Merchant Banking vs. Investment Banking

Client Interests Must Come First
The emergence of Garcia Trujillo marks the first U.S. investment bank focused on global Hispanic business. We enable our clients’ success by delivering value in the context of a long-term, client-centric, trusted advisor relationship. We reject the short-term focused investment banking model prevalent today.

Our Inspiration
Instead, we draw inspiration from the venerable merchant bankers of the pre-World War II era who possessed not only a quantitative command of the dynamics of their clients’ businesses, but also highly qualitative appreciation of their clients’ challenges and opportunities. Co-investment in clients’ businesses was commonplace. Trust was essential. A long-term perspective prevailed as both advisors — and clients’ economic interests, and often their social interests, were closely aligned. The merchant banks were almost always private partnerships with no incentive to create a quick hit to publicly reported earnings to boost the stock price in the short term at the expense of long-term client relationships.

Firms that retained the trusted advisor model include Lazard Freres & Co. (now Lazard Ltd.) and the group of Silicon Valley investment banks once known as the “Four Horsemen” — Robertson Stephens, Hambrecht & Quist, Alex Brown and Montgomery Securities. Each of these banks flourished because they created value for clients through their senior bankers’ deep relationships with their clients’ executive management. The senior bankers of these firms became and remained their clients’ most trusted advisors. Being intimately aware of the day-to-day challenges senior management wrestled with positioned each of these firms to develop creative, value-added projects and transactions for their clients that more distant, transaction-focused investment banks could not match.

US investment banking’s broken model
We believe that employee managers of publicly-traded bank conglomerates inherently have different incentives and behave differently than the partners of private advisory firms. With the bulk of their compensation coming in the form of annual bonuses — or, in the case of senior executives, stock options — many investment bankers’ incentives are skewed to near-term fee generation rather than long-term success of their clients. The recent financial crisis has made clear that many bankers’ interests are not aligned even with their own employer.

As the walls that once separated trading activities and advisory services became illusory, a typical investment bank’s value proposition to a potential client became less about trusted, informed advice and more about what sort of packaged services could be directly offered or tacitly implied, including attractively priced bridge financing, off-balance sheet financial gymnastics or favorable research reports that may support a client’s stock price. Bankers in such a system are not advisors, they are salespeople. It can be argued that a race to the bottom has ensued as bankers with an eye on the current calendar year’s bonus pool poach each other’s clients and deploy legions of “quants” to develop justifications for decisions that a client’s management or board has already made. The term “relationship” is still bandied about among investment bankers, but the word has lost much of its meaning in relation to the enduring, trusted and exclusive client advisory role that once was commonplace.

We take a different approach
Garcia Trujillo rejects what many investment banks have become and instead follows a traditional merchant banking approach focused on providing trusted advice and principal co-investment to long-term clients on a continuing basis. We align our interests with our clients’ so that we are their partners, actively working toward their long-term success, rather than agents seeking to maximize a short-term transaction fee.