Mesirow currency biz reaches into Middle East

Barely known in the Midwest beyond Chicago, Mesirow Financial Holdings Inc. is plotting to become a big name in another region: the Middle East.

The company, built largely on insurance and real estate, is creating a joint venture with the government of Abu Dhabi to sell currency management services in the Persian Gulf. Mesirow executives said that the partnership will add as much as $10 billion over the next five years to the $29 billion in currency the company manages.

“This is the beginning of what will be a significant business venture,” said chief executive Richard Price, who took over after the death of James Tyree in March.

The risk management work, in which firms buy and sell currencies on behalf of clients in off-exchange transactions around the world, is one of Mesirow’s fastest-growing businesses.

When senior managing director Gary Klopfenstein joined Mesirow in 2004, bringing his Chicago-based currency business with him, the unit had about $1.5 billion in assets under management. Now it accounts for half the firm’s total $58 billion in alternative assets under management.

That ranks Mesirow among the top five U.S. players and the top 10 worldwide.

But access to private-currency markets is a stretch for a company that houses 85% of its 1,171 employees in the Chicago area. It’s only other office is in London, with a second planned to open in Hong Kong. Currency management also pits Mesirow against much larger rivals such as Bank of New York Mellon Corp. and State Street Corp., whose unit manages $100 billion in assets.

Collin Crownover, head of currency management for State Street’s asset management unit, said that his financial services company vies against Mesirow regularly.

“Large managers in this space have been getting larger, whereas some of the smaller players have been getting squeezed,” he said.

About 90% of Mesirow’s currency assets originate outside the United States, from large pension funds, foundations, insurance companies and sovereign-wealth funds, Mr. Klopfenstein said, though he declined to identify any of them.

“More people are concerned about risk broadly and currency is one of those risks,” he said. “People are paying more attention to that today and it plays right into our business.”

HOW IT STARTED

Mesirow hooked up with Abu Dhabi in a roundabout way.

In 2009, Richard Stein, a Mesirow real estate consultant, noticed that The John Buck Co., a real estate developer, had joined with Abu Dhabi’s economic-development arm, Mubadala Development Co., to build mixed-use projects in the emirate. In addition to John Buck, Mubadala owns stakes in The Carlyle Group and General Electric Co., among others.

Mr. Klopfenstein was assigned to see what kind of deal he could strike. To show Mesirow’s interest, he even moved his wife and teenage son to the United Arab Emirates capital for several months last year.

After 18 months of talks, including some 50 conference calls and 20 round trips, the joint venture emerged in February, though final government approval is still pending. Mesirow invested at least $6.5 million, the minimum required by the United Arab Emirates, to take a 49% stake, while Mubadala has the majority.

Neither Mesirow nor Mubadala will say who else competed for the contract. But Mubadala executive director Laurent Depolla said that Mesirow’s practices stood out because of its privately held status, conservative management and limited presence in the region.

Although the venture will start off selling currency and commodity risk management services in the Middle East, the partners foresee stretching into Southeast Asia and perhaps to other services.

“We think we have enough growth ahead of us to keep growing for the next five to 10 years,” Mr. Depolla said.

Despite that rosy forecast, John Buck’s joint venture with Abu Dhabi didn’t last. Although Mubadala owns a 25% stake in John Buck, it took full control of the partnership in March after just two years.

Mr. Depolla said that Mubadala’s ventures typically last longer, but a John Buck spokeswoman said that its project simply finished.

Lynne Marek is a reporter at sister publication Crain’s Chicago Business.

Related Topics: Risk Management