Aug. 16–The owner of the first Hispanic investment-banking firm in San Antonio has branched into investment management services and stock exchange ownership.

It’s part of plans to build a diversified financial services company that will have a trading floor downtown.

Robert G. Rodriguez, the president and CEO of San Antonio-based Southwestern Capital Markets Inc., launched Vaquero Investment Management Co. Inc. two months ago.

Southwestern Capital Markets, a small San Antonio-based firm that coordinates the sale of government bond issues, was the city’s first Hispanic investment banking firm when it opened in 1983.

Rodriguez also strengthened Southwestern Capital Markets’ equity business by making it the second San Antonio company to buy a seat on the Chicago Stock Exchange, effective Aug. 21. Just seven Texas companies, including USAA, own seats on the 450-seat exchange. A seat sold for $28,000 on Wednesday.

Rodriguez has expanded his financial services to prepare for the opening of a planned $1 million trading floor on Houston Street. The floor’s opening has been delayed for two months, though, as negotiations continue in his efforts to purchase the Book Building.

Vaquero, named in honor of Rodriguez’s boyhood days spent roping horses, was the brainchild of Southwestern Capital Markets employee Stephen P. Arnold, a former manager of the $13 billion state Employee Retirement System pension fund. Rodriguez had hired Arnold to run Southwestern’s cash management division.

Vaquero is Rodriguez’s second attempt at selling equity management services. The first, in 1995, didn’t last a year due partly to immature management and a bustling stock market.

“If the market’s taking off, people don’t start looking at new managers,” Rodriguez said.

With the markets in a slump recently, Rodriguez felt the time was right to try again. He hired Le Keough, a technology and telecommunications analyst and Central Catholic High School graduate who was laid off when Dallas-based Hoak Breedlove & Wesneski closed its equity analysts division in 2001.

Rodriguez also hired former USAA Aggressive Growth Fund manager Eric M. Effron. Arnold shifted to the new company.

Each of the three co-managers uses a different analytical approach before they reach a consensus on which growth stocks to buy. They plan to sell their services to corporate and government pension funds and foundations in South Texas.

At present, the team manages Rodriguez’s and their own money. Between March 3 and Aug. 11, their small-cap growth portfolio beat the small-cap S&P 600 index by seven percentage points, while their large-cap growth portfolio beat the bigger S&P 500 by 8.9 percentage points.

The next three years’ performance will be crucial.

New money managers usually attract dollars by linking with an investment advisory firm or by getting into databases that track managers’ performances.

Traditionally large fund investors won’t look at a money manager unless it has at least three years actively managing money. Pension fund trustees will consider waiving the three-year rule if the money manager can show lower volatility or a special ability to minimize losses.

However, most pension fund managers don’t want their investments to be worth more than one-tenth of a firm’s assets or revenue, according to competitor Charles Robinson III of 51/2-year-old Robinson & Wilkes Limited investment management firm, based in San Antonio. Even the smallest funds won’t look at a manager until it has between $40 million and $70 million under management.

Money managers often must get through “gatekeepers” — consultants who are paid to recommend financial companies to trustees. Consultants sometimes demand higher-than-necessary trade fees that are called “soft dollars,” in exchange. Usually they couch them as payment for providing free office space, investment research, or computer equipment.

It’s a dangerous arrangement, money managers say.

“Accepting soft dollars can lead one to make a lot of decisions that aren’t in the best interest of clients,” said David Komet, managing partner for Komet Asset Management, which runs a hedge fund and declines “soft-dollar” propositions.

Vaquero Investment Management Co., which is marketing itself as a place that refuses soft dollar arrangements, hopes to break in by showing consistent performance and latching onto new arrangements that allow young firms to subadvise under larger firms, Rodriguez said.

Young firms typically must apply to be listed by a consultant or fund, fill out detailed questionnaires about company executives and investment management style, submit regular updates of performance, undergo off-site and onsite interviews, and then wait for a fund to go in search of their services.

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