Prudential Bets on Mexican Fund Industry
February 19, 2001
Manuel Somoza, president and general director of Prudential Apolo of Mexico City, is confident that some of the dramatic changes occurring in Mexico will spur growth in the country's fund industry. But in a country that suffers an economic crisis with every new president and whose economy seems to nearly drown every time the U.S. economy weakens, many people are skeptical that there will be change. But this time it is different, according to Somoza.
Somoza's optimism is founded on a wave of change taking place in Mexico that is sure to affect the industry, he said. Most notably, the Institutional Revolutionary Party, which has ruled Mexico since the country's last revolution in 1920, was voted out of office in July and the National Action Party under the leadership of Vicente Fox, assumed the presidency in a peaceful transfer of power.
"I think that democracy is an ingredient that is very important for economic progress," Somoza said. "I honestly believe this change in democracy gives us the possibility to expect steady growth that can be sustained."
Somoza shares his optimism with Prudential Investments of Newark, N.J., which acquired a 51 percent stake in Somoza's fund company, Apolo Operadora, in November 1999. Prudential's entrance into the Mexican fund market is evidence of change in Mexico, according to Stephen Pelletier, president of Prudential's International Capital Group.
"I think the underpinnings of the Mexican economy is stronger than it ever has been and the direction under the Fox administration is very strong as well," Pelletier said. "While it looks like we're experiencing a slowdown here in the U.S., and that's bound to have some effect in Mexico, Mexico's own house is in order to a better extent than at anytime really."
Prudential saw an opportunity to market to the country's burgeoning middle class, a market that has been largely ignored by other asset managers, said Pelletier.
"We see that, increasingly, if people in Mexico are to fulfill their financial goals in life, they will have to shift from patterns of pure savings to investing," said Pelletier.
Prudential needed a partner in Mexico which had a strong understanding and background in the Mexican fund industry and which could also understand the needs of a large multinational conglomerate, Pelletier said. With over 30 years of experience in Mexico's banking industry, Somoza was the obvious choice, said Pelletier.
"Really Prudential Apolo represents very much an investment, frankly, in Manuel Somoza himself," said Pelletier. "We were looking for, as much as anything, a real leader to take us forward in the business and Manuel certainly represented that for us."
Somoza began his career with Banco Nacional de Mexico of Mexico City in 1966 and was CEO for several banks and was the general director of Bancrecer of Mexico City before starting Apolo Operadora in 1998.
Somoza's experience will allow Prudential to expand the variety of products and services it offers, said Pelletier.
"Manuel's background in every phase of financial services was extremely appealing to us for not just how it relates to Prudential Apolo, but as it relates to what I'm sure will be our eventual expansion in various areas of financial services in Mexico," he said. Prudential is considering expanding to offer insurance products in Mexico, Pelletier said.
Since the merger, business for Prudential Apolo has been strong, according to Somoza. Its market share has grown from 0.49 percent to 1.6 percent currently and the firm has increased its retail client base from 4,000 in November 1999 to 14,000 as of Jan. 31, he said. Currently, the firm has $285 million in assets under management, up from the $87 million at the time of the merger, Somoza said. And, Prudential Apolo ranked second in net inflows of assets in 2000, only trailing the country's largest bank, Banamex, he said.
Still, there is room for growth. Mutual funds represent roughly nine percent of the country's savings, according to Somoza. As of last September, the Mexican mutual fund industry held approximately $19 billion, according to the Mexican Banking Commission, a government agency. There are only 37 fund management companies offering nearly 300 mutual funds, 250 of which are fixed income funds. There are only 50 equity funds, Somoza said.
Prudential Apolo is hoping to grow by means of a campaign designed to reach middle class Mexican citizens. With the financial backing of Prudential, Somoza has opened a network of Prudential Apolo branch offices throughout the country. The firm has opened 10 offices since the merger and will open 12 more this year, he said. The branches are for the most part located in or near shopping malls in order to give them maximum exposure to their target market, Somoza said.
To get potential investors into those offices, Prudential Apolo has started to advertise, according to Somoza. The advertisements are important because most Mexicans put their money in savings accounts and there is little awareness of mutual funds, he said.
"We're the first independent mutual fund management company that advertises on the television, the radio and in the movie theatres," he said. "We're creating the culture."