OPINION: Tariffs, CERPIs and presidential politics

OPINION: Tariffs, CERPIs and presidential politics

Equity Capital Markets Asset Management Mexico

Tariffs, NAFTA renegotiations, politics and Mexico's certificados de proyectos de inversión (CerPIs), a type of equity-related security, were key talking points at Amexcap's Private Equity Day in New York earlier this month.

And with Mexico's presidential election just days away, trade relations remain a hot topic.

Karen Antebi, economic counselor for the Trade and NAFTA Office at the Mexican embassy in Washington DC, said renegotiating the free trade agreement presented an ideal chance to diversify Mexico's foreign trade strategy.

"NAFTA has also contributed to the growth of the Mexican middle class," Antebi said. "We have to continue to look outward and engage the world economy to remain competitive."

The structural reforms enacted by the outgoing administration of President Enrique Peña Nieto also signaled a commitment to welcome foreign investment. "Reforms to Mexico's energy, telecom, education and labor markets are a signal that Mexico is open for business," Antebi said.

Approximately 80% of Mexico's exports go to the United States, which remains the largest source of foreign direct investment in Mexico.

NAFTA aside, Mexico can also focus on relationships such as the Pacific Alliance with Colombia, Chile and Peru, the Trans-Pacific Partnership, the EU-Mexico Global Agreement, or any of its 46 free trade agreements.

Betting on CerPIs

On the investment front, Mexico's private equity community and the country's pension funds, known as afores, have welcomed the rollout of more CerPIs.

Unlike other equity instruments called certificados de capital de desarollo, or CKDes, afores can invest outside Mexico through CerPIs, which are structured along the lines of real estate limited partnerships. A CerPI can include up to 90% in foreign investments as long as 10% remains in Mexico.

BlackRock listed the first CerPI this year and speakers at the Amexcap event said at least 10 more similar transactions were in the pipeline.

"Now that CerPIs are here... [it is] is a good thing for the pension funds and their clients," said Gerardo Mendoza, a managing director at the private equity firm Abraaj Group.

Through CerPIs, Mexico's institutional investors are not just competing with domestic rivals but "against the big players everywhere," Mendoza said.

"The game has upped the ante," he said. "You are not only competing against the world for capital, but you are also competing against a much tougher marketplace at the field level."

As investment vehicles, CerPIs can address some of Mexico's growth and infrastructure needs, while diversifying risk in other growing marketplaces.

AMLO and the market

Mexican voters head to the polls to elect a new president Sunday, July 1, when Andrés Manuel López Obrador and the left-leaning Morena party is expected to clinch victory.

While questions remain if AMLO, as López Obrador is commonly known, will turn some of his more fiery campaign rhetoric into policy, Harry Kresky, founder and managing partner at the private equity firm Discovery Americas, stressed the need for market participants to listen to the front-running candidate, even if they do not trust everything he says.

"We should listen. We do not have to trust it 100%, but the starting place is to listen," Kresky said. "Things are uncertain, but that is OK… What he is saying is not bad. If he does what he is saying, we are going to be happy, on a relative basis."

Other panelists, however, disagreed with Kresky and said AMLO's rhetoric could become more detrimental to the Mexican economy than expected.

As it stands, Mexico is expected to be within the top 10 performing economies based on GDP and purchasing power in the world come 2050, according to data from PwC.

Andrew Rowan is a US entrepreneur and author of Startup Vietnam: Innovation and Entrepreneurship in the Socialist Republic. Find him on Twitter at @MrRowan