Opportunity Zone Pitch Day - March 23rd
Emerging Market Investment Strategies, With Josh Ziegelbaum
High Net Worth investors are increasingly turning to emerging markets to find investment opportunities at attractive valuations, and which have the potential for higher returns than traditional investments.
Josh Ziegelbaum, Director of Investor Relations at Legacy Group, joins the show today to discuss why emerging markets continue to present an appealing opportunity for investors.
Watch On YouTube
- Why some High Net Worth US investors are looking to emerging markets to find attractive investment opportunities.
- How emerging markets have performed during the recent dip in the broader financial markets.
- A unique advantage that alts (and agricultural real estate specifically) have over publicly-traded securities during periods of market uncertainty.
- Josh’s thoughts on impact investing, and how social impact can be part of an emerging market company’s “story.”
- The strategy that Legacy Group is implementing to grow the Green Coffee Company, and position the business for a possible IPO in 2026.
Featured On This Episode
- Green Coffee Company – Official Website
- Gallo de Oro Colombian Coffee – Green Coffee Company Whole Bean Coffee (Amazon.com)
Today’s Guest: Josh Ziegelbaum, Legacy Group
About The Alternative Investment Podcast
The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss tax-advantaged investment strategies to help you grow your wealth.
Jimmy: Welcome to the Alternative Investment Podcast. I’m Jimmy Atkinson.
Andy: And I’m Andy Hagans.
Jimmy: And today, we’re talking about emerging markets and the strategy that one alternative asset management group is taking. Joining us on the show today is Josh Ziegelbaum, director of Investor Relations at Legacy Group, and Josh is joining us today from Fort Lauderdale, Florida. Josh, welcome to the show. How are you doing?
Josh: Hey, Jimmy. I’m doing great and I’m happy to be here today with you and Andy. Looking forward to our recording.
Jimmy: Excellent, Josh. Looking forward to it as well. So, for our listeners, we previously had Cole Shephard and Adam Jason from Legacy Group on this podcast. That was episode number seven, if anyone’s interested in going back and listening to that. We talked with those gentlemen about global investment opportunities, but for today’s episode, we’ll take a bit of a different approach. And that brings me to my first question for you, Josh.
Why are some High Net Worth U.S. investors looking to emerging markets to find attractive investment opportunities?
Josh: Yeah, that’s a great question, Jimmy. I mean, with everything going on state-side, for those who are in the United States, there is a lot of geopolitical uncertainty, high inflation rates we haven’t seen since the early 1980s, instability in public markets. And, you know, I’m personally invested, and I know most of our listeners are, in the U.S. real estate market here as well.
So most of our investors are heavily allocated to U.S. assets, and with kind of this trigger and what we’ve been seeing in the last couple of years, in terms of heightened instability in the market, people are looking to alternative markets outside of the U.S. So, emerging markets come to mind, of course. Typically, with emerging markets, investors think of Asia, right?
You think China and emerging markets over there, but we have an entire flux of emerging markets here close to home in Latin America. Not too far from where I am in Florida. So we’ve identified, you know, incredible early-stage opportunities for investors, and they’re very interested in what’s going on outside of the U.S.
Jimmy: Sure. So, you mentioned Asia, you mentioned Latin America. So, that kind of leads me to my next question. Josh, within emerging markets, what are some of the geographic areas that you believe are the most attractive for investors and why?
Josh: Sure, that’s a great question, Jimmy. So, we’re focused entirely on Latin America at Legacy Group, more specifically in Colombia. We have an office in Medellín, Colombia, where we operate our portfolio companies, and we invest in agriculture, real estate, technology. So, definitely, Colombia is our focus in terms of markets.
We believe in other markets in the region. We have our eyes on Mexico for some future projects, and some of the surrounding countries, but we’re very bullish on Colombia and that’s where we’re operating today.
Jimmy: What is it about Colombia specifically that you liked so much though, if I can drill in a little bit more there?
Josh: Yeah, there’s plenty of reasons. So, Colombia is the longest running democracy in Latin America. It has a great relationship with the United States. The U.S. is its largest external trading partner. There is an incredible talent pool in Colombia, and we’re able to get that talent at a fraction of what it would cost in the United States.
In terms of innovation, Medellín is really the innovation hub of the country there, Bogotá being more so for the larger corporate multinationals. Other people also have eyes on the market. Steve Wozniak recently went to Colombia, and he met with Colombian President, Iván Duque, and he declared or Steve Wozniak declared that Colombia is going to be the next Silicon Valley and he tells it to people all over the world when he gets asked that question.
