A weak global economy and a flood of money from safety-seeking investors has dragged bond borrowing costs dramatically lower over the past year and a half. Neither trend shows signs of reversing direction and long-term yields could have even further to fall before the trend to lower rates that began more than three decades ago finally hits bottom.Scott Rothstein/Getty Images/iStockphoto
Many Canadian investors are chasing yield, and one American company is crossing the border to try to satisfy some of that demand.
Incapital LLC, a firm focused on fixed-income security products, has announced it is opening an office in Toronto. And while it may only have about 160 total employees spread between its offices in Chicago and Boca Raton, Florida, over the last year the financial instruments that it has underwritten and distributed total more than $70-billion.
In the U.S., the company has grown to capture 90 per cent of the market share for retail corporate notes. It has also expanded to be one of the largest underwriters of U.S. agency paper and structured notes.
Heading up the new Canadian office is Incapital's current co-head of strategic development, Jason Wilson. He actually started his career in Toronto at Stikeman Elliott, and said he knows the Street well from working as an executive director at CIBC World Markets some years ago. Incapital already works with clients like RBC and BMO in the U.S., helping them distribute paper, which Mr. Wilson described as "vanilla corporate debt and structured products." Right now, most of the company's Canadian interactions are through clients with a U.S. shelf, who require U.S. funding.
Incapital made what Mr. Wilson called its "big splash" in the U.S. by creating a way to distribute corporate notes to retail investors, moving beyond the institutional investors who would traditionally be sold a debt offering.
The company's founder created a platform where issuers could carve out a chunk of their funding requirements and offer it only to retail investors through brokers and dealers in the U.S. "The electronic interface allows the treasurers at our issuers to go online and set terms for the deal, whatever spreads they need," said Mr. Wilson. The system auto-generates a prospectus for a company, which is approved by an issuer such as Toyota, Caterpillar or Goldman Sachs, and then filed with EDGAR. "Then we shoot it out to about 700 brokers and dealers across the U.S.," he said. Sales staff follow up later.
At Incapital Canada, the system will be very similar--the firm will build a syndicate and underwrite retail corporate notes to be distributed in the country. Mr. Wilson also notes that Incapital creates a secondary market on everything they underwrite for liquidity purposes. "We need that trading and risk management aspect in Canada, too," he said.
The company, which was recently cleared by IIROC, is working on hiring 10-12 new people in the next 6 months. The Toronto office will mostly be educators and a sales team.