BlackRock: Mexico must relax ‘big load’ that hangs the market

Mexico It needs to renew its financial regulations and boost the necessary incentives to reactivate the practically dead market for initial public offerings, according to one of the country’s largest investors.

Sergio Méndez, who serves as CEO of BlackRock Mexico said in an interview that it urged regulators to take measures that facilitate IPOs, such as reducing the amount of information that companies must disclose when they go public. His recommendations, he said, are based on conversations with executives about what would be needed to help alleviate the drought in Mexico.

“We need some adjustments in the regulation on IPOs so that companies are more incentivized,” said Méndez. “If we had more participants and adequate regulation, Mexico could explode.”

It’s been 17 months since a company’s last stock market debut and four years since the market traded close to $ 1 billion, a drought that risks slowing economic growth as companies struggle to find capital to invest. A chain of pawn shops, which plans to hold an initial public offering in February, would be the first non-real estate trust company seeking to list in Mexico since 2017.

Méndez came to BlackRock, the world’s largest asset manager, in 2020 after stints at Afore Banorte and Santander Asset Management. BlackRock manages more than $ 90 billion in Mexico through its ETFs and mutual funds, according to Méndez.

Easier to be private

The Mexican market is so dead that bankers, desperate to revive businesses of any kind, spend their days looking for companies to de-list. In the last year, five companies started the process of going public.

“It’s easier to be private,” Mendez said. “This is why we have seen some companies go public. There is an uneven field in which there is a great burden in the dissemination of information ”.

Méndez noted that some of these requirements are not specific to Mexico.

However, many of the larger companies are controlled by families who do not want to draw attention to their wealth due to endemic violence, a factor that discourages them from going public and disclosing their financial details.

Méndez also points to the fact that some Mexican special purpose acquisition companies, known as SPAC, have made their stock market debut in the US rather than their home country.

“It is a Mexican strategy, it is a Mexican vehicle but it is listed abroad,” said Méndez. “That tells you something.”

Retail Clients

Mendez says that one of the ways BlackRock is trying to help develop the Mexican market is by involving more people, especially the middle class.

BlackRock has been working in partnership with Citibanamex to attract retail clients, Méndez said.

The objective is “normal people, private clients, from savers to investors,” he said. “One of our first problems is that we don’t have many participants, retail is not there.”

Mexico’s pension funds have assets equivalent to more than 20% of gross domestic product, he said. Méndez said a reform that came into effect this year will help boost domestic pension savings to roughly 50% of gross domestic product by 2040.

“We are talking about a lot of internal savings, but the problem is that they are only concentrated in 10 participants,” he said. “We have been successful in transforming savers into investors by telling them ‘You will lose purchasing power, it is better to diversify.’

Another strategy has been to promote investments that comply with ESG measures, referring to projects or objectives linked to environmental, social and governance measures.

“It is surprising how new generations are demanding this type of product,” said Méndez. “Our first ASG observer vehicle was launched about 14 months ago in Mexico and has been one of the fastest growing products, costing between US $ 1.6 and US $ 1.7 billion,” he said.