So, we’re very bullish for various reasons that I mentioned, and there’s more to go as well, but it’s a very democratic area to do business. It’s very capitalistic, and we’ve identified really kind of arbitrage-type opportunities where we’re able to get assets and really add value where other players are just starting to enter the market.
We’ve been there for more than five years now at Legacy Group.
Andy: So, Josh, you mentioned the relative value in emerging markets and, I mean, that clicks with me. You know, it’s one of those things. There’s probably increased risk though, right, which can lead to increased rewards. So, you know, on that risk-reward spectrum, you know, there’s no free lunch, yada yada yada. So, what are some of these unique risks that investors need to keep in mind with emerging markets?
You know, I’m thinking of, like, legal issues, tax issues, things like that and, you know, how does Legacy Group address those risks?
Josh: Sure. So, typical risk when you think of emerging markets would be foreign exchange risk. So, if you’re deploying dollars into another country and then you have to do a conversion in order to get access or invest, you’re subject to the fluctuations in the foreign exchange market, which are independent of your business and how things are going. As it relates to what we’re doing through one of our portfolio companies called The Green Coffee Company, we’re building out a sustainable coffee producer at scale.
And, primarily, we sell the coffee in dollars. So coffee is a dollar-denominated commodity. When we’re selling it in Colombia, we sell it in Colombian pesos, but we’re able to kind of better predict, you know, revenues and cash flows in dollars. In many cases, we’re able to off-load a lot of our products in dollars.
So I would say foreign exchange is one, for sure. The legal components, as you mention, I wouldn’t say that it’s a higher risk in Colombia and in Latin America, but you need to understand the legal landscape, and the accounting landscape, and how things are done from an administrative standpoint, from a legal standpoint. So, one of our partners at Legacy Group, Adam Jason, he is an attorney by trade, was representing some of the largest investment banks here in the U.S.
during his career, and he’s been down in Colombia for many years now, working on the ground, and has a very strong understanding of the legal framework there. From an accounting perspective, Cole Shephard, the founding partner at Legacy Group, he’s been down at Colombia for many years as well. Formerly a CPA by trade and really understands, the accounting structure and how things are done there. So, I would say, it’s not necessarily more of a risk than it is in the U.S. on that side, but you really need to understand it.
So, being on the ground, or being able to outsource effectively if you’re not on the ground, is critical in succeeding in emerging markets, I would say.
Andy: Okay. Now, most people, when they’re making an investment in an emerging market… I mean, do you think there’s a lot more value in doing it privately versus, like… I mean, I can go buy an ETF with emerging markets large-caps, or emerging markets small and mid-caps. Like, is that going to be, you know, a much higher P/E ratio compared to a private operation?
You know, I guess what’s the benefit of accessing emerging markets with a private investment vehicle?
Josh: We look at the benefits similar to accessing private investments in the U.S. So, investors who invest in private placements here in the States, you know, they get… There is lack of liquidity, in a sense that there’s not a daily market with fluctuations. You can look at that as a negative, but I view it as a benefit.
In times like this with heightened volatility, often the private securities perform better, because they are not subject to the emotions of the market, right? Like, we’ve had a massive drawdown now. One could argue that the market’s oversold, but with our private securities at Legacy Group, we’ve only seen an uptick in value recently, due to the increase through additional funding rounds.
So, we don’t have the volatility of the market in private securities and we love that. I wouldn’t say that that’s specific to emerging markets or specific to the U.S, but it’s something that is similar between the two.
Andy: Yeah. I mean, I know with private real estate or, like you said, alts, in general, not specific to emerging markets… But when you contrast, like, your typical private real estate fund and, you know, look at the cap rate they’re paying, versus what a publicly-traded REIT, the kind of valuations that they are paying for properties or even trading that relative to their existing book value, I mean, it’s just crazy, the premium you have to pay to get the liquidity.
So, it really does seem like valuations are much more favorable when you go private, especially with real estate and agriculture. Has that been the case in Colombia and in your experience?
Josh: I would say so, yes. I mean, we’re seeing a massive influx of venture capital into the region. SoftBank recently set up a LatAm-focused fund. About five billion dollars to be allocated into the region there. So, we’re very bullish, others are as well. I would say more so on the early-stage private side. That’s where we’re focused, that’s where we see the opportunity.
