TRUE PIONEER

Colombia 2014 | FINANCE | VIP INTERVIEW

TBY talks to Ernesto De Lima Le Franc, President of Organización DeLima, on the swift growth of his insurance firm, the competitiveness of Cali, and the best business opportunities in the Colombian market.

By observing the transport links between Brazil and China, one realizes that Cali has a lot to gain from a Pacific Alliance that may integrate Latin America with Asia in the future. What do Cali and the Cauca Valley need to do to become one of the most competitive regions in Latin America?

I believe the most important infrastructure development we need in order to become more competitive is the completion of the dual carriageway to the Pacific port of Buenaventura, which has been under construction for a long time, while we also need to increase the depth of the access canal to the port of Buenaventura to receive the larger ships that will be passing through the new Panama Canal when finished. Although the geographical conditions are difficult, it would also be an ideal complement to the port's airport to have a longer landing strip to accommodate large cargo aircraft. Besides, of great importance is the construction of the La Línea highway tunnel, which will cross beneath the central range of the Andes Mountains, easing traffic on one of Colombia's most important east-west connections. Unfortunately, it is being built in only one direction, for export cargo only, and ideally it should operate in both directions.

How has the municipality rediscovered Cali's exemplary civic spirit following the troubles of recent years, and what has been the current mayor's role in this transformation?

Firstly, we managed to elect a good mayor who has appointed highly competent and hard working people to all his cabinet positions. For example, Oscar Pardo, a very competent and serious professional, was named as head of EMCALI, our public utilities provider, and he has managed to rebuild that company, which was mismanaged by the corrupt officials of previous local governments, to the point that, in 2013, it produced important profits for the city. One thing that we should have done, following the Antioquia region's example, was to create publicly held corporations, which are now at the heart of its economy. Instead, the companies in our region continued to be family owned and did not open up to the Colombian retail investor base, not allowing us to grow as well.

“Colombia and Mexico are the only two countries that have solid and well-implemented fiduciary sectors."

You founded De Lima & Co. in 1953 in Cali, and it soon became the country's most important insurance broker with offices in the most important cities, as well as joint ventures with local partners in Central America, Ecuador, and the Dominican Republic. An important milestone for the company was the association with Marsh & McLennan. Could you walk us through this fascinating history?

Marsh & McLennan is the largest insurance broker in the world and our relationship began in 1957 when I was a true beginner in the business, although I did have some thoughts of how to improve broker services. Back in those days insurance was offered to friends over a drink or lunch and I felt that there had to be a more professionalized way to provide that service, so I began studying how the business was conducted in other parts of the world. One of the business practices that I felt should be changed was the exclusivity agreement that agents had at that time with insurance companies, which obviously limited the intermediary's capacity to offer different solutions and alternatives to its clients, so I began insisting, in a very courteous manner, to the insurance company I was working with, that I be allowed to act as an agent for other companies, because they didn't provide certain insurance products that I wanted to offer my clients. As a result of my persistent requests I was authorized to ask Seguros Bolivar if it would be interested in working with my agency, so I immediately went to see the management. I remember they received me with open arms and said “We've been waiting for you to visit us for a long time!" and proceeded to draft the required documentation to register me as an authorized agent. I soon had Colseguros, which is now Allianz, asking me to work with it and suggesting that I write a formal letter requesting that it consider the possibility of receiving some of my business, which I gladly did. This attracted other insurance companies like AIG and Assicurazione Generali, thus allowing my agency to grow quite rapidly, and so did the number of my employees. Naturally, this inspired other insurance agents who followed my path, thus professionalizing the industry. That is why I believe persistence is the key to success. Since I was offering a slightly better service than my peers, my business in Cali was growing rapidly. Besides, as a result of my passion for skeet shooting and hunting, I had many friends in some of the multinationals that at the time operated in Cali, and this allowed me to offer brokerage services for some of their insurance lines, but not all of them, since Johnson & Higgins or Marsh & McLennan were managing those lines from New York. So I'd ask my friends, have those chaps from the US ever come here or have you seen their faces? And the answer was always negative! I then decided to travel to New York, and visited the president of the Latin American Division of the American Foreign Insurance Association (AFIA), which represented the interests of the Hartford Fire Insurance Company, whom I had met when he visited Cali. He was kind to put me in contact with Arthur Mayes, the person in charge of the then very small international division of Marsh & McLennan, who first asked my age and, when I told him I was 24, he was really surprised at me being so daring! He then asked me what I had to offer them and I told him I would gladly service his clients in Colombia and in fact I'd brought reference letters from some of them. We had had a good long chat, and I believe I made a positive impression on him, as he quickly agreed to appoint me as their correspondent for Colombia, but he requested that I open an office in Bogotá. I nearly swallowed my tongue in shock, but I nonchalantly said “no problem," and soon I had an operation in that city, which was so successful that shortly thereafter I opened an office in Barranquilla, the country's fourth largest city. A few years later, I hired a North American, whose name was Roland Schambach, and although he didn't know the first bit about insurance, he was such a likeable person that he started to open doors, to the point that we had managed to get some international clients that were based in Medellín. At first we sent our technical people from Cali to service those clients, but we decided to search for a proper candidate to be in charge of that office and, after several interviews, hired a young talented man, who soon turned it into a very successful operation.

