SYGNUS, the Jamaica-based alternative investments company, has its eyes set on being a major player in the Spanish-speaking Caribbean using the recently acquired Puerto Rico-based Acrecent Financial Corporation to pursue the aim.

Sygnus Credit Investments completed the acquisition of 93.66 per cent Acrecent Financial on February 28 through its SCI Puerto Rico subsidiary for US$21 million. The founding principals of Acrecent retain the other 6.34 per cent. The stake was acquired from Darby Overseas Limited, a Franklin Templeton subsidiary with Sygnus beating out interests from both Puerto Rico and the mainland United States. Franklin Templeton is a US-based global investment firm with US$1.5 trillion in assets.

With the acquisition settled, the company is now looking to execute its growth strategy in the region.

“This acquisition provides Sygnus Credit Investments the specific opportunity to enter the Puerto Rico market, which is a US$100 billion economy. That means that the average investment that Sygnus Credit Investments is going to make through Acrecent is going to be larger than the average investment that you’d normally do in the English-speaking Caribbean, because now you are playing in a bigger economy,” Beresford Grey, CEO of the Sygnus Group told the Jamaica Observer in an exclusive interview earlier this week.

For context, Jamaica’s gross domestic product (GDP) is roughly US$16 billion. “So for the average medium-size firm in Jamaica, we would invest about US$2.5 million. In Puerto Rico, the average medium-size firm will give us the capacity to do a transaction for US$5 million,” Grey added.

“Puerto Rico has the potential of becoming an even more relevant player in filling an enormous alternative investments gap which includes private credit opportunities that we estimate at over US$10 billion. That is the sector that banks aren’t covering,” said James Connor, co-founder and CEO of Acrecent Financial, as he signalled the intention to go after new business, especially with the Puerto Rican economy emerging from bankruptcy earlier this month.

Grey said Sygnus, through its Acrecent subsidiary, wants to target about US$500 million to US$700 million of the estimated opportunities for private credit over the next five years. Given that Acrecent operates in Puerto Rico, which is part of the United States, Grey said those funds will be raised on the mainland and the territory, but will be invested in both the English- and Spanish-speaking Caribbean.

He added that while in Jamaica, Sygnus raises between US$20 million and US$30 million, it will be able to raise over US$100 million in the US, given its access to that market now through its subsidiary.

The Dominican Republic and Panama have been named as early targets for expansion with the funds to be raised. Acrecent already has footprints in Dominican Republic. It’s website also said it has clients in Mexico. There are no plans to expand into the mainland United States.

Puerto Rico is also the target of more than US$50 billion worth of federal funds for several projects, some of which are earmarked for infrastructure that was damaged by hurricane Maria in 2017. Acrecent and Sygnus say they will target the supply chain of big manufacturers, service companies, and the engineering firms that will be involved in the various projects.

“We can play a critical role in unleashing those funds by lending to small and medium-size businesses that will address those products that are being funded,” Connor stated. Apart from infrastructure, some of the funds will go towards building housing and the energy sector, particularly renewable energy, specifically solar to help reduce the cost of energy in the Puerto Rico, which at US$0.21 to US$0.24 is among the highest in the United States.

“Another big element is that, through the contraction [Puerto Rico’s GDP has been declining for each year from since 2015], Puerto Rican businesses are incredibly deleveraged because banks stopped lending for a long, long time. So today, corporate debt as a per cent of GDP is half of what it used to be 15 years ago. So we’re putting money to work…in the business cycle where there’s far less risk,” the Acrecent CEO added.

Apart from getting greater scalability in raising funds, Sygnus’ acquisition of Acrecent allows for diversification into industries which are non-existent in the English-speaking Caribbean, such as the pharmaceutical industry, the bio-pharma industry, and health-care industry. Puerto Rico has several large entities operating in those industries.

“Puerto Rico has the number one life sciences sector in manufacturing in the entire US, larger than California, larger than Indiana,” Connor told the Caribbean Business Report. Puerto Rico, a US territory, has an economy which is larger than 13 US states.

Acrecent which was founded in 2003, is a source of alternative financing for small and medium-sized businesses (SMEs) targeting mainly companies seeking an alternative to bank financing chiefly in the transportation, health care, machinery & equipment and energy sectors in Puerto Rico, according to its website.

Acrecent and Sygnus together have more than US$300 million in private credit invested in over 200 companies.

“We put money to work at 24 months, 36 months, 60 months, early short cycles,” Connor said. The average life of investments is 2.5 years the Caribbean Business Report was told.

“We have been in the impact investment space ever since we started the company, 18 plus years ago. We fit really nicely, particularly into Sygnus Credit Investment strategy because we’re a specialist in small and medium size business lending,” said Connor.

Grey said there are plans to change the Acrecent name “slowly, because it is an established brand in Puerto Rico”. For now he said the companies are working to integrate over the next six months.

He said the plan after that, is to set up various Sygnus Group companies in Puerto Rico, in the same way they are set up in Jamaica.