themselves. They have physical dollars. The banks now allow for you to have a dollar checking account locally. And actually, the assets in the banking sector, forty percent of the assets in the banking sector are dollars. And that made a huge change because it brought stability.

• 18:37Speaker 01

  So inflation went down from that three million percent that I was telling you. The annualized inflation now is at a hundred percent, a little bit more. March, April inflation, if you analyze just a month, it's below twenty. So it's created a level of stability that's been amazing. And the economic activity has begun to activate. So people were not giving credits to consumers and no company gave credits to its clients. So obviously, that ground the economy to a halt. Now the dollarization has allowed for that to start over. Because I can wait for you a week if you're going to give me ten dollars. But if you're going to give me ten bolivares in a week, they're nothing. You know, I wouldn't have given you credit earlier. So that's created the growth that we're seeing in the country. On average, our portfolio grew like sixty percent in revenue last year, forty percent again this first quarter.

• 19:20Speaker 01

  And you see, that's basically the beginning of the normalization of economic activity.

• 19:25Ted Seides?

  So when it comes to your investment strategy, how do you think about private market investing versus public market investing in Venezuela?

• 19:34Speaker 01

  So the public markets are just very liquid. And that's the issue, right? So you could gain exposure to some of the companies in the public markets, but the volume is probably less than five thousand dollars a day. So you can't build a position. So basically, the way to do it is in the private market. One of the companies that we invested in is a company that's still publicly traded. Actually, it was publicly traded here in the US for a while. But you do it privately. And then we did a tender offer for the balance of the shares and the local stock exchange. But it's not an entry via the public markets, it's via the privates.

• 20:04Ted Seides?

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• 20:51Ted Seides?

  So if you go in this, in the private markets and you've had this contraction, the businesses that survived have to be strong. They're probably seeing the same green shoots you are. Why would they want to sell their business when things are really at this like terrible low point?

• 21:12Speaker 01

  A very good question, Ted. So people who have undergone this, this long process of contraction and are seeing the green shoots, they're concerned if it's families, as we were speaking earlier, that they saved some of their money and they underwent all the spirit of risk. So when they see the upside coming, although they like to remain as owners, they do not necessarily want to risk their savings and double down in the country. So we are that capital. We are the capital that will take the risk of the growth. We find partners who also believe with us that using capital in Venezuela now creates much more value in the long term. So the delusion of having us as partners now creates more value for the both of us in the long term. We don't want to buy out fully our partners.

• 21:55Speaker 01

  If it's a survivor, as we were saying, and it's been like a period of natural selection and these guys are the ones who remained, we want them with us. We want their knowledge, we want their relationships, so we remain with them. What we do is that we take out the passive minorities. There are parts of the families who don't want to be invested any longer, but we try and keep the core of the shareholders with us and we put money into the company. So we grow and therefore we create value for all.

• 22:18Ted Seides?

  So let's walk through the investment process and first start with, how do you go about identifying the companies that you'd like to buy stakes in?

• 22:25Speaker 01

  We do like a top down, so we start thinking about the sectors that are, we have two or three criteria. One is basic sectors of the economy. So it's been such a long crisis that really you don't want to go into, you want to be in the basic activities of the country. And the second big criteria is generally in Latin America, the exits are via M and A. So we want to get into sectors that are very liquid from an M and A perspective and they have a lot of global activity, et cetera. And the third criteria is we want brands that are strong because as you get more global competition and there's very little tariffs now for imports of goods, you want brands that can actually withstand that competition. So when we look at those three things together, we end up with sectors that are telecommunications,

• 23:08Speaker 01

  retail, food, beverage, pharmaceuticals, basic industry. So we start by saying, okay, these are the sectors that we want to be in. And then within those sectors, we choose the leaders in each of their niches. So hopefully we can buy number one, number two, number three, number four. And again, as we remain partners with the owners, we want to have partners who we feel that we have the same perspective and that we would have long-term relations with them. So, and the criteria that we, when we look at the companies, we want them to have a dominant market share, we want them to have professional management, good reporting, cash flow positive, and we help them grow from there, but we want a good base of operating capacity because we want the least micro risk that we can, because what we want is the exposure to the macro risk.

• 23:53Speaker 01

  So we don't want any turnaround situations, we don't want any company in crisis, we don't want a company without management, so we get the exposure to what we actually want.

• 24:02Ted Seides?

  How do you go about getting the information on the businesses?