Marsh, and the company you founded, DeLima Marsh, have received a number of awards such as the Business Insurance Innovation Award, the Global Infrastructure Insurance House of the Year, the Risk Innovator, and the CIR Business Continuity Award, amongst others. What allows Marsh to continue being a leader in so many of its business areas?

It is true that the company frequently receives a number of recognitions and perhaps it is because it has always distinguished itself for being the leading global broker, providing superior service to its clients, and this is a fact recognized by the majority of the large insurance buyers in the world.

According to Stella Villegas, president of the Fiduciary Association of Colombia, “the industry's assets under management in the country, as of February 2013, were in the order of Ps259 trillion." Could you comment on the importance of the fiduciary industry in Colombia?

Strangely enough, Colombia and Mexico are the only two countries that have solid and well-implemented fiduciary sectors, a model that we actually brought from Mexico some 30 years ago. In Colombia, almost all important construction projects have a fiduciary company involved, which is not the case in other countries, including the US. I believe our neighbors should follow our path as it avoids the risk for investors in real estate properties to lose their money if the builders face bankruptcy, something which has frequently occurred around the world when real estate bubbles burst, and, as a result, the fiduciary companies here are quite successful. Alianza Fiduciaria is the largest manager of real estate fiduciary assets, and we also manage investment funds for our clients. We are currently working on opening subsidiaries in Panama and Peru, and recently the Investment Fund, Advent International, acquired a 50% stake in this company.

Speaking about the real estate market, where do you believe one can find the best investment opportunities in the country at the moment?

Unfortunately the country's centralism has affected the homogenous development of Colombia, because the ideal would be to have a fairly equal development of all our regions. In Argentina, for example, with the exception of the provinces of Rosario and Mendoza, we see how the majority of economic activity revolves around greater Buenos Aires, and in Peru we see the weight of Lima in the country's economy. Colombia is blessed because it has many regions with a fairly good level of economic development. However, 73% of new office spaces are being built in Bogotá, when it is only home to 17% of the country's population. This disparity is explained because many of the foreign companies that arrive in Colombia decide to settle in Bogotá. The real estate sector presents good opportunities for investors and, in other cities, like Cali and Bucaramanga, for instance, prices are less than half of what one would find in Bogotá. As a result of this situation, in 2012 Goodyear transferred its top management and offices back to Cali, and what drove that decision was the high real estate prices and mobility difficulties of Bogotá.

You've spoken about Alianza Fiduciaria's asset management division, and the government has approved a new regulation that introduces some interesting changes to the sector. What impact do you expect this new regulation to have on Colombia, the fourth largest asset management industry in Latin America?

I believe this new regulation is going to attract new players to the market. Precisely the reason behind Advent's investment in Alianza Fiduciaria was the interesting prospects that exist for Colombia's asset management business. This sector of the economy is becoming a very professionalized business and the majority of the country's banking institutions have asset management divisions that can be combined with wealth management, inheritance planning, and such. I believe the new regulation offers greater opportunities to the current players in the market. Besides, quite a number of new real estate funds are being launched, which allows investors to diversify the risk and exposure to their portfolios. Alianza Fiduciaria and Alianza Valores are currently working on a real estate fund to offer our clients this alternative investment.

How important is the new alliance between Advent International and Alianza Fiduciaria for its future?

Advent is one of the world's largest private equity investment funds, with a strong management and track record. This alliance provides the support of a very well-respected company, operating in 16 countries, which recently acquired a 22% stake in Colombia's Ocensa oil pipeline for $1.1 billion. Its presence enables us to compete with the majority of our peers that enjoy the support of strong banking institutions. In 1991 we created Datecsa, which imports and distributes office and sound equipment of different brands, including Kyocera, Sharp, Canon, and Bose. This company has a presence in the principal cities of Colombia with a total workforce of 800 employees, and is managed by my eldest son Ernesto de Lima Bohmer. In 1992 we purchased the oldest stock brokerage firm in Colombia, Luis Soto and Cia., which later changed its name to Alianza Valores S.A., and that company has a presence in six cities in Colombia and has 200 employees. In 1996 we created the manufacturing company Colbesa in order to produce Gatorade isotonic beverages on behalf of Quaker Oats, a company that was latter absorbed by Pepsi-Cola International. In addition, various shareholders of our group have investments in other businesses such as agriculture, cattle, and real estate, and most of them are very active in different type of civic activities.

© The Business Year - May 2014