Ex-Winnipegger banking on foreign-exchange firm

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This article was published 22/04/2015 (3283 days ago), so information in it may no longer be current.

FORMER Winnipegger Peter Gustavson says starting his second foreign-exchange service firm was a lot easier than the first.

For one thing, says the CEO of Encore FX, which opened seven offices across the country last month, including one on the seventh floor of the Richardson Building in Winnipeg, accessing the capital to grow the business was not a problem.

That’s because Gustavson still has plenty of the proceeds from the $370-million sale of Custom House Ltd. in 2009. (In 2006, Gustavson took on the Boston-based private equity firm, Great Hill Partners, as a minority partner.)

Gustavson and his team had built Custom House into one of North America’s largest non-bank foreign currency dealers.

When Western Union bought it, the business was already transforming into a more centralized and commoditized operation.

During the non-compete period, he started his own private-equity firm, Gustavson Capital, and joked about how he might join the PGA Tour.

But clearly he believed he still had something to offer in the business he knew the most about.

Among other things, he believed the business needed more sophisticated currency-hedging strategies that were not being widely offered in the market.

That’s how he built Custom House into a company doing $15-billion worth of transactions with offices in Canada, the U.S., the U.K., Italy, Australia, Singapore and New Zealand and more than 600 employees.

“The more we talked to people we started to think, ‘Why can’t we do this?’ ” he said, referring to himself and Encore FX president Paul Lennox.

“Some of the barriers before was that you needed a lot of money. That’s not a problem now because a big chunk of the proceeds (from the sale of Custom House) are sitting in our bank accounts. The last time we did not have any management expertise. We were making it up on the fly. Now we have decades of experience.”

Gustavson started Custom House in 1992, the dawn of the digital era. Over time, his former company had to invest more and more in hardware, software and data-management issues.

Now there is off-the-shelf software available and there is no longer the necessity to own and maintain your own data-storage servers.

“We used to have to spend $7 million or $8 million per year on IT and now you can do it for a fraction of that,” he said. “You don’t have the capital costs of building out server rooms with backup generators and special air-conditioning rooms and then replicating that on the other side of the world in case there is an earthquake in Victoria. Everything lives in the cloud now at a fraction of what we were spending.”

And while the Western Unions of the world — which shrunk the old 350-person Custom House head office in Victoria, B.C., down to about 50 — were centralizing the foreign currency exchange business, more and more Canadian companies are engaged in importing and exporting activity and ultimately in need of more thorough strategies.

“The recent drop in the Canadian dollar happened so suddenly a lot of companies were not properly hedged,” Gustavson said.

“All of a sudden their business model did not make economic sense anymore. They couldn’t buy widgets out of the U.S. and resell them or even buy them overseas because they are priced in U.S. dollars.”

It’s a mug’s game trying to time currency corrections, but with a plan in place, Gustavson said, a company can carve out a period of time to make adjustments that might allow them to manage the volatility much more painlessly.

Gustavson said he has been encouraged at the early uptake in his new business offering, confirming to some extent his belief customers will appreciate the enhanced level of customer service.

“We will differentiate ourselves by getting to know our clients’ business and where the risks are from a foreign-exchange perspective and where the opportunities are. Once you do that, you help them build out an FX strategy.”

Encore FX has a suite of services it can deploy into a foreign-exchange strategy, including the spot market or the current exchange rate; forward contracts when someone has an invoice for a later date but wants to lock in the current price now; or options that gives you the right to buy a currency at a certain price and time, but not an obligation.

martin.cash@freepress.mb.ca