You mentioned P/Es and getting access through publicly-traded ETFs. That’s a space you can go to, if you want emerging market exposure, but that’s not the space that we play in. We see, you know, not just… We don’t just have the idea of allocating through emerging markets to have some uncorrelated returns. We’re looking for very high, above-average returns, or high-alpha, in our investment strategy, where investors can not only get uncorrelated returns to what’s going on in the U.S, but get returns that are forecasted to be much higher than what you would expect in public markets.
Andy: Right. And oftentimes that’s a factor of what you pay, right? There’s a little bit of that is baked into the cake, because you can go out and buy the world’s most beautiful apartment building, or the most beautiful agricultural asset and if you overpay by 2x or 3x… Boy you’re going to have to hold that for a long time to, you know, have the returns look good.
You know, even if it continues to perform. So, you know, I like to say you make a lot of money on the buying side. You know, on that topic… So, we’re all veterans of the bear market of 2008, 2009, and there was a popular saying I can remember during that time, something like, “In times of crisis, all correlations go to one,” meaning that all these investments that we thought were going to zig when the market zags, they all zagged, right?
It’s just like everything was a sea of red. Everything was a bloodbath. There was nowhere to hide, except for, you know, maybe treasuries. So, how has Colombia performed? How have emerging markets performed, especially on the private side? Have you seen there have been drawdowns in valuations, you know, in the emerging market private side that are, you know, commensurate with what we’re seeing in the public markets here, or is it relatively uncorrelated?
Josh: That’s a really great point, Andy. So, I mean, what we’re seeing now, like you said, is like, everything seemingly is correlated, right? So, like, while the stock market in the U.S. has been going down bonds, bond yields have been going through the roof, which are inversely related to price. So, bonds have been going down at the same time as stocks, at the same time as crypto-assets. I mean, real estate has held strong.
Knock on this desk right now. Talking about ’08 and some similarities. But, you know, we’re seeing that as well in the public space. Like, where do you run, where do you go? You know, we’re getting an influx of people that are reaching out to us looking for alts, alts and emerging markets, right? Like us, people want to get away from that correlation. I guess, yes, specifically about Colombia and are we seeing the drawdown as well…?
We have not, I mean, in terms of private valuations but, you know, this kind of drawdown that you’re seeing in the public markets is somewhat new, right? It’s been, you know, since… I guess you can call it April, right? That’s where things really started to take a turn for the worse, so… There could be a lag in terms of when the market on the private side might adjust.
I guess, in terms of what we do at Legacy for our portfolio companies, we don’t have a secondary market for our securities. So, we’re not seeing fluctuations in the shares in our companies. We’re issuing new shares through additional funding rounds, so we can further accelerate the company’s growth.
So at our level, you know, we don’t expect, like I said, when things kind of settle and kind of trickle into private, we’re not expecting to see that effect through our portfolio companies, just by the way that we’re structured. But, you know, it’s possible that that will come true, but I would say to a lesser degree than what you see in the correlations in the public side.
Andy: Yeah, you know, that’s interesting. And, Jimmy, you and I have talked about this before. Maybe you’re a better guy to make the point than I am. But that there’s this perceived risk to illiquidity but, at the same time, we know investors behaviorally. And this is even true of, you know, institutional investors or, you know, highly-sophisticated investors who ought to know better.
A lot of times they, you know, sell at or near the bottom, right, when it’s, like…that’s the time to go out shopping, because everything is on sale. So, Jimmy, you’re kind of famous for saying that illiquidity could be considered, you know, anti-risk.
Jimmy: Yeah. It’s interesting because, you know, to Josh’ point a minute ago and to your point, Andy, Josh can’t just turn on CNBC and immediately see the price of all of his assets within his private portfolio, right? So, there’s no secondary market there for him to make that mistake of for his investors to make that mistake of, you know, dumping things when it does turn to that sea of red.
I think that’s what you’re getting at there, Andy, right?
Andy: Exactly right. Exactly right. So, Josh, I want to turn a minute to an issue that I know that you’re very passionate about, which is social impact. And especially in emerging markets. I mean, when I hear the phrase “emerging markets” as an investor, you know, sometimes it can bring to mind, like, low-skill, low-paid employees, or like these giant factories in China where, you know, they’ve had all sorts of labor issues.
You know, people would have a moral objections to, and so on, and so forth. So, could you talk a little bit about, you know, the social impact philosophy of Legacy Group and your portfolio company, The Green Coffee Company?
