TBY talks to Edgardo M. Cantu, President & CEO of Vector Casa de Bolsa, on the IPO market, the capital markets, and the brokerage segment.
TBY How has Vector evolved since its establishment?
EDGARDO M. CANTU Vector is a securities broker-dealer in Mexico. A Monterrey- based group of investors led by the entrepreneurship of Alfonso Romo acquired the company in 1987, changing the name to Vector. At the beginning Vector only had an office in Mexico City; then the management established the headquarters in Monterrey. During its first years the company was more oriented to investment banking activities servicing companies in Monterrey. Later, in 1996, the company started a process to develop a nationwide network in Mexico. Now, Vector is the largest independent broker-dealer in the country. By independent, we mean a company that is not part of any banking group, neither foreign nor Mexican. This is our strategy and we have defined that we want to keep it that way. We have developed a large network of branches in Mexico. Vector now has 21 branches in the largest cities of the country.
What main services does Vector offer, and are there any areas in which you are planning to expand your services?
We are specialized in investment portfolio management. Our customers are what we call high-net-worth (HNW) individuals, institutional investors, and corporations. In terms of services we also have a focus on investment banking activities related to mergers and acquisitions, corporate finance, and private equity. An additional segment in which we are working is mid-sized companies, as they are now suffering from a lack of credit. Mexico was affected by what happened in the credit markets worldwide, although the Mexican financial sector is in very good shape and well capitalized. For many years we have been developing very good platforms to offer our clients a wide range of investment alternatives. In 1993 we established a securities broker-dealer in New York, currently named VectorGlobal. The initial idea of this company was to offer our clients in Mexico a vehicle to invest in global markets by opening an account in the US. Our specialization is to advise our clients on how to invest in the global markets. Three years ago, with all our experience, we decided to go from being a local financial company to an international financial institution. As a first stage, VectorGlobal opened an office in Miami, which is the financial center for Latin America’s private banking activities. The idea was to focus on Latin American clients, hiring experienced private bankers that had contacts with clients in Latin America. Then, as a second stage, VectorGlobal started opening offices in Venezuela, Colombia, Ecuador, and Peru. We have recently opened a new office in Geneva through our subsidiary VectorSuisse to offer our clients different investment platforms from Swiss banks. Furthermore, we are looking forward to extending our network into the Asian market, particularly in Singapore. Through this office we will be able to present our clients a new path to invest in this region of the globe. Additionally, we will be offering Latin American investment products and private equity projects to Asian institutional investors. Although we are just starting, the results of this internationalization strategy have been very encouraging; and now with our subsidiaries VectorGlobal and VectorSuisse, Vector has become the only Mexican global financial company with clients in more than 20 countries.
What is Vector’s competitive advantage?
As we are totally focused on personalized advising, we provide tailor-made solutions and investment strategies for our clients. Because of this strong trait we can compete with the big financial institutions. Mexico has all of the large international players present in the country, and we can
compete because we operate with an extremely close relationship with clients. We provide high quality and fast execution. We have a solid platform and we are also very sound financially speaking, and very well capitalized, with practically no leverage. More than 90% of our revenues come from client operations, and proprietary trading is minimal; we want to be focused on our clients.
What are your expectations regarding IPOs, and what does this signal about the Mexican market?
Before 2009, IPOs were almost marginal. Now there has been a trend to increase that. The Certificate of Capital for Development (CKD) is a structure the Mexican Stock Exchange (BMV) developed to create a vehicle for Mexican private pension funds to invest in private equity in the country. Before that, it was not allowed. Private equity is a challenge. In Mexico, private equity represents 0.4% of GDP, which is very small. However, Mexico is in a very interesting condition right now. It has an excellent financial situation. Public debt and the trade deficit are especially low. We are in a good position to attract foreign investment and we are seeing many US companies interested. We see an attractive growth potential in the private equity market. Going back to IPOs, the big companies that are listed on the BMV have, in general, low leverage ratios, high operating margins, and are very well capitalized, and so they are in good condition and ready to carry out acquisitions. M&A activity is going to increase and a way to finance acquisition is through the market. The demand is higher than the supply in terms of IPOs. Vector has participated in every IPO that has been done in Mexico for the last seven years. The BMV has 132 domestic companies listed plus 339 foreign companies, as well as 400 exchange-traded funds (ETFs), and in 2011 we saw 10 Mexican companies being listed. We feel we can grow this number.
What are the major strengths and challenges of Mexico’s capital markets?
One strength Mexico has is the regulation and also the platform and infrastructure the stock market is based on. We have a very good platform, strong and reliable regulation, many brokers, and high demand. On the IPO side, regulation costs are relatively high, but there is also a lack of culture in understanding the advantages of being listed. The challenge is to convince Mexican business people of these benefits. A positive development in the capital markets in Mexico is that investors are more globally oriented, and we can build portfolios with a global vision. We can take advantage of the volatility in the markets and the economic trends and strengths of some countries, for example Chile and Colombia, which are doing very well, or Peru, where there are opportunities to be part of that growth process.
What is your vision for the future of the brokerage industry and for Mexico’s capital markets?
The financial sector is very strong. It is continuously evolving in terms of new products, new structures, and new ways to finance and provide equity and debt to companies. The future in Mexico is really optimistic. In the case of institutional investors, we have to provide significantly improved platforms because they are becoming more sophisticated every day. They participate in international markets, they are very active in trading activities, and they are not just passive investors. It is a sector that continues to grow. In terms of individual investors, just 200,000 have an account with a brokerage firm. This is a small number considering that Mexico has a population of 110 million. There are a lot of people who invest in certificates of deposit and fixed-income products. The challenge is to convince them they are losing money that way. They don’t want risk. First, we need more companies and more alternatives to invest, and then we have to democratize the access of individual investors and smaller companies to the capital markets. Globalization is also taking place in financial transactions, and we have to take advantage of that. Mexico is on the right path to achieve this.
© The Business Year