Crisis Points Toward Development

Q: How does Hefesto Asesores assess Mexico’s investment landscape?

A: There is both optimism and concern. For example, Larry Fink, the CEO of BlackRock, is optimistic for the country, saying that the stock market will see more IPOs with the amendment to the securities regulation in Mexico. Uncertainty, however, especially with the proximity of elections, has also led to concern.

Still, most of the sector remains optimistic, especially around disruptive segments. Nu, for example, has announced an investment of about US$1.4 billion in Mexico, which indicates that at least the banking sector is solid. Banks reported better results in 2023 than in their entire history. The country is not doing as badly as some argue, but there is uncertainty, especially related to energy issues. In general, investments continue to flow into Mexico.

Q: What are the key factors influencing investor sentiment and decision-making in Mexico?

A: Firstly, nearshoring has been driving many investment decisions in Mexico since COVID-19. Secondly, the proposed reforms regarding retirement savings and credit operation securities also play a role. While some view these reforms as progressive, others caution that they may represent a setback. Thirdly, entrepreneurship continues to thrive in the country despite limited government support. This is because Mexico is increasingly seen as a conducive environment for entrepreneurs to effectively create solutions, leading to the emergence of new companies with innovative solutions, job creation, and capital attraction.

Q: Which areas should the Mexican financial sector focus on?

A: In five or six years, there could be a significant clash between traditional banking and fintech. The banking sector is uneasy with the entrance of fintech, which is gaining traction in the market. It is crucial to ensure that there are no monopolistic practices, so the Federal Economic Competition Commission (COFECE) should regain the power it lost and monitor developments. Open banking is another growing segment in Mexico.

Technology is also increasingly integrated into import processes, particularly among several of our clients. Numerous entrepreneurs are concentrating on imports and exports, and the country has a unicorn in that area. Applying technology to imports has long posed

administrative challenges in Mexico, which have increased since the Mexican Army began handling these processes. While authorities have shown some openness, there is the constant threat of stricter regulations that could limit the activity of these entrepreneurs. Therefore, this is another sector in which entrepreneurs must remain vigilant regarding potential regulatory changes that could affect their business.

Q: What have been the major changes in Mexico’s investment landscape since 2020?

A: The sector is not just turning the page; it's flipping to an entirely new book in the way business is done and deals are closed. For instance, last-mile logistics has always been relevant, but it took on even greater importance after COVID-19, which was evident in the growth of companies such as Mercado Libre and Amazon. 

In terms of imports, it is now more cost-effective to manufacture cars in Mexico. Despite the risk of additional tariffs from the United States, this could prove advantageous for Mexico economically. However, Tesla's announcement that it would reduce staff numbers could have repercussions on the company's possible expansion into Mexico. The country should capitalize on its robust economy and the stability of the peso to attract more foreign investment. Furthermore, strengthening the domestic economy to meet future challenges.

Q: What insights or recommendations does Hefesto Asesores provide to clients regarding policy risks and opportunities in Mexico's evolving economic and political landscape?

A: Institutional investors bet on the long term. With horizons extending up to 30 or 40 years, they prioritize patience and strategic decision-making. For these institutional investors, the rule is to hold on; it is a matter of understanding the market cycle and deciding when to exit.

Most investors do not have this long-term perspective. Every business owner is, in essence, an investor in their own enterprise. While it’s advantageous to leverage the positive relationship between the United States and Mexico, one should also consider getting a little more leverage with Central and South America, which is a potential development we are betting on. Hefesto Asesores opened an office in Buenos Aires, Argentina, to capitalize on opportunities in Central and South America, which also have unicorns and private equity funds. While the country may not seem too attractive with its new president, we have always bet that crises can generate great opportunities. We are now advising four Argentinian startups. There will likely be good surprises coming from Argentina, especially in terms of programming talent. Continual portfolio diversification remains crucial and will remain a priority for us.

Q: What specific strategies or services does Hefesto Asesores offer to help companies leverage nearshoring opportunities and establish a presence in Mexico?

A: We categorize our clients into two types: venture capital or entrepreneurial capital. We work with several Colombian fintech’s looking to enter Mexico. Our services commence from the establishment of the company in Mexico to its registration in the national and foreign registry, if required. With extensive connections in Mexican banks, we also oversee all tax procedures. Basically, we fully manage the entire soft-landing process.

Additionally, we assess whether the company is operational and poised to raise capital. Many of our clients that were looking to raise capital eventually realized that they did not need money from third parties. During the pandemic, valuations skyrocketed, so raising capital was cheap. Many entrepreneurs of that generation decided to raise capital simply because it was cheap; now we help them question whether they really need it.

Furthermore, we serve private equity clients in Mexico, the United States, and other countries interested in nearshoring. These established players often prefer acquiring local entities to enter the Mexican market, a strategy we've facilitated on multiple occasions. This trend is particularly notable in the insurance and reinsurance sectors, particularly cargo insurance. As a result, we anticipate supporting mergers and acquisitions for both private equity and venture capital clients.

Q: What is your strategy to continue attracting customers? What would be your ideal client?

A: There is nothing better than a satisfied customer, so we are accessible 24/7. We keep a close relationship with clients. As part of our expansion efforts into other markets and to better serve our clients, we established Hefesto Global through collaboration agreements with offices in the United States, Buenos Aires, Canada, and Spain. Given the multinational nature of many transactions we handle, we require a team capable of keeping pace with the rapidly evolving market dynamics.

We have expanded our presence in the United States through Saltiel Law Group (SLG), and in Canada with one of its premier firms. Additionally, we have broadened our portfolio and services in Argentina and the Southern Cone through Capucci Abogados (CA). Hefesto Global was born to address the diverse multijurisdictional needs of our various clients, which include startups, investment funds, and companies, consistently delivering coordinated and top-tier service.

Q: What are Hefesto Asesores' strategic priorities and growth objectives for its operations in Mexico in the coming years?

A: Our first priority is to expand while staying true to our core identity, which is rooted in accessibility. Anyone who has a PowerPoint can knock on our door, we welcome anyone with a vision, whether they are funded or still in the early stages of development. Interested parties do not need to be funded or have raised money. Many of our clients started with just a PowerPoint and are doing well. We always want to preserve that DNA.

We anticipate a growth rate of at least 300% for our Mexico office. Additionally, we aim to facilitate collaboration between our Miami and Mexico offices, fostering a network that attracts clients to Mexico while enabling us to serve Mexican clients in other Latin American markets

We recently connected with a Mexican entrepreneur who wants to expand to Colombia, and we were able to tell them where to go, who to talk to, and where to set up their offices. This exemplifies our commitment to facilitating cross-border business growth and connectivity.

Hefesto Asesores is a legal and financial advisory firm with offices in Mexico, the United States, and Argentina. It specializes in private equity, venture capital, banking and finance, and capital markets.

It offers specialized services in the structuring of private equity, quasi-equity, private debt investments, M&A, corporate governance, and other areas.