• 24:07Speaker 01

  They're all proprietary transactions and it's all linked, very much linked to their relationships that you have with the owners. So we had done a lot of work in Venezuela, but my partners are a large Venezuelan family, as we were saying earlier. Everybody has a lot of respect for them, everybody would love to be their partners. So when we find companies that we like, we normally have a way to talk to the owners. It's not publicly available information, it's private companies, so they have to be enticed to have a conversation with you and explore if it's something that's interesting for all, but we normally manage that.

• 24:39Ted Seides?

  What's the due diligence process looked like on one of your past transactions?

• 24:43Speaker 01

  I mean, it's very much like what you would do here, right? We have local attorneys that do the legal diligence. We have usually one of the big four that does the audit. We have the corporate team of my partners, Economic Group in Venezuela, also help us assess the quality of assets, management, et cetera. Then we have to have also the compliance aspect that we're speaking earlier regarding sanctions. So we have the full set of diligence that you would do here, plus what you need to do there particularly.

• 25:10Ted Seides?

  I'd love to have you take me through an example of one of the transactions you've done.

• 25:15Speaker 01

  It's a sector that we loved. It's pharmaceuticals. And we love that sector because when you look at the per capita consumption of medicines in Venezuela, they've dropped like 80%, okay? So if you believe that people should be consuming the same medicines as they were 10 years ago, then you know, it has to multiply by five at least. Even in Venezuela at that moment, so the peak of Venezuela was in 2012 of consumption of these medicines. But if you look at where the rest of Latin America is now, it's even higher. It's a sector that should go five to seven times. So we know we have the underlying growth there. And we had been speaking to multiple companies in the pharmaceutical sector for like two or three years, and we finally found the partners that we liked. So we've been having a conversation with them.

• 25:58Speaker 01

  And normally in these proprietary deals, they take time. You have to convince them, they have to figure out, you know, what the family wants to do, et cetera. We ended up doing the structure that I mentioned earlier. So some of the siblings and family members wanted to get out. We kept the core partner in the deal and we bought a piece and also did a capital increase so we could have the company continue growing. This is a company that had grown about 20 or 30% a year the last three years. They had very good management. They had very good margins. They were generating cash flow last year at the price that we paid. They had like a dividend yield of about 6% to 7%. It checked all the boxes. So that's a transaction that we pursued.

• 26:36Ted Seides?

  What type of valuation do you have to pay for a business like that?

• 26:39Speaker 01

  So we look at either where the companies were during the peak performance or where they should be, given where Latin America is. And we want to place ourselves at about a 10th of either of those two values. So we knew that this company could capture more market share. And given the growth of the market, it would take us 10 times there. But it's also 10 times on the enterprise value, right? Because currently, there's no leverage or very little leverage in Venezuela. So all of that, when we look at the five to 10 times growth, really is on the whole of the enterprise. So as debt becomes more available, and it's beginning to happen, then obviously, the multiplier on the equity can be much higher. But that will happen in due time. Currently, we want to be a 10th of the enterprise of what the peak value was or what the future value could be.

• 27:21Speaker 01

  So we do all the traditional valuation, DCF, comps, et cetera. But we also look at asset value. And again, we look at historical and potential value to determine what the right pricing is.

• 27:30Ted Seides?

  And so what do you end up paying relative to the current economics of the business?

• 27:36Speaker 01

  The transactions that we're looking at, I would say, they range between three and a half to five times EBITDA, three and a half to four and a half times EBITDA. And these are companies that are growing EBITDA. Last year, the portfolio grew like 60%, 70%. This first quarter, it's about 40% growth in EBITDA. So you have companies that are growing EBITDA, and you're buying, obviously, at a huge discount to where the global markets are. So if we buy a pharmaceutical company at three and a half times, you have, you know, in pharma trades globally at nine to 12 times, you have a 3X multiplier on the multiple. And then you have the 5X multiplier on the growth. And that obviously gets you to the expansion of the valuation that we're looking for.

• 28:15Ted Seides?

  So it's pretty easy to see the potential upside should Venezuela make it back to where it was a decade ago. Why don't you walk through the risks?

• 28:26Speaker 01

  There have to be changes in order to get there. So independent of what happens at the political level, the economy cannot remain where it is. It will not remain where it is. And it's just beginning to normalize itself. If things don't change, we're already seeing an important growth in the value of these assets. We do believe, nevertheless, and you're already seeing that in the sanctions on the oil side, sanctions will be softened. And we trust that there will also be a better political process that will allow eventually for the sanctions to be lifted post the election of 2024. That's what the US government has said. So there is a risk that the situation doesn't change. And if this situation doesn't change, basically, you're going to have growth from where you are now.

