Gil Mandelzis, Founder and CEO of Capitolis, talks to Global Finance about capital markets and fostering innovation.
Global Finance: Capitolis’ ‘audacious' goal is to transform capital markets. What are the biggest pain points facing capital markets today and what sort of innovation is required to address those pain points?
Gil Mandelzis: Capital markets, as currently designed, with the necessary measures implemented by regulators–is running out of capacity. Large financial institutions that deliver critical financial services are required to hold more capital, and they must reassess the total cost of the services they provide. This can often constrain them from doing more of what they do best–delivering critical solutions to their customers, which unnecessarily impedes and diminishes overall market efficiency and economic growth. Without an alternative, the capital and liquidity everyone needs will shrink significantly. We have built a B2B marketplace and compression service for capital that solve these fundamental market inefficiencies by connecting banks, which have a unique ability to originate, service and deliver critical financial services to their clients, with institutional capital providers that have investment capacity and are happy to partner with the banks. The inefficiency of capital markets demands a change, and it takes all participants working together to make it better. That’s why we’re here.
GF: How do you allocate internal resources and structure workflow to foster innovation?
Mandelzis: First and foremost, we listen and partner closely with our clients. We understand their pain points and then start to solve for them. As we progress, we share and shape our approach with them. Internally, much of the innovation emanates from our Capital Labs team, whose mandate is to problem solve for initial clients, in a scalable way that could be used for further use cases. Those use cases are enhanced by our engineering and development teams who create proprietary technology to facilitate and improve our solution. We pride ourselves in being a team that delivers truly exceptional results in close collaboration with our clients.
GF: What hurdles has Capitolis had to overcome on the path to innovation?
Mandelzis: Capital markets is a very complex industry. It takes a lot of understanding and collaboration to build successful finance structures. It took us three years to launch our first structure–our teams bring the financial knowledge to understand the opportunity, and the Silicon Valley expertise to build the solutions and the right business model.
As with all innovation, it’s never a straight line, but rather a winding journey of ups and downs. When you are creating something new, you need resilience. We had ideas that seemed promising and solutions ready to go live, only to have to stop, step back, and restart. But that’s the process and ultimately, why we’ve been successful.
GF: 'Move fast and break things' is a long-held tech industry mantra. Given that as a backdrop, how do you think about innovation in a heavily regulated, increasingly constrained global industry?
Mandelzis: We move fast, but we are not able to break things–we are part of a wildly important industry that when broken, can have devastating effects on our economy as we saw from the 2008 financial crisis. We don’t have a margin for error or carelessness. We believe in our mission to have the capital markets provide a better outcome for all and work within the spirit of regulations, to bring needed transparency and safety to the industry. When we are contemplating a solution, we take onboard regulatory perspectives. Regulators are an integral stakeholder in our success. Ultimately our innovation comes from blending an intimate understanding of financial services capacity constraints, innate knowledge of investment realities, and a one-of-a-kind devotion to technology to make it happen.
GF: Capitolis acquired optimization and compression provider LMRKTS in 2021. What role does M&A play in your innovation strategy? Do you lean toward buy, build, or a healthy mix?
Mandelzis: LMRKTS had a differentiated value proposition, offering multilateral compression capabilities that would strengthen our overall offering. With this integration, Capitolis is the most comprehensive trade compression and optimization provider in the market with coverage of all major banks in the top tier. We acquired an incredible network, the algorithms of the business, and retained key people. That’s the model for any future M&A review we will practice.
GF: How is Capitolis working to help capital markets respond to global events like the war in Ukraine or perhaps other unpredictable events?
Mandelzis: In volatility, uncertainty, and changing market dynamics in general, our customers come to us for our agile, and rapid responses; the breadth of our offerings; the depth of our network (the broader our network the more risk can be reduced, and balance sheets optimized); and we are flexible and trusted.
An example of this: Following Russia’s aggression in Ukraine, Capitolis was approached by the world’s leading financial institutions, many of which have large historical exposures denominated in Russian rubles, seeking a targeted solution to manage and reduce exposure. Capitolis worked quickly to bring together a large network of global banks and, through Capitolis’ trade compression platform, supported a dozen banking entities to successfully reduce their exposure to the Russian ruble and mitigate the impact of settlement failures due to sanctions or other market happenings. These banks needed the right technology, and a trusted third party that had established its capabilities and credibility with them to execute this. Through its trade compression platform, Capitolis was able to reduce these large exposures and promote financial soundness and stability for the benefit of the whole capital markets system.