This is part of an ongoing Q&A series with our originator partners.
Hello, there! Today, I’m joined by Guillermo Hernandez, the founder and CEO of Aspiria, our first international originator on the Cadence platform.
Founded in 2015, Aspiria is a data-driven provider of short term financing to a variety of small and medium-sized businesses in Mexico. They’ve succeeded, in part, by offering services to those typically underserved by traditional financial institutions.
Aspiria is also one of the growing number of originators on our platform that offers surveillance reports on their underlying portfolios. It’s the type of data and information investors on our platform won’t find anywhere else, and it’s why we love working with tech-enabled originators.
Brian Guerra: Thank you for taking some time to speak with us, Guillermo! You have a really interesting background, with undergraduate studies in Mexico, and your MBA in Manchester. How did that global perspective impact your career and, ultimately, Aspiria?
Guillermo: Working and studying abroad makes the world feel much smaller and more accessible. Now at Aspiria, we have business partners from the US, Europe, LATAM and soon, Asia. Finance is one of those disciplines which is global by nature.
BG: For those who haven’t heard of Aspiria, can you briefly explain what you do?
Sure. At Aspiria, we work at increasing access to capital to small and medium businesses (SMBs) in Mexico through our online platform. Not only do we make the whole lending process simple, automated and fast, but we also increase the access to capital to SMBs which have been shunned by the traditional banking sector by using our statistical credit scoring models.
BG: What type of impacts have you seen from COVID-19, and how is Aspiria thinking about these potential risks going forward?
Unexpected events are a recurring condition in the global economy, such as the ones we are currently facing.
Our company has been working tirelessly over the last years in originating predominantly financing secured by real estate, with a focus on prime clientele. We are also abiding by our strict credit policies, which have historically provided low default rates, updated our credit origination models to take into account these unexpected events, and we are upholding best practices in our underwriting systems.
We made an effort in financing non-cyclical or recession-free industries, as well as upgrading our internal procedures and implementing new fraud prevention tools.
Within other parts of the company such as the collections and legal team, we have installed a series of guidelines to have better communication and reaction speed with our clientele to prevent any unforeseen events with our portfolio.
BG: Guillermo, a question I sometimes hear around international originators is related to potential currency risk. Aspiria actively hedges currency risk exposure… can you explain how that works and what that ultimately means for investors?
Currency risk is an ongoing theme for any originator which obtains financing in non-domestic currency to provide loans in local currency. In our case, we use different hedging products (futures and options) to hedge our short- and long-term liabilities. We hedge with different large FX-focused financial institutions.
BG: Closely related to that, how do you think about the general macro risk involved in cross-country investing?
This is a great question. With yields in advance economies going into negative territory, emerging economies are becoming a strong alternative for retail and institutional investors to obtain a superior risk-adjusted yield on their investments.
To best deal with the uncertainties of investing internationally, one must do their homework in screening and vetting the originators, and rely on the originating partner, in this case Cadence, to have strong and robust vetting processes for the originators.
If you do it correctly, emerging market assets are a great way to obtain uncorrelated risk-adjusted returns.
BG: What do you believe is the biggest differentiator between you and some of your competitors in this space?
Most of our competitors were born as a traditional finance institutions and are slowly trying to digitize themselves to face a brave new world.
Since our inception, we focused on developing our own in-house tech and data expertise (which was 10x harder) to bring a world-class solution to a market segment in great need of the service.
BG: What is a misconception investors may have about your asset class?
I guess the first step would be defining our particular asset class. I believe we could be defined as “SMB financing secured by real estate in Mexico.”
Within our asset class, one of the misconceptions is that all originators are born and run equal. Like within any complex endeavor, there is a massive performance difference in terms of administration, operations, risk management, etc. between top and low performers.
BG: What is something most people don’t know about your industry and emerging markets?
There is a widespread of up-and-coming, talented and experienced CEOs and asset administrators in emerging markets. Many of them were either educated or gained experience in top-tier institutions in advance economies, to later return to their home countries.
Given that investors are always on the lookout for alpha, investing in the assets managed by these professional teams in emerging economies is a great way to obtain above-market yield, which has been proven difficult in many markets.
BG: What’s the most interesting part of your job?
Well, there are many talented and bright people within our team and our partners (such as Cadence). Getting to solve complex and important problems, such as increasing access to capital for SMBs with great people is bliss.
BG: Any interesting success stories around that you’re able to share?
More than a story, it’s a small stat. 75% of the clientele we serve are not serviceable by the traditional banking sector. Furthermore, given the rigorous underwriting procedures and credit models we use, these clients have proven to be great clients with very low risk. We have a myriad of stories of companies successfully growing because of our financing.
BG: What attracted you to Cadence?
Initially, it was the people. I found that the whole team is made up of smart and dedicated talent. Then I thought that the business model, which is democratizing securitization and creating the necessary tools to do this, was incredibly interesting and had enormous potential. I see great things ahead.
BG: If anyone is interested to learn more about Aspiria, how can our investors do that?
I am more than happy to connect and share more details on Aspiria. We are doing great things and always looking forward to meeting people that want to join in our work.
Thanks for your time, Guillermo!