Newport Beach-based investment bank Fairbridge Capital Partners LLC is making a play in Puerto Rico through an acquisition of one of the largest securities brokers there.
Fairbridge provides consulting services to financial-sector companies, governments and endowments, among others.
The boutique advisory firm serves as a broker and doesn’t directly manage money. It holds about $600 million in client accounts.
Fairbridge recently acquired Consultiva Securities Inc. in Guaynabo on undisclosed terms and renamed it Fairbridge Capital Markets.
Consultiva Securities was the broker-dealer division of Consultiva Internacional Inc., an investment adviser with about $1.4 billion in assets under management. Consultiva Internacional mainly caters to institutions and high-net-worth individuals.
Fairbridge’s buy comes at a time when Puerto Rico—a self-governing U.S. territory—is aggressively trying to attract wealthy investors to live there and spend money to help revive the island’s economy.
Recent efforts included a tax incentive passed last year that exempts new residents from capital gains taxes.
“This is a great opportunity,” said Fairbridge Chief Executive Ed Prado, who founded the firm in late 2010. “It’s also a very niche-based opportunity. Not everyone is going to rush in to do this.”
Prado, who’s spent decades in the fixed-income industry, said he’s taking advantage of Puerto Rico’s volatile bond market.
“An increase of volatility … in turn creates a surge in transactions and volumes,” he said. “As a broker-dealer, we benefit from that.”
Prado’s long-term outlook is positive, based on Fairbridge’s potential as a liaison between clients in the U.S. and Puerto Rico.
“[There] are large institutions that have Puerto Rico exposure and are eagerly seeking information,” he said. “In having a full-blown operation there, including personnel that live in the area, we are able to dispel rumors and gain much-needed data that may not be so readily available. …We are also in talks with the issuers in Puerto Rico, who look to us as a new source of distribution.”
Fairbridge’s Puerto Rico-based unit will operate with 12 employees. They join a team of five in the Newport Beach office, where Prado said he plans to spend most of his time. The firm recently opened an office in Chicago with three employees.
Prado said there are general plans to hire, but “probably not aggressively, since you can do a lot more with less people these days.”
Clientele
The makeup of the clientele in Puerto Rico is expected to be similar to that of Fairbridge’s network here.
“They’re all institutional clients: foundations and endowments, some government money. That’s my expertise,” Prado said, citing business experience with large bond-oriented firms here, including Newport Beach-based Pacific Investment Management Co., the world’s largest bond fund manager. Pimco has nearly $2 trillion in assets under management.
Prado’s career in fixed-income securities includes a 16-year run overseeing Finacorp Securities, a broker-dealer he started in Irvine in 1994. He also founded an online bond-trading business, called Tradebonds.com, as a subsidiary of Finacorp, which closed in 2010.
Much of the closure “had to do with having grown too much too soon,” Prado said. “The markets are much different now … [and] many trading products are now commoditized [and] no longer pay much in the way of commissions. This makes it even more important to operate within a very defined niche,” such as the market in Puerto Rico.
Fairbridge’s entry into the American commonwealth has gained attention and come under substantial limelight, including from the government.
“We have been in talks with Puerto Rico central banks and stand ready to underwrite and/or trade within their portfolios,” Prado said. “They are excited about our entry into their market, as we represent an additional distribution channel for them. … They are really trying to create programs to attract hedge funds, private equity groups and billionaires.”
Paulson
Among those who have made significant business moves there is billionaire hedge fund manager John Paulson, president of New York-based alternative investment manager Paulson & Co., which has $18 billion in assets.
Paulson recently acquired majority stakes in a couple of resorts there and reportedly is looking at other potential deals, according to El Nuevo Dia, a newspaper in Guaynabo.
Paulson & Co. earlier this year reported that Paulson is not moving to Puerto Rico despite rumors that he was considering relocation.
Fairbridge’s expansion into Puerto Rico despito is meaningful for Prado, who is Cuban-American, from a cultural standpoint.
“My parents are Cuban, and I’m completely bilingual,” he said. “Being that [Fairbridge is] Hispanic-owned and operated, with a large amount of personnel located in Puerto Rico, we qualify to trade with many of the government and corporate accounts that encourage doing business with [minority-owned enterprises]. This is an added benefit that will lead to future transactions.”