Josh: Of course. I would love to dive into that. That’s a point that I’m very passionate about. So, ESG, impact. These are words that we hear constantly now. I see it in my newsfeed. You know, it’s something that you can’t escape if you’re an investor in terms of just getting exposure to it, and it’s something that we should all be considerate of.
It’s obviously important, doing right in the communities in which we operate, taking care of the environment. Really planting seeds for the next generations to come. But when you think of emerging markets, you don’t generally think of ESG, right, or of impact. You think of, like, kind of what you mentioned. Like, factories, lower-paid people. I mean, but at Legacy Group we have a very different philosophy.
We believe that capitalism can be a force for greater good and that we could make money and do right at the same time. They don’t need to be independent of one another. And in terms of, I guess… Let me talk about how we’re applying it at The Green Coffee Company, because that’s relevant here to the discussion. From a social perspective, the Colombian coffee industry, it’s very fragmented, highly-antiquated, people are paid informally.
I mean, this isn’t even just specific to Colombia. I would say Latin American agriculture in general, people are paid cash, no health insurance, they get hurt, so be it. But what we’re doing at Green Coffee Company is providing equal and fair employment. We’re paying above-average wages. We pay people into bank accounts. We help them build credit.
We’re the largest employer in the town of Salgar, where our coffee farms are located. We have great relationships with the mayor, with the chief of police. When I go out to the farms…I’m going to be going for another investor tour in two weeks. You could really just see the passion of the employees and how happy they are to be doing their job. I was not expecting that the first time I went to the farm. Not that I think that we’re doing things wrong or not doing things in a sustainable manner, and I always knew that we were, but when you go and you see it first-hand, the impact that you’re making, it’s something really special.
So, it’s not our main focus. We’re not there only to make an impact. Obviously, first and foremost we want to make our investors money, but we believe that, you know, treating people well and doing things in a sustainable manner, it’s the right thing to do and, also, as you go to get that liquidity event, whether you’re trying to sell the company, or you’re trying to go public, you’re going to be looked at with scrutiny, if you’re not doing things the right way.
And second to that, you can get a higher valuation on the back-end if you’re doing things in a sustainable way. So, that’s the way in which we do business and, you know, we’re doing things on the environmental side. But social, that part is really special to me, and I could see it, that we’re really doing things the right way.
Andy: Yeah, you know, I see that more and more as a trend in agribusiness and agriculture. Just the idea of sustainable or environmentally-friendly, or in the case of, like, meat, you know, humane products that can be positioned as premium brands. And especially, you know, if a company is vertically-integrated and so, you know, they’re essentially controlling the product all the way from its source and sort of have that guarantee, that stamp of approval, then I think the product is better able to be positioned as that premium, luxury product.
And I got to say, we had on Harvest Returns and we were talking about beef and I said, you know, “I’m kind of a beef connoisseur, a beef snob, if you will, and I’m also a coffee snob.” Right? So, like, when I’m drinking coffee, I want a premium product. I don’t want Folgers. I want something that tastes really good, that’s really fresh.
And I think vertical integration is the key part of that, right? So that you know where your coffee beans are coming from, how they’re harvested. All those aspects of the supply chain to where it ends up in my hands, in my coffee maker, right? So, on that issue, you know, in the United States, this year and really all the way back, let’s say 18 months ago, we’ve had severe supply chain disruptions and they’re ongoing, you know, even to the present day and then probably 12, 18, 24 months into the future.
And that’s been a contributor to the sky-high inflation that we’re seeing here. The recent CPI print [inaudible] 8.5% but the PPI print was even higher. I believe that was in the 9’s, possibly up to 10. Right around there. And so, you know, this has been very disruptive, especially for companies that are reliant on certain supplies, like from China or other countries where they don’t really have control over their supply chain, and I think they’re just learning that now during this period, about people.
So, you know, I note on the Legacy Group website, you describe Green Coffee Company as a, “Consolidated coffee farming operation, where the company’s business model allows for complete control of the supply chain.” And I have to say, as an investor, I’m like, “Oh yeah, that sounds very appealing to invest in something where it’s vertically integrated.”
So, could you talk a little bit about this vertical integration? Has it helped Green Coffee Company, whether all of the supply chain issues that we’ve seen, these other companies have in the past 12 to 18 months?
Josh: Of course. So, I don’t think I can go one day without hearing the word “inflation” or “supply chain,” and I’m sure that you guys can agree with me on that. So, as a producer at origin, Green Coffee Company, we’re currently the second-largest coffee producer in Colombia, on track to be the largest this year. We have over three million coffee trees in the ground and growing, and with that, you know, as a producer at origin, we have relatively fixed costs on the input side.