• 29:07Speaker 01

  But again, you have bought into the basic companies of the country. It's like if you come to the US and you buy, I don't know, a piece of Kellogg's, a piece of JP Morgan, a piece of Sherwin-Williams, a piece of Verizon. Okay, you're gonna have to wait, but you have the assets that are valuable in the long term. The risk here really is on the duration. How long do you have to hold until you recover capital? We're distributing dividends to LPs. We had like a 3% to 4% dividend yield last year to our investors, and it's in the period of worst performance ever of these companies in the country. We trust that they're gonna continue generating cash, but it's basically, it's a longer duration if things remain as they are. We believe that's a low probability event. I mean, we believe the biggest probability event is softening of sanctions

• 29:50Speaker 01

  and better behavior democratically. And independent of who wins the election, you're gonna have a big economic recovery after the sanctions are softened.

• 29:58Ted Seides?

  If part of the strength of your investment case is tied to a change in the government or the way the government's behaving, particularly as it relates to human rights, how do you think you get there? From a government that's had these sanctions imposed to something that can normalize in the future?

• 30:16Speaker 01

  Okay, so actually, it's a good question then because that's, I think, the main misconception. The investment case is not based on a change of the government, but rather a change in the status of the sanctions. Because economic activity will take off when sanctions are lifted and Venezuela can sell its oil, et cetera. If there were a gene change, then probably it would be even more active, but our base case relies on the lifting of the sanctions. So what we're looking at really is the behavior, the democratic behavior of the government and the democratic process for elections. That's the main risk that we're taking and the main events that we observe and that we believe are moving in the right direction.

• 30:57Ted Seides?

  When you've gone out and talked to potential investors about this strategy, we just don't see that many investment strategies that have clear potential upside and known risks.

• 31:09Ted Seides?

  I'm curious what the feedback has been in people talking to you about investing with 3B1.

• 31:17Speaker 01

  So, look, I think people realize this, first of all, a very uncorrelated risk, right? Because what's happening in Venezuela is very not correlated to everywhere else. Here, you're worried about inflation going from 1% to 8%. It's like at 100% in Venezuela. So, very uncorrelated to world performance also. The second thing, when you look at the world right now, I mean, there's been a correction, but economic performance is mostly at its peak all over the world and multiples are very high all over the world. And Venezuela is exactly in the opposite place. Economic performance is at the bottom, so it's most likely to go up, then go down, particularly because it's beginning to normalize, and multiples are a third of what you have elsewhere in the world. So, when you look at the overall risk, we believe it's uncorrelated and much lower than the rest of the world.

• 32:02Speaker 01

  And people, I think in general, agree with that and see the likelihood of a positive outcome. And even under not very optimistic scenarios, you have a multiplier on current value of assets. The risk that people are most concerned about really is what we were speaking earlier, sanctions, the government. So, it has to do with people's tolerance for the current environment. And basically, that's the environment that's letting us invest at low prices. We do believe nevertheless that things are moving in the right direction, where, as we spoke earlier, a better democratic process is going to be stimulated by lowering the sanctions and hopefully it'll move towards where the rest of Latin America is in terms of democracy, equality of democracy.

• 32:40Ted Seides?

  What have you learned about investing in Venezuela from your activity the last couple of years?

• 32:46Speaker 01

  Venezuela was traditionally one of the most profitable markets in Latin America in every industry. When we were working in telecoms, margins in telecoms company was like 40%. The rest of the region was 25. Food was the same, and we still see it to date. So, it's always been traditionally a more complicated market to operate in, but more profitable. It was complicated because the currency was traditionally very strong because of the oil exports, but once you learn to operate locally, then you can be very successful. I also enjoy the people very much. I mean, it's a very talented workforce. Many of the Venezuelans had traditions of studying here in the US and in Europe, and it's a very pleasant place to go and work and build business. So, we're happy doing what we're doing.

• 33:26Ted Seides?

  Is there anything that's been different from what you expected when you first started making investments in the country?

• 33:32Speaker 01

  I think the quickness of the change, we didn't expect how quickly this thing was going to change. We thought it was going to be a longer process. Actually, in all our projections, where we've begun buying assets in 2020 was for like two or three years of more economic hardship. And it really, the dollarization was an impressive catalyst to create increased performance. And that has allowed us to, we have some of the best paid employees in the country. We want to help people have better lives because they've been going through a period of economic hardship. But the speed of that change has been amazing and, you know, we can thus do better for everybody, all the stakeholders in the companies.

• 34:04Ted Seides?

  Have there been any disappointments in your investments so far?

