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Minority and Women-Owned Private Equity Firms Out-Perform Overall PE Industry

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Created on October 3, 2012

I attended the 42nd Annual Meeting of the National Association of Investment Companies (NAIC) and came away with extraordinary news and a more optimistic outlook on the growth and expansion of the minority business community.  Today, NAIC released a quantitatively focused report that underscores the strong performance of minority and women-owned private equity firms.  These firms create new jobs and expand the U.S. economy by providing much needed capital to the nation’s minority- and women-owned businesses. 

The report, referred to by its short name, Recognizing the Results, is formally titled The Financial Returns of NAIC Firms: Minority and Diverse Private Equity Managers and Funds Focused on the U.S. Emerging Domestic Markets.  Compiled by the highly respected accounting firm KPMG, Recognizing the Results demonstrates that NAIC members—27 minority and diverse private equity firms focused on the U.S. emerging domestic markets – have outperformed the overall private equity industry for the past 13 years.  These results capture a representative sample of the larger sector of diverse and minority private equity firms. 

NAIC Firms achieved a capital weighted net rate of return of 27.5% (for the period 1998 – 2011), well above that of all U.S. private equity firms, which came in at 6.5% for the same period.  I encourage you to read the full report, which can be accessed here.  The report identifies success factors that may have lead NAIC Firms to these results, as well as theories about why they have been overlooked by many of the largest public and private institutional investors.  According to the authors, the fact that NAIC firms collectively managed only 0.24% of total private equity assets at the end of 2011 “is a sobering reality check.”  Further, “These findings warrant immediate attention and action by investment policymakers, public employees, unions, legislators, the media and most of all, fund trustees with fiduciary responsibility to their investors.”

"While the minority population in the United States is nearing 50% of the total U.S. population, minorities manage only 0.24% percent of assets while delivering significant performance.”

David Perez, Chair, NAIC Board of Directors

When President Obama stated that, “everyone has to do their part” to achieve economic recovery, he was referring to citizens, corporations, and government.  NAIC and its member firms are doing their part, and then some, with $10 billion in assets under management, a 40% increase in membership, and performance that far exceeds that of all U.S. private equity firms.  NAIC firms are investing in entrepreneurs, businesses, and communities of color, further strengthening the economy, along with minority-owned businesses, which are growing at a much faster rate than nonminority-owned firms.

The Federal Government is doing its part through agencies like MBDA, that work to assist minority-owned businesses by providing access to capital, contracts, and domestic and global markets.  A quarter of one percent is not a fair share of the private equity market and this must change if we are to build an economy that lasts.  As I stated in my last blog, if minority-owned businesses were on par with their nonminority counterparts, it would result in an additional $2.4 trillion in economic output and 12 million new jobs. 

The results of this landmark study, once again demonstrate the unrealized potential and positive impact of the minority business community on the U.S. economy.  Public pension plans must put more public capital behind NAIC Firms to achieve solid investment returns for their shareholders; and corporations must seek and engage minority-owned businesses to speed the creation of jobs in the U.S. 

The NAIC, headquartered in West Palm Beach, Florida, was founded in 1970 as an advocacy organization that supports the growth of minority-owned and woman owned private equity, that invest in the emerging domestic markets (Hispanic, African American, and Asian). 

The Milken Institute defines Emerging Domestic Markets as, “People, places or enterprises with growth potential that face capital constraints due to systematic undervaluation as a result of imperfect market information.”

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