- When Allstate needed to raise funds, it turned to a black-owned investment bank, Loop Capital.
- As companies tighten DEI requirements, banks owned by diverse interests are expected to win more business.
When Allstate needed cash in the capital markets to buy personal insurer National General in the summer of 2020, its chief financial officer Mario Rizzo approached CEO Thomas Wilson to name a diversified-owned company to lead the effort.
Wilson encouraged Rizzo to go further. Why not name a group of investment firms, owned by various communities, rather than just one? Their discussion focused on corporate efforts to address inequality at a time when consumers and shareholders were beginning to hold corporate citizens accountable for their inclusiveness and social justice efforts, or lack thereof.
Enter James Reynolds, founder and CEO of Loop Capital, a black-owned investment bank headquartered in Chicago. Reynolds sat down with Wilson of Allstate to see if a group of banks owned by various people could raise money for Allstate — without help from Wall Street stalwarts.
What happened was a bond deal that looked like every other deal Rizzo had seen, he told Insider. Loop, alongside a minority-owned business executive, not only raised the billion dollars Allstate needed in the bond market, but received such demand that the deal grew to $1.2 billion. of dollars.
While most deals are led by giant global banks, Allstate’s deal represented a new kind of fundraising, led only by minority-owned investment banks. These debt instruments, known as diversity, equity and inclusion bonds, or simply DEI bonds, are one of the last ways that
Although in the past minority-owned companies have been a low pick, especially in the context of the broader bond market, the trend line is changing. Last year, minority-owned businesses led deals for machinery company John Deere and telecommunications company Verizon, among others. Verizon, in fact, now has strict measures to ensure that its capital markets activities include important and better paid roles for various companies.
It’s not just companies that notice this. Institutions like Deutsche Bank also commissioned Loop, and a host of other minority-owned banks, to lead a $750 million deal for the German lender last April.
In fact, multi-capital firms, which make up just 21% of investment grade investment bankers, participated in just over 50% of IG bond transactions in 2021, according to data from Refinitiv which were compiled at the request of Insider. That’s well ahead of the 22.5% rate in 2010, and up from 45% in 2020.
But although there has been an improvement in the participation of various companies, very few transactions are conducted by them. This is why the example of Allstate represents an important step.
For Reynolds, deals like Allstate’s were business as usual. He cut his teeth at Chicago-based Paine Webber and Merrill Lynch in the 1980s and 1990s before becoming an expert in municipal bond sales and trading. He formed Loop in 1997. His peers watched in awe as the company grew from a team of six to over 200 today.
DEI policies are changing the way companies raise capital
Companies like Loop operate in the world of capital markets, a pocket of Wall Street that helps institutions like banks and blue-chip corporations raise funds for their operations through bond or stock sales. . This is an industry that is not known for its inclusiveness and is dominated by investment banks.
Sidney Dillard wants to change the way companies think about their capital raising efforts. Dillard is the head of corporate and investment banking at Loop, and she wants companies with more diverse interests to conduct transactions for America’s biggest companies in capital markets.
“The ultimate goal is not where things are separated,” Dillard told Insider. “It’s in partnership, so you’re at the same table. It’s not like there’s a ‘black table’ and a ‘majority table’ or a ‘veterans table’.”
When companies wish to raise funds in the capital markets, they usually appoint a large central global bank to lead a transaction. The lead bank, which collects the most fees, will then appoint other banks at different levels to help spread the sale of bonds or shares to the investment community. Black-owned businesses like Loop typically get lower-level roles.
Companies that borrow in the capital markets often reward big banks for their activity, as these institutions have lent these companies billions in loans over the years. Small companies like Loop lack the balance sheet to provide credit to larger US corporations.
But companies like Loop, as well as Siebert Williams Shank and Blaylock Van, are poised to win more business in the capital markets as companies focus on DEI-related policies.
“When we made our deal last year, we were hoping it wouldn’t be done,” said Jeanmarie Genirs,
Learn to direct transactions
Although this seems to be another example of a global company pretending to be DEI-friendly, what Deutsche Bank and other companies have done is allow staff from various companies – from the chief banker to originating new business to the analyst compiling the documents for a deal — to experience the rigors of conducting a transaction.
The lead bank must do the lion’s share of the work from finding orders from investors, placing them in an order book, and discussing with the borrower whether or not to initiate a transaction. These processes are invaluable when it comes to winning future business and developing bankers in minority-owned businesses.
“You can go through all the beats associated with the process,” Dillard said. “The more you do it, the better off you are.”
The stock market is also another lucrative slice of the Wall Street pie where black-owned businesses can participate in initial public offerings or private consultancy business. Unlike debt, stock markets are less dependent on lending capabilities. Companies often favor high-quality advice over a thriving balance sheet, which can help smaller stores that lack the cash reserves of big Wall Street banks.
“There is an opportunity based on the investments we’ve made in our equity research platform that can help companies looking to go public or place stocks,” Dillard said. “And we can draw investors’ attention to their name.”
Genirs added that Deutsche Bank had discussed working with various firms on other equity financial products, as well as future underwriting efforts in other currencies.
“It’s a work in progress, but these are conversations that didn’t really happen a few years ago. They’ve grown over the last 12 months,” she said. “We haven’t reached the limit, that’s for sure, but there are certainly advantages to continuing the collaboration.”