• 34:07Speaker 01

  Not yet. I think the main drivers of growth are on the macro side still. We're happy where things are going, strengthening management teams, seeing how we can develop new products in the pharmaceutical sector. Now we're deploying different formats for the different medicines so we can adapt to where the demand is. So it's very exciting times. It appeared where everything needs to be rebuilt. There's so many opportunities in most of the sectors. And there's, again, like for what we said, very few people investing. And one of the fundamental motivations we have for doing this, Ted, is that we believe in where Venezuela should go, we believe in the country and the future, we believe in its people, and we believe in being engaged in a way to participate and to help the country develop further. That's one of the big reasons why we're doing this. So it's a very exciting time.

• 34:53Ted Seides?

  Well, Rodrigo, before I let you go, I want to ask you a couple of closing questions that you've probably heard a few times, so.

• 35:00Speaker 01

  These are your trick questions.

• 35:01Ted Seides?

  These are the trick questions. What is your favorite hobby or activity outside of work and family?

• 35:06Speaker 01

  I love socializing. I don't know if it's a hobby, but I enjoy seeing my friends that are living here. We always speak about this, like for Latins who live here in New York, really, we don't have our families, which we normally have back at home. So friends become your family. So we devote a lot of time outside of work or family, that second family, which are our friends.

• 35:25Ted Seides?

  What's your biggest personal pet peeve?

• 35:28Speaker 01

  Well, I've been told that I'm a little bit obsessive. So for example, we, you know, we arrived yesterday with my wife from a trip. I always unpack right away, like in an hour. She takes like a day or two, so do my children, and I drive them crazy while they do that. So I think, like they say, I'm a little bit obsessive. I can make them upset every once in a while.

• 35:48Ted Seides?

  What two people have had the biggest impact on your professional life?

• 35:52Speaker 01

  I would say my father has been a very big influence, but father aside, whom I love. I did martial arts for a long time and I had an American professor, actually, when I was like between 11 and 18 and 20. Dirk Mosse, and he was a big influence, I think, for the more basic things in life, like being resilient, the value of repetition and practice and practice makes perfect. And I always remember one of the things he used to say to me, a Japanese saying, to fall seven times, to rise eight times, life begins now. And I think that's been particularly when we're doing very challenging things like this thing they were doing Venezuela is very challenging. Having the capacity to just continue in your path while overcoming the challenges is, I think, a basic trait. I certainly learned that from him.

• 36:38Speaker 01

  I would say the second person is a good friend, Fidel Legas, a big business person in Latin America, who has an entrepreneurial spirit for doing new things and inventing new products and going into new markets. That is very inspiring. He's a banker and he has operations across Latin America and the US and Europe. That desire to continue creating things and worrying about the people that work for you and your influence in society and your country has been a big influence for me.

• 37:07Ted Seides?

  What's the biggest mistake you've made and what did you learn from it?

• 37:10Speaker 01

  Oh, la la. Business-wise, my mistakes have always been linked to what we were saying earlier that I'm so disciplined that it kind of plays against me sometimes, like not having bought things, feeling that it was maybe a little bit beyond of what I wanted to do or that I felt like the seller was being a little bit complicated. And then, as everything in life, things have their faces and when they go away, you look back and you're like, oh, my God, why did I ever do that? And what was I thinking? So I've learned to be more open-minded, listen more to other people, which normally tell me, do it, do it.

• 37:45Ted Seides?

  What teaching from your parents has most stayed with you?

• 37:48Speaker 01

  So much, my God. From my father, the teaching that life is a marathon. So don't get exhausted. If things don't go well the first time that you're running around the court, maybe next time it'll go. And it's multiple times around. You just have to be patient and be doing your best and be true to what you believe is right and just be ready for the long run. I think my mother has taught me her view of being caring to people and being open-minded and welcoming and realizing that you live life with the people that surround you and you have to do the best you can for them.

• 38:25Ted Seides?

  All right, Rodrigo, last one. What life lesson have you learned that you wish you knew a lot earlier in life?

• 38:31Speaker 01

  Maybe I would say go bigger. And it has to do with this Latin American perspective. I was telling you that normally we're like, we don't have the, in a positive sense, the ambition that you guys have, like to do things at a global scale. So what we can do in business a long time ago, we would think maybe smaller than we should. And just having the capacity to do things bigger and have the mindset of bigger things. It's a virtue that you guys have and that I admire a lot. And hopefully, I would have loved to have that earlier in life.

• 38:59Ted Seides?

  Rodrigo, thanks so much for telling the story. I take the time.

• 39:02Speaker 01

  Thank you, Ted. Thank you.

• 39:04Ted Seides?

  Thanks for listening to the show. If you like what you heard, hop on our website at capitalallocators.com where you can access past shows, join our mailing list, and sign up for premium content. Have a good one and see you next time.