However, due to inflation, due to all these supply chain shocks, commodities have gone through the roof in the last 12 months, and coffee is no exception to that. So, being an investor at the ground floor of that supply chain allows more insulation from any sort of supply chain disruptions, right?
So, yes, there are some supply chain issues. Fertilizer on the input side has risen in the last few months. We were ahead of that and we acquired enough fertilizer to pull this through for all of 2022, with additional to sell to other neighboring farms. And our goal, as we continue to grow the business, is to go even more vertical. Right now, we’re selling wholesale, B2B, green coffee.
For those of you who don’t know what that is, it’s a processed but unroasted coffee. Okay? So, coffee comes in a cherry form, and after it’s processed and goes through a really interesting method of that, you’re left with an unroasted coffee bean. So, right now, we’re selling that in a wholesale manner and we sell it primarily in Colombia in the domestic market, and then we sell wholesale to some of the largest trading houses in the world.
So, moving kind of forward in the business plan and where we want to be, we’re going into our Series C funding round. We expect to kick that off in July here in 2022, and part of the plans are to build out a roasting facility, or acquire one, here in the U.S.
The reason for that is that there’s more margins to be made, if you go even further up the supply chain. Or down, I guess, however you want to call it. But, you know, that’s kind of like an overview of where we are, but also where we want to go. You know, like I said, being a producer at origin really insulates you quite a bit and it puts you actually on the better side of the coin in terms of supply chain.
Like, we’re almost a beneficiary of it, you can look at. Of course, we still have to navigate and, you know, it doesn’t come without its challenges, but we’re very grateful for the position we’re in as a business and our investors are as well.
Jimmy: Now, that sounds great. I’m a bit of a coffee snob too, much like Andy, so… But I don’t have my own roasting machinery over here in my home, so I am very keen to get my hands on some of your roasted coffee beans that you roast in the United States, once you get that taken care of. That’d be great. Hey, I want to talk more about your funding and your strategy.
Are you guys moving toward an IPO, and if so, you know, tell us more about the strategy behind that. And what does the timeline look like for your investors?
Josh: Of course. So, we most recently completed our Series B funding round, which allowed us to get to where we are today. We closed that kind of towards the tail-end of last year. Looking forward now, we’re going into our Series C funding round and that’s expected to launch in July. We’re seeking upwards of 100 million in capital, that’s a combination of equity and debt, and with that, we’ll be able to further expand through additional acquisitions in Salgar where we operate, acquire farms in another region of Colombia, so that we can have year-round production, build out that roasting channel in the U.S. like we discussed, continue to grow and scale, and then at that point, we’re targeting an exit.
Right now, we’re mapping out 2026 in our most recent projections, and that’s really the strategy, Jimmy. Like you said, we want to continue to grow this thing, turn it into a monster. I can arguably say that it already is or is becoming, and then, you know, with all the sustainability component, with all the vertical integration and, really, that whole story, we think markets will reward that.
And the goal is to exit through IPO in 2026. We’re dual-tracking the business for a sale, so should we be in a position where it makes more sense to sell to either like a corporate buyer, or a larger private equity firm, we’ll certainly entertain that. But we think that the most value will come through a public listing here in the U.S.
Jimmy: Well, that’s great. All the best of luck with all of that, as you work toward 2026. Josh, I think that about wraps up our time for today. I really appreciate you coming on the show. Before we go, can you tell our listeners and viewers where they can go to learn more about Legacy Group and Green Coffee Company?
Josh: Sure. You can find us on our website. That would be legacy-group.co, or you could send us an email at [email protected] If you check out our website, you could subscribe to our newsletter. I would love to keep you guys updated and informed about what we’re doing. Maybe we could put in the website and email address in the show notes?
And we’re also on all the major social media channels. I think LinkedIn is probably our favorite, so you could Legacy Group on LinkedIn as well.
Jimmy: Perfect. And, yeah, for sure, we absolutely will add all of those links onto our show notes page for our listeners and viewers out there. If you do want to access those show notes, you can do so by heading over to altsdb.com/podcast. And, don’t forget to subscribe to the show on YouTube and on your favorite podcasting platform, so you’ll be sure to receive new episodes as we release them.
Josh: Thanks Jimmy, and thanks Andy.
Andy: Thanks, Josh.
Jimmy: Thanks, Josh.