Private Capital Raising Alternative in Mexico

Challenge

I work at a Bank in its Investment Banking division. We advise companies in Mergers and  Acquisition, and Public and Private Capital Raising processes. For public capital raising, we work on  Initial Public Offerings and Follow-on Offerings in the Mexican Stock Exchange. For Private Capital  Raising we introduce private equity funds to our clients and advise them in the process. For  example if we have a client who want to raise equity / find a partner to develop real estate assets  (to pick an industry) we would contact real estate private equity funds interested in Mexico such  as Equity International, Jaguar Growth, Blackstone, etc. In recent years, Mexican Pension Funds  have also been active in the private equity sector not only funding private equity funds but also  real estate developers directly. In the last 10 years, a large portion of new real estate  developments was finance, through equity and debt, by Mexican Pension Funds.

Unfortunately for real estate developments, Mexican Pension Funds are heavily invested in  Mexico and specifically in real estate, given Mexican Pension Funds were not allow to invest  outside of Mexico until 3 years ago. Since they were allowed to invest abroad, they are more  interested in diversifying its investment and focus on US and European investments. Regarding  Private Equity Funds, it is not the best solution for every developer as funds look to participate at  the business platform / holding level and some developers prefer to have investors/partners at the  asset level.  This dynamic has reduced significantly equity available to real estate developers.

Tool Selection

Considering the large demand for equity from real estate clients and limited equity from Mexican  Pension Funds and, as discussed, from Private Equity Funds as most of them do not represent a  good alternative, we analyze other potential sources of equity. We identified some clients of our  Wealth Management team as potential investors. Given that, we did not have any previous  experience at the Bank we decided to perform a Learning Launch. We were clear with two clients  that we wanted to launch this potential alternative. Discussed we will work this path together with  the “regular” ones.

Application

We presented the idea to senior management of the Bank and the Wealth Management Division  and make clear it was a Learning Launch which will also help strength the cooperation between  Investment Banking and Wealth Management. Organized a reunion with the top Wealth  Management advisors to introduce them to the idea and receive feedback. Main consideration  was the need to have a listed structure to continue having the client investment in these  investments as assets under management. Prepare a potential listed structure but will put in in  place once one of the investments receives a good traction. Once we solve an important internal

hurdle, we were ready to visit potential investors. Prepare a presentation and went to show the  opportunity to a selected list of Wealth management clients.

Insight

We found that this type of investments are attractive to a small set of Wealth Management  clients. We do not have enough clients to generate the supply of equity needed by our Investment  Banking clients so we need to find additional sources such as other Wealth Management houses  open to participate in theses processes. We continue working in the capital raise and are in the  process of making this adjustment.

Approach

We should have identified the need for additional Wealth Management houses before but on the  other side we wanted to give a chance to our Wealth Management division to have exclusivity for  some time and been focused on them. Unfortunately, this decision has delay the progress.


Private Capital Raising Alternative in Mexico Challenge I work at a Bank in its Investment Banking division . We advise companies in Mergers and Acquisition , and Public and Private Capital Raising processes . For public capital raising , we work on Initial Public Offerings and Follow - on Offerings in the Mexican Stock Exchange . For Private Capital Raising we introduce private equity funds to our clients and advise them in the process . For example if we have a client who want to raise equity / find a partner to develop real estate assets ( to pick an industry ) we would contact real estate private equity funds interested in Mexico such as Equity International , Jaguar Growth , Blackstone , etc . In recent years , Mexican Pension Funds have also been active in the private equity sector not only funding private equity funds but also real estate developers directly . In the last 10 years , a large portion of new real estate developments was finance , through equity and debt , by Mexican Pension Funds . Unfortunately for real estate developments , Mexican Pension Funds are heavily invested in Mexico and specifically in real estate , given Mexican Pension Funds were not allow to invest outside of Mexico until 3 years ago . Since they were allowed to invest abroad , they are more interested in diversifying its investment and focus on US and European investments . Regarding Private Equity Funds , it is not the best solution for every developer as funds look to participate at the business platform / holding level and some developers prefer to have investors / partners at the asset level . This dynamic has reduced significantly equity available to real estate developers . Tool Selection Considering the large demand for equity from real estate clients and limited equity from Mexican Pension Funds and , as discussed , from Private Equity Funds as most of them do not represent a good alternative , we analyze other potential sources of equity . We identified some clients of our Wealth Management team as potential investors . Given that , we did not have any previous experience at the Bank we decided to perform a Learning Launch . We were clear with two clients that we wanted to launch this potential alternative . Discussed we will work this path together with the “ regular ” ones . Application We presented the idea to senior management of the Bank and the Wealth Management Division and make clear it was a Learning Launch which will also help strength the cooperation between Investment Banking and Wealth Management . Organized a reunion with the top Wealth Management advisors to introduce them to the idea and receive feedback . Main consideration was the need to have a listed structure to continue having the client investment in these investments as assets under management . Prepare a potential listed structure but will put in in place once one of the investments receives a good traction . Once we solve an important internal hurdle , we were ready to visit potential investors . Prepare a presentation and went to show the opportunity to a selected list of Wealth management clients . Insight We found that this type of investments are attractive to a small set of Wealth Management clients . We do not have enough clients to generate the supply of equity needed by our Investment Banking clients so we need to find additional sources such as other Wealth Management houses open to participate in theses processes . We continue working in the capital raise and are in the process of making this adjustment . Approach We should have identified the need for additional Wealth Management houses before but on the other side we wanted to give a chance to our Wealth Management division to have exclusivity for some time and been focused on them . Unfortunately , this decision has delay the progress .