Macquarie’s Mexican roots

As Macquarie’s Mark Ramsey can readily attest, life’s no fun living on a plane. But that’s precisely what the president of Macquarie’s Mexican operations did for the best part of a year before he came to Mexico City in 2009. The firm’s senior leaders in Sydney had sent the former head of Macquarie’s Private Placement Group on a special assignment to travel all around the world looking for new business opportunities for the Australian investment bank.

“I came to the conclusion quite quickly, really, that Latin America was an essential step we had to take if we were to be truly global,” he says. “And very quickly after that, [I] spent a lot of time in Mexico and Latin America in 2008 [and] came to the conclusion that the best place to start the business was Mexico.”

I came to the conclusion quite quickly, really, that Latin America was an essential step we had to take if we were to be truly global

Mark Ramsey

Mexico, he says, had all the building blocks for an attractive opportunity: a stable political environment, sensible economic policies and a high-priority national infrastructure development programme “which really suited Macquarie’s own approach to developing new businesses”. The same building blocks have made the firm its name in many other parts of the world.

But even Ramsey seems a bit taken aback by the firm’s rapid success in Mexico City. In December 2009, less than a year after opening shop in the capital, Macquarie scooped up Ps$3.42 billion (€196 million; $266 million) from seven Mexican pensions to invest in its Fondo Infrastructura Macquarie Mexico – the first peso-denominated infrastructure fund to focus on the growing country of 110 million people.

For most managers which have been scouring US pensions in search of commitments, that’s probably seven more pensions than they’ve been able to get to sign up for their fund in the last year. But those tempted to look to Mexico instead would be wise to note the ‘emerging’ tag applied to the country. While there are certain regulatory changes afoot that will continue to make the country an attractive place to raise and invest capital, there is also much uncertainty about how much, and how willingly, Mexico’s pensions will invest in infrastructure going forward.  

Firing up the engine

What is not in question is that there has been a dramatic rise in public awareness of infrastructure investment thanks in no small part to Mexican President Felipe Calderon. In July 2007, only about eight months into his six-year term, Calderon unveiled an ambitious National Infrastructure Plan for 2007 to 2012.

The goal was to spur economic competitiveness and job creation by scaling up public investment in the country’s infrastructure – including building and modernising 17,000 kilometres of highways and country roads – and promoting private capital as “an essential engine of development”, according to Calderon’s website.

To make good on this promise, in February 2008 the Mexican government used the proceeds from toll road auctions and other sources to create a national infrastructure fund, the Fondo Nacional de Infraestructura, or FONADIN. The fund’s goal is to support private sector participation in the planning, design and construction of Mexican infrastructure projects.

To Macquarie’s Ramsey, Calderon’s commitment to infrastructure was more than just talk: “It was there, it was very public and it was a high priority for the government, so it attracted our attention.”

And the commitment continues to this day. As Infrastructure Investor went to press, Federico Patino, director of FONADIN, told Bloomberg in an interview that the fund would seek to invest Ps$30.4 billion in 42 public-private partnerships in 2010, up from Ps$22.1 billion in 23 PPPs last year.

Freeing up capital

Regulatory changes have also helped open up the market to private investment. Reforms in the 1990s had helped spur the private management of public pension funds, or afores. But the afores still faced strict limits on what they could and could not invest in. Fixed income investments were encouraged by the government, while alternatives were all but prohibited.

That changed last year. In July 2009, Consar, Mexico’s capital markets regulator, issued new rules that allowed the afores to invest in private equity funds through new listed securities called certificados de capital de desarrollo – Spanish for development capital certificates, commonly referred to as CKDs. To accommodate the CKDs in its fund, Macquarie created a listed trust for the afores, which will invest equally in opportunities alongside a separate, unlisted trust.

Some see a familiar theme behind Consar’s change of mind: governments wanting to tap pension capital for infrastructure development.

Mexico's an underappreciated opportunity for investors looking for places to put their money

Mark Ramsey

“They wanted the pension funds to be able to invest in some alternative investments and at the same time they wanted the pension funds to be able to fund some of the infrastructure development in Mexico,” says Miguel Barrios, head of sales for BNY Mellon Global Corporate Trust in Mexico City.

But the securities can be used to invest in much more than just infrastructure. Barrios, whose firm acts as an intermediary between issuers and buyers of securities, counted four CKD deals last year. Two – Macquarie’s Ps$3.42 billion CKD sale in December and Goldman Sachs Infrastructure Partners’ Ps$6.5 listing of Red de Carreteras de Occidente, the largest toll road operator in Mexico – have been infrastructure-related. The other two were a $55 million fundraising for private equity firm WAMEX Equity Management’s second healthcare fund and a CKD listing for restaurant chain Arrachera House.

“If things are going more or less the way that we saw toward the end of last year, I would think it wouldn’t be crazy for us to get maybe up to $1 billion [of issuance this year],” says Barrios.

Treading carefully

All of which sounds very exciting.  But it is important to keep in mind that CKDs are still very young and, as such, the afores are treading carefully.

“I think they have an appropriately conservative attitude toward investment and they will sit back and assess how well we do with their money before they double-up or increase their investment,” says Ramsey.

“That’s certainly the message that they’ve told us,” he adds. So the Goldman and Macquarie CKD experiences may well help determine how quickly afore-managed capital, which Ramsey estimates to be around $100 billion, embraces infrastructure.

Even at that size, the total amount that afores can invest in CKDs is still pretty small. Barrios estimates the figure at less than 1 percent of total funds.

Underappreciated opportunity

For first-movers like Macquarie, though, such considerations are in the past. To be sure, the fund, which is targeting Ps$15 billion in total commitments, is still seeking capital. So far, FONADIN and Macquarie have contributed Ps$1.8 billion as seed investors in the unlisted trust.

But with initial capital in hand and an 18-strong team on the ground, Ramsey’s got his mind on other things. Asked whether he’s actively looking at investments, he chuckles and responds, “very, very actively”.

“There will be roads, there will be airports and hopefully there will be water treatment plants and some wind farms and maybe some gas generation and perhaps some gas pipelines as well,” he says, suggesting no hint of regret over having chosen Mexico during his trip around the world.

“Mexico’s an underappreciated opportunity for investors looking for places to put their money,” he says.