By its nature, one of its great solution suppliers are private funds, with more and more growth, while its competitors go for the opposite sense.
The difference lies in the concept of trust. While traditional banks lost credibility after multiple crises, these new entities built their business model on a pillar that transformed the American financial system: fiduciary duty.
Fiduciary duty, competitive advantage
Cerity Partners, constituted as a registered investment advisor (RIA) regulated by the stock exchange and values commission (SEC), operates under a structure similar to a law firm, which implies a legal and ethical duty to always act in the best interest of the client.
“We have a fiduciary duty. For not creating the products we sell, I have the obligation to do my analysis and select the best options for my customers. I am not creating the product that generates commissions,” says Moreno.
This structural difference eliminates conflicts of interest. While traditional banks usually develop their own financial products and then sell them to their customers, which generates commissions that benefit the institution, registered investment advisors prioritize customer performance.
“If your incentive structure is not maximizing return, but increasing commissions for the bank, it is different. This translates totally in confidence,” says the Mexican Executive.
Through his arm of Venture Capital They are associated with companies to help launch and manage their risk programs, such as Kellogg’s, Bentley and T-Mobile, in addition to having more than 100 companies within their portfolio.
The opportunity after the 2008 crisis
The 2008 financial crisis marked a before and after in the world financial system. The banks, after collapse, left important empty in the credit market, particularly in direct loans to companies.
“For a long time, banks have not been in charge of direct loans to companies. The truth to what they dedicate is to syndicate credits and sell debt fragments to bond holders,” says Moreno.
This void allowed the emergence of specialized funds in private credit. Signatures like Blue Owl, Golub, Ares and Apollo (whose names, jokes Moreno, usually evoke Greek gods) entered the market strongly. Their main difference: they maintain the credit risk in their balance, which directly compromises them with the success of the financed companies.
“These capital suppliers have ‘Skin in the game’, because the credit risk is in their balance sheet, it is not external. They are interested in repayment, but they are also interested in the growth of companies,” describes the partner of Cerity Partners.
The numbers support this transformation. In the financing segment for leveraged acquisitions (Leveraged Buyouts or LBOS), private credit funds practically displaced traditional banking.
“15 years ago, 90% of the Lbos were made by banks. Now it is literally the other way around: 90% do the private credit funds. In specific situations, private capital funds, Private Equity, Venture Capital or Direct Landing have already won,” says Marco Moreno de Cerity Partners.
