WASHINGTON, D.C. – In a move to further immerse union pensions into the world of private equity, Ullico Inc. in early June partnered with the Inter-American Development Bank to raise two small venture funds in Chile and Argentina.
Ullico, which manages capital for labor union pensions through jointly managed trust funds, has been a fast-growing player in the domestic private equity market. While its primary mission as an investor is to create and maintain union jobs, Ullico also strives to achieve superior financial returns – a goal that led the company to evaluate overseas private equity opportunities.
“We have to diversify our private capital portfolios,” said Mike Steed, Ullico’s senior vice president of investments, adding that the company realized it would have to tap the international market to stay successful as a maturing private equity investor.
Labor unions in the United States long have had an interest in fostering union activity worldwide, including aiding the development of unions and spreading democracy in Latin America, Mr. Steed said. To that end, Ullico teamed with Inter-American Development Bank’s Multilateral Investment Fund (MIF), a $1.3 billion vehicle backed by 46 nations that supports private sector development in Latin American countries, to create two yet-unnamed venture funds in Chile and Argentina.
More Developed Economies
The two countries are ripe for venture investments because their economies are more developed than many others in the region. Chile and Argentina also have a growing track record of successful investments, and existing regulations make it easier for local pensions to invest in private equity vehicles, said MIF Manager Don Terry.
“Ullico had a strategic interest, as well as an investment interest,” Mr. Terry said. “It gets their toes in the water in two of the better Latin American countries to invest in.”
Ullico would like to secure financial backing for the two vehicles from local Chilean and Argentine union pensions. More than likely, however, the vehicles will have to show positive returns before local institutional investors, unaccustomed to venture capital, begin to invest. The funds are supported initially by $10 million from Ullico and MIF.
The vehicles’ local managers, Moneda Asset Management in Santiago, Chile, and Fiducorp S.A. in Buenos Aires, Argentina, also will invest a small amount of capital. Juan Cortes F. Proa and Rodrigo Gonzalez of Moneda will oversee the Chilean fund, while Federico E. Agardy will head up the Argentine effort for Fiducorp.
Each fund will make $500,000 to $1 million investments in “family-owned, well-run companies looking to grow,” Mr. Steed said.
Ullico has very limited international private equity experience but has met some success outside the United States. The company’s international portfolio includes a direct investment in Trans-Atlantic fiber-optic telecommunications provider Global Crossing Ltd., which went public in the fall of 1998, and fund investments in Poland Partners in 1995 and Carlyle Europe in 1998.
Ullico, which began private equity investing in 1992, in 1995 introduced the $60 million Separate Account P, a private equity fund for member unions, and this summer will launch a fund-of-funds to invest in U.S. venture capital and buyout partnerships (VCJ, November 1998, page 5).
Ullico has invested $176 million in its portfolio, which – thanks in part to investments in well-known success stories such as Global Crossing and Internet retailer Value America Inc. (VCJ, June, page 61) – at press time had a market capitalization of approximately $1.8 billion.