Miami-Dade County

Miami banks on future as a financial hub

Miami’s skyline in 2012.
Miami’s skyline in 2012. El Nuevo Herald

Miami’s finance scene may never blossom into “Wall Street South” — but recent efforts to attract hedge funds and other investment firms to South Florida are starting to pay off.

“We’ve seen huge growth in businesses that used to be tangential parts of the industry here,” said Juan Carlos Campuzano, president of Oberlin Wealth Partners, an Ohio-based investment advisor that opened a Brickell office in 2013.

Florida’s traditional lures — beautiful weather and a favorable tax climate for the rich — have always enticed wealth from other places.

Now Miami’s hot downtown, bristling with condos and culture for the first time, is playing a part, too.

“We have become a major destination for high-worth individuals from the Northeast, Latin America and Europe,” said Frances Aldrich Sevilla-Sacasa, CEO of Miami operations for Itaú Private Bank, a Brazilian firm with 170 employees in its local office.

“We now have access to a very different kind of client,” Sevilla-Sacasa said, whether they live here permanently, own second or third homes, or are just passing through. “Art Basel in and of itself is a pretty good draw,” she added.

Attracted by the whales, smaller fish see Miami as a place to thrive.

Even though it means more competition, local players welcome the change. Traditional banking, once the cornerstone of Miami finance, has been in decline because of new regulations and disclosure laws for overseas clients.

Private-equity firms, investment banks and hedge funds are picking up the slack. One new anecdotal study, by the public relations firm Newlink Group, counted more than 150 non-traditional banks and investment funds doing business in Miami.

“I don’t think we’re ever going to get to the level of New York,” said Carlos Deupi, general counsel for the Brilla Group, a private-equity and merchant banking fund with offices in Miami, Bogotá, Mexico City and Panama.

But Deupi said that — like New York — Miami now has a solid financial infrastructure: law firms, accountants and banks that can support a variety of financial services companies.

Ian McCluskey is a vice president at Newlink Group, which recently started a financial services practice in Miami. Over the past month, McCluskey has conducted a survey to gauge the growth of financial firms here.

He compares their evolution with the local tech sector.

“For a long time, you had people in Miami saying we were becoming a tech hub, but the narrative was ahead of the facts in many ways,” McCluskey said. “Now you could argue that the facts have caught up to the narrative in tech. I think we’re getting to that point with finance, too.”

By McCluskey’s count, which he arrived at by scouring private databases and interviewing finance executives, Miami is now home to 13 investment banks, 19 private-equity firms, 60 hedge funds and 63 wealth-management firms

McCluskey estimates that Miami also has more than 200 family offices — private companies that manage money for one or more wealthy families with assets of at least $50 million.

The number of wealthy families from New York and Latin America who spend time in Miami makes it an attractive landing spot for financial managers, said Richard Wilson, founder of the Family Office Club, an advisory firm that recently relocated from Portland, Oregon, to Key Biscayne.

Wilson considered moving to New York, Singapore, the Bahamas, Monaco and San Diego. “But Miami made the most sense,” he said.

New York, Chicago and San Francisco have the most family offices in the U.S., Wilson said, although statistics are hazy because family offices have traditionally been secretive and informal affairs.

“But Miami is probably next on that list with Houston, which has a lot of families in the oil business,” he said. “And even with all that activity, there’s still an untapped market here. ”

McCluskey estimates the total assets managed by the private wealth industry in South Florida at about $300 billion.

(That number is down slightly after Miami-based Everest Capital closed its flagship $830 million fund last month because of trading losses on the Swiss franc, the Wall Street Journal reported. The company still has $2 billion in other funds, according to the Journal.)

“That’s a rough count, but it’s certainly more activity than we’ve ever had before,” McCluskey said.

And that diversification is crucial because of South Florida’s diminishing field of international banks.

“Because of our proximity to Latin America, we are still the second-most-important center for international banking in the U.S. after New York,” said David Schwartz, CEO of the Florida International Bankers Association. “But the new laws have made it very costly to do this kind of business.”

Those laws, part of a series of regulations stemming in part from the Patriot Act and Dodd-Frank, require banks to dig deeper into the nature of their clients’ businesses and the sources of their wealth and to stop engaging in higher-risk transactions.

