Industry sources say just one tenth of 1 percent of $8.5 trillion in U.S. public pension fund (PPF) assets is managed by Hispanic-owned firms, and an even smaller percentage of this capital is being invested in Hispanic-owned companies.
Most private equity (PE) firms that invest assets from a PPF will tell you their first respon-sibility is to the retirees, and making sure the investment returns are top-notch. Now Hispanic-owned PE firms – with help from their political supporters – are aggressively making the case that they deserve more opportunity to deliver those returns. PE investment involves medium to long-term financing of potentially high-growth unquoted companies in "underfunded markets," in return for an equity stake. The objective is to grow the company's value and eventually sell it with an above average return on investment to account for the risk involved.
Although more pension fund monies are being allocated to Hispanic-owned PE firms with a Hispanic-market investment theme in their acquisition strategy, this does not imply that much-needed capital will finally reach Hispanic-owned companies. That is, PE firms have been investing in companies that focus on the Hispanic market regardless of ownership.
Investments in Hispanic-owned companies could provide the needed capital for growth. They could lead to more retail development, housing projects, and numerous other investments in Hispanic communities nationwide.
Observers describe this as the "last frontier" in the drive for Hispanic access to capital and econ-omic growth. But the challenge is formidable.
n The combination of conservative decision-making styles among PPF trustees and management, and Hispanic PE firms' perceived status as relative newcomers to the industry, have been real obstacles. According to the handful of Hispanic-owned PE firms who've had success raising money from PPFs, it comes down to two things: performance and track record.
n Additionally, in order for more PPF funds to go to Hispanic-owned enterprises and community development, the stipulations for these investments must change. As Hispanic Business research indicates, although more pension fund monies are being allocated to Hispanic-owned PE firms with a Hispanic market investment focus in their acquisition strategy, this does not imply that much needed capital will finally reach Hispanic-owned companies.
Even when Hispanic PE managers are involved, they're not always obligated to focus on Hispanic-owned firms exclusively or even predominantly.
Small Dents for PE Funds
PPF managers "look at what you did in the past and what you want to do in the future," says Guillermo Bron, president of Bastion Capital, a PE fund that has raised money from PPFs dating back to 1995. "If you've delivered the goods and have a good coherent story for the future, it's very simple."
Bastion Capital raised $125 million from pension funds in the mid-1990s to invest in firms that focused on the Hispanic market – though, crucially, not necessarily on Hispanic-owned companies. The lead investors in a group of 13 were the California Public Employees' Retirement System (CalPERS), which allocated $50 million, and the New York City PPFs, which allocated $25.5 million in 1994 and reported receiving $49.4 million back from Bastion in March 2005.
Mr. Bron has said that these investments generated a 25 percent annual rate of return, or an 18.4 percent net internal rate of return on the investments as reported by CalPERS. The investments included companies serving the Hispanic market, such as Telemundo and Impremedia's Spanish-language newspapers El Diario/La Prensa, La Opinion, and La Raza. Of these, La Opinion and La Raza were Hispanic-owned, while El Diario/La Prensa and Telemundo were not, with the exception of the Bastion equity share.
