Capital Strategy

We distinguish between apparent diversification and effective diversification. We do not consider it sufficient to allocate capital across different asset classes, markets, or instruments if, ultimately, the investments are exposed to the same economic factors. For this reason, we assess our investments not only according to the category to which they belong, but also according to the factors that determine their performance, the nature of their cash flows, their sensitivity to different scenarios and the contribution they make to the overall risk and return of the portfolio.

This approach to diversification leads us to focus our investment universe on three areas that we consider structurally complementary: equity interests in businesses, real estate assets and financial markets. This is not a predetermined allocation of capital, but rather three different ways of participating in value creation, each with distinct characteristics and sources of return.

Equity interests in businesses allow us to own a share of the productive economy. This perspective enables us to participate in one of the sources of value creation that we consider most relevant over the long term: companies’ ability to reinvest capital at attractive rates, increase their cash flows and expand their economic value.

Real estate follows a different logic. In this area, we invest in assets whose economic value is determined by factors such as location, utility, scarcity, quality, income-generating capacity and potential for transformation. The tangible nature of the asset, combined with the possibility of generating income and increasing its value through appropriate acquisition, transformation, or management, means that it constitutes a component with its own distinct characteristics within our capital structure.

Financial markets fulfil an equally essential function, although of a different nature. They provide access to a much broader universe of opportunities and allow us to build diversified exposures across geographies, sectors, issuers, currencies, maturities and risk structures. However, their importance to us does not lie solely in diversification. Liquidity is a strategic characteristic because it gives us the capacity to reallocate capital, meet commitments, reduce certain exposures, or act when opportunities arise that require swift decision-making.

In this way, the fundamental unit of analysis is not merely the individual investment, but capital as a whole. An opportunity may be exceptional in its own right and yet not be appropriate for our portfolio if it increases an exposure that we already consider elevated. Conversely, an investment with characteristics that differ from those already present can add considerable value to the whole, even if its expected return is not the highest in absolute terms.

We do not seek to eliminate uncertainty —which we consider impossible— but rather to avoid making our decisions dependent on excessively precise or favourable scenarios. We prefer investments whose thesis remains reasonably sound under different assumptions and in which there is an asymmetric relationship between the potential for value creation and the risk of permanent loss of capital.

Our long-term perspective is a natural consequence of this approach to investing. Permanent capital allows us to separate the need for immediate liquidity from the investment decision and gives us greater freedom to take advantage of opportunities whose value requires time to materialise. A company may need years to develop certain competitive advantages; a real estate asset may require time to be transformed and repositioned; and a financial investment may go through prolonged periods of volatility before the market fully recognises its value.

Nor does our allocation follow a rigid distribution across the three investment areas. We do not believe that there is a universally optimal combination of assets independent of valuations, the economic environment, the opportunities available and the characteristics of the capital itself. The allocation should evolve as the relationship between risk, value and potential return changes and also as the investments themselves alter the overall structure of our exposures.

For this reason, we prefer to speak of disciplined allocation rather than static allocation. We maintain a framework that allows us to understand where our capital is invested, what risks we are assuming and what liquidity we have available, while retaining the necessary flexibility to adjust its distribution when circumstances warrant it.

We continuously review the assumptions underpinning our investments and the evolution of the factors that may affect their value. We analyse changes in fundamentals, valuations, financing conditions, the competitive position of companies, real estate markets and the broader financial environment. This review is not intended to anticipate every market movement, but rather to identify when a material premise underlying our original decision is no longer valid.

Our aim, therefore, is for the outcome to be more than the sum of our individual investments. We seek to build a structure in which the different exposures complement one another, risk is assessed from a global perspective and each unit of capital has a clearly defined economic purpose.

Discipline in capital allocation, independent judgment, valuation rigour, consideration of opportunity cost and a long-term perspective are the principles that guide our decisions.