“I think the intentions of these laws were good, especially as they relate to money laundering,” said Carlos Fernandez-Guzman, CEO of Pacific National Bank in Miami. “But they have had a tremendously negative, unintended consequence on legitimate depositors who are trying to maintain a level of privacy for safety reasons.”

“We have many depositors from South and Central America that we cannot do business with, not because they’re doing anything wrong or because they acquired their wealth in nefarious ways, but because they’re concerned about the risk they face should information be leaked to folks in their respective countries,” Guzman explained.

Guzman said that 25 years ago, foreigners made up about 85 percent of Pacific’s clients. Today, that number is closer to one-third.

And in the last two years, three foreign banks have pulled out of Miami, including Lloyds, BNP Paribas and Royal Bank of Canada.

The financial newcomers who are stepping in say communications technology is making Miami a viable hub for hedge funds and other firms.

“I can be in Miami and enjoy our amazing way of life but still do business anywhere in the world,” said Aurelio Salas, the founder of Cypress Capital Advisors, an investment advisory firm with clients based mainly in Central and South America.

Political and civic leaders say a burgeoning financial sector will help wean South Florida from its economic dependence on tourism, trade and construction — businesses that were shattered during the last recession.

“The more diverse our economy, the better suited we’ll be to face the next inevitable cycle,” said Nitin Motwani, managing principal for the Miami Worldcenter project and a board member at the Downtown Development Authority.

The DDA is an autonomous city agency that promotes the economic prosperity of downtown. Since 2013, it has mounted a campaign to convince hedge funds and other financial firms to relocate to Miami.

Motwani said the city can’t yet compete with the economic incentives offered by states such as Texas. But good weather and low taxes are a powerful draw.

“Bringing smart, hard-working people to Miami can only be a good thing for our city,” he said. “This could be an economic engine that fuels a lot of growth, and the fiscal impact will help feed city and county coffers.”

The agency has had some success so far, despite a small $50,000 budget for the effort.

The California-based hedge fund Universa Investments moved its headquarters to Miami last year.

And in April, the Brazilian investment bank XP Securities opened a 30-person office in Miami after being recruited by the DDA.

“The cost of hiring people in Miami is so much lower than in New York,” where XP also has an office, said Alejandro Rebelo, a managing partner. He said the firm plans to hire 70 more people in Miami over the next few years.

Miami’s shallow talent pool has long been a problem for financial firms, said James Cassel, chairman at the local investment bank Cassel Saltpeter & Co. But his company draws an increasing number of summer interns from the University of Miami and other local schools.

“We need to keep improving our educational system,” Cassell said. “We need better schools, better public transportation and even more cultural life to keep drawing talent.”

Eddy Arriola, chairman of Apollo Bank, a community bank, said he supports the effort to broaden Miami’s financial sector. But he questions the idea that a rising tide lifts all boats.

“Yes, these companies are prestigious and, yes, they bring high-income people to Miami, but they don’t create a lot of jobs,” Arriola said. “What can help the city even more is an investment in small business.”

Motwani said the DDA understands hedge funds aren’t a silver bullet.

“What we want to do is add another leg to our local economy,” he said. “We can’t do agriculture here. We can’t do manufacturing. This is what downtown has to offer.”

Bruce Berkowitz saw the allure of Miami’s downtown early.

He moved his hedge fund Fairholme Capital Management from New Jersey to South Florida in 2006 — in part, he said, to get away from the “noise” of Wall Street.

The fund now has about $9 billion under management and employs nearly 30 people.

“When I told a few friends I was moving down here back in ’06, they looked at me like I had lost my mind,” Berkowitz said. “Today, I see those same people coming to Miami.”

The players

Major hedge funds and other investment firms doing business in Miami:

H.IG. Capital

1450 Brickell Ave., Miami

Private-equity fund

Assets under management: $17 billion

Founding partners: Sami Mnaymneh and Tony Tamer

ESL Investments

1170 Kane Concourse, Bay Harbour

Hedge fund

Assets under management: $10 billion

Manager: Edward Lampert

Fairholme Capital Management

4400 Biscayne Blvd., Miami

Mutual and hedge fund

Assets under management: $9 billion

Manager: Bruce Berkowitz

WE Family Offices

1450 Brickell Ave., Miami

Multi-family office

Assets under management: $2.7 billion

Manager: Santiago Ulloa

Sources: Company filings and press releases, StreetInsider.com, Bloomberg.com

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