February 20, 2000

NYT

In Brazil, Investing for the Good of Nature

By SIMON ROMERO

SAO PAULO, Brazil -- Seated in his office in a gaudy new
skyscraper here, wearing a tailored suit and cuff links, John
Michael Forgach seems every bit the conventional investment banker.
Then he starts talking about babassu coconuts.

Forgach beams as he describes the exotic projects in which he invests: a
sustainable timber operation in the rain forest, a plantation producing
carbon filters from coconut husks, a company with a plan to export acai,
the protein-rich purple Amazonian fruit.

"We're not really into stocks and
bonds here," said Forgach, the
managing partner of Banco
Axial, a three-year-old
investment bank. "We're into
profiting from the idea that the
world would like to consume the
59 other types of potato that are
not on the McDonald's menu."

With Forgach, 51, at its helm,
Axial is at the forefront of
biodiversity investing, a trend that
began with "socially conscious"
investors in the United States and
Europe over the last 20 years.
Unlike most of the field, though,
Banco Axial fits the same
description as its investments: it is
a home-grown product of a
developing country.

In fact, Axial is probably the
leading example of how some
Brazilians are harnessing market forces to help protect the country's
environmental assets, especially its rain forests, from depredation. In
short, these investors are backing projects that profit from preserving
those assets.

Thanks to an adventurous culture inspired by Forgach at the bank,
Axial's forays into far-flung parts of Latin America to seek out viable
projects are gaining considerable attention. "There is really nothing like
Axial around anywhere," said Bryan Husted, a professor of management
at the Technological Institute of Advanced Studies in Monterrey,
Mexico. "It's like they're putting the Indiana Jones into investing."

The analogy of the intrepid explorer is not all that far-fetched. Forgach
hires young people fresh out of college or graduate school to scout
projects, dispatching them on expeditions deep into rough terrain to study
possible investments, like an organic soybean operation in eastern
Bolivia. Sometimes he goes along on the trips, to size up a project's
viability firsthand.

When the scouts, few of whom have banking or finance backgrounds,
find something promising, Axial makes an equity investment. Typically, it
risks around $1 million on behalf of the investors in its $15 million Terra
Capital fund, including the Swiss government, the World Bank and other
institutions and private investors.

"It's not enough to just like environmental issues," said Patricia Moles,
32, a Mexican who came to Axial as a fund manager after working as a
consultant for environmental groups. "It's about balance sheets and taxes
and educating people about equity."

Axial came to biodiversity investing by trial and error. The bank was the
brainchild of Pierre Landolt, a Swiss billionaire who lives in Brazil. It was
originally intended to focus on privatizations and mergers and acquisitions
in Brazilian regions ignored by large investment banks, like Paraiba in the
drought-prone northeast, where Landolt produces cheese in a
demonstration project on his estate.

But many of its early deals proved unprofitable, and Axial lost money
each year. So Forgach, who had previously worked for Chase
Manhattan, sought to reposition Axial as a specialized money manager,
investing its own capital and that of clients in what he calls "green things."

So far, most of Forgach's green things have been organic foods for
export, a market with booming demand. In the United States, consumers
bought $4.7 billion of organic food last year and sales are growing at 24
percent a year, compared with about 1 percent growth in conventional
foods, according to the Organic Trade Association in Greenfield, Mass.

More than half of Axial's
investments have been in
organic food companies,
including a cranberry farm in
Chile and a plantation in the
Amazon producing hearts of
palm.

But Axial has also found other
kinds of environmentally
benign enterprises in which to
invest, like the timber and
coconut-fiber projects and
eco-tourism businesses in
Ecuador and Brazil.

The company's agility has a lot
to do with Forgach's peripatetic history. Born to Hungarian parents in
southern Brazil, he earned an undergraduate degree at Harvard before
going into banking and, later, the oil business, working for the reclusive
commodity trader Marc Rich in Switzerland.

After forming his own Geneva-based oil-trading outfit, a business that
required him to travel extensively in Africa and Latin America, Forgach
developed a passion for rare birds, amassing a personal collection of
more than 200. He created an organization, the Hyazinthinus Foundation,
to contribute to the protection of endangered tropical birds.

When the growing use of futures contracts began to squeeze margins in
1985, Forgach left the oil business and moved into money management.
He returned to Brazil in 1995, initially intending to create a nonprofit
organization to combat illegal trade in rare animals.

Soon, though, he was approached by Landolt to run Axial. "I got to
combine my banker and romantic ecology hats," Forgach said in English
so faintly accented that its influences are hard to pin down.

His current challenge is to make Axial not just green but also profitable.
He expects Terra Capital to show a small loss in its first full year --
figures are not available yet -- but annual returns of 20 percent to 30
percent in the next few years as investments start paying off. If successful,
Axial plans to raise $300 million more to create similar funds specializing
in sectors like food and timber.

But fresh investment opportunities may prove harder for Forgach's young
scouts to find, since Axial's success in attracting capital has lured other
entrants to biodiversity investing in Latin America. The playing field was
virtually empty a couple of years ago, but there are now about eight funds
seeking viable investments in environmentally benign enterprises in
emerging markets, and more may be on the way.

"The use of venture capital to support ecologically sound businesses is
growing fast," said Tammy Newmark, manager of the EcoEnterprises
fund in Arlington, Va., which invests in eco-tourism and "alternative"
agriculture.

Newmark's fund, created at the beginning of this year with $10 million in
capital, much of it from the Nature Conservancy, focuses on projects
undertaken by local environmental organizations in collaboration with the
private sector, an area she says Axial neglects. "Axial is the big kid on the
block compared to us," Newmark said.