How MCP is educating investors about Puerto Rico to raise capital for projects that could transform the island.
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While Opportunity Zones have helped drive investment to communities throughout the country, some areas have had to work harder in order to gain investment. This is particularly true in Puerto Rico, which offers both tax advantages and the opportunity to create real impact. Unfortunately, many investors – even those on the island – are unaware of Puerto Rico’s OZ status and the types of meaningful projects that can be funded through the OZ program, making education and fundraising a particular challenge that one fund is determined to take on.
Monllor Capital Partners LLC (MCP) was founded in 2018 by Jose A. Torres as a minority-owned alternative asset management and advisory firm based in Puerto Rico. Its mission is to make and facilitate tax-advantaged private equity investments in Puerto Rico following Environmental, Social, and Governance (ESG) guidelines. In 2021, MCP launched the Puerto Rico Opportunity Zone Fund (PROZ), a private equity fund focused on investing in renewable energy, sustainable businesses, and infrastructure in Qualified Opportunity Zones throughout Puerto Rico.
We spoke to Managing Partner and Founder Jose A. Torres about the advantages of OZ in Puerto Rico, the challenges of educating the public about the island’s Opportunity Zones, and seeing Impact/ESG as more than just an asset class.
The PROZ fund is dedicated to making investments only in Puerto Rico. Since 95% of the island falls within an Opportunity Zone (a fact many readers may not realize), is it important for those with ties to the island to direct investment there in order to demonstrate the value and positive effects OZ investment can have in Puerto Rico?
Torres: Absolutely. We need more of the diaspora to look at investing in Puerto Rico. If you look at the latest report from EIG on the impact of the Opportunity Zones Program, you see great success across the USA based on the amount of capital invested and number of Opportunity Zones impacted.
However, this has not been the case in Puerto Rico (we are not even included on the map in the report). At Monllor Capital, we are trying to change that with the Puerto Rico Opportunity Zone Fund. We are not just investing capital; we are also bringing awareness and facilitating investments by others.
We want to see more QOFs and alternative managers investing in PR to create a robust alternative investment sector on the island. We need more QOFs, managers and investors to take the time and investigate the investment opportunities in Puerto Rico. The opportunities for tax-advantaged investments in Puerto Rico go beyond Opportunity Zones. Act 60, known as the Incentives Code, provides for many additional tax incentives for investors and companies alike. We recently launched MasCap, LLC, a Puerto Rico private equity fund under Act 60 focused on real estate and infrastructure.
Monllor Capital Partners has made investments in renewable energy storage equipment and aquaponic farming. Has your involvement in these investments increased your awareness about energy and food sovereignty issues? What are some things you didn’t know going in that you understand now?
Torres: Our original investment thesis was to invest in renewable energy projects and infrastructure. But after a year of structuring the fund while we waited for the local Opportunity Zone law to be passed and regulations to be issued, we noticed that the biggest need and most active market for renewable energy was the residential and commercial space.
As we performed due diligence on the landscape and investment opportunities, we thought an investment in Sunbeat Energy would make the most impact in the energy transition of Puerto Rico at this point in time. We are not just making an investment that improves the environment; we are helping the economy by creating jobs and providing reliable affordable energy to the people of Puerto Rico.
Likewise, aquaponics was not part of our original investment thesis. But after visiting Fusion Farms and tasting their products, I wanted to learn more and look at ways to help them. When I learned about the fact that Puerto Rico imports over 80% of its food, that indoor vertical aquaponics uses 90% less water than traditional farming and a fraction of the land, we performed our due diligence and decided to make an investment to help them expand from a 1,000 square foot facility to 10,000 square feet. Providing fresh locally grown organic produce to the people of Puerto Rico while helping the environment and the economy is exactly what we set out to do with the formation of PROZ.
Has PROZ mainly attracted investors from within Puerto Rico or mainly those who live on the US mainland? Have the benefits of Act 60 been an enticement to invest in Puerto Rican Opportunity Zones?
Torres: It has not been an easy process to raise capital while Puerto Rico goes through a debt restructuring. However, the need and the fundamentals for investments are here and ready to receive impact capital. Luckily (and with a lot of effort and help from others), we have been able to attract a number of likeminded high net worth individuals to invest with us.
Our current investor mix is about 50/50 Puerto Ricans/mainland individuals. We have yet to receive an investment from a family office or an institutional investor, which is what we need to scale our fund and our impact.
When dealing with OZ investors, what have you found is the general perception of the program? Do investors come in knowing much about the OZ tax incentives or about investment in Puerto Rico, or do you have to educate them?
Torres: In Puerto Rico, the OZ program is still not very well known and there is a lot of confusion between the Federal OZ law and the local OZ law. We are making a huge effort in education, but also providing feedback to the local government and stakeholders.
Having Puerto Rico as a separate tax jurisdiction is a double-edged sword. It provides for flexibility at the local level for the island to set its own tax policies, but also creates more complexity for investors and fund managers alike. The need to invest capital gains (and within 180 days from the date of the gain) has also been a very large challenge.
The term “ESG” has received a lot of backlash recently. Whether due to greenwashing, investor mistrust of ESG reports, or simply politics, it’s become a highly-contested issue. Do you think there’s a way to help the public better understand the good that ESG considerations can do both for funds themselves and for society at large, or has the term outlived its usefulness?
Torres: We have seen and are experiencing some of the backlash for using the term ESG. But I think the main issue is how the public, investors and fund managers are using the term. We focus on the impact our investment decisions have on the environment, the economy, but more importantly the local communities and the people of Puerto Rico.
Investing in renewable energy, food security, sustainable business and infrastructure is our mission. We just use ESG guidelines as an additional tool for due diligence and measuring impact. We do not see this as an asset class or investment strategy. ESG guidelines are just one of the tools we use to make better-informed investment decisions.
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