For more than two decades, the Hispanic Business 500 has provided a national benchmark of the surging development of U.S. Hispanic-owned companies. Using sustained revenue growth as a standard and a globally accepted foundational measure of corporate performance, the ranking's valuation has swiftly risen this year to more than $30 billion.
But in recent years, a type of firm whose business model defies standard measure has begun to exert an increasingly significant force in the market's development, and this year Hispanic Business debuts a special listing of U.S. Hispanic-owned private equity funds.
While just a handful of major players exist in this niche, over the past decade they have drawn hundreds of millions of dollars from investors eager to diversify their assets and tap the booming U.S. Hispanic economy. Today they wield more than a half-billion dollars in capital under management and are fostering the growth of nearly two dozen companies across the country whose combined sales total more than $3 billion.
"There are tremendous opportunities in the market right now," says Victor Maruri, co-founder and principal in the Chicago-based private equity firm Hispania Capital Partners, which manages $125 million dollars and targets Hispanic-owned middle-market companies with potential annual revenue growth of 15 percent to 25 percent. "There is significant investment in the market. It's wide open."
Operating with investment horizons that average three to five years – although some may be as long as 10 years – private equity funds target aggressive annual internal rates of return (IRR) of 20 percent or more. But with investors typically looking for capital gains only upon realization of a sale, private equity funds rarely offer running yields, making inaccurate comparisons with more traditional revenue rankings.
Fund investments and divestures can create frequent revenue peaks and valleys from year to year. They also may hold varying stakes – anywhere from 20 percent to 100 percent – in each of the six to 10 companies that make up an average fund's active portfolio, so tallying those revenues also does not provide a clear portrait.
Capital under management – a fund's available capital to invest – provides a more accurate picture of the market and a fund's investment health, according to the National Venture Capital Association (NVCA). And so far this year, the overall asset class is on a strong track: According to both Thomson Venture Economics and the NVCA, 48 venture funds nationwide raised $5.3 billion in the first quarter, while 38 buyout and mezzanine funds attracted $15.8 billion. The NVCA also estimates that more than 50 percent of investments in today's venture capital/private equity market are from institutional public and private pension funds.
"This year will likely out-raise 2004 in total dollars because of where we are in the business cycle," says Mark Heesen, NVCA president. "Clearly, venture capital firms with a strong track record are going to be the most successful in this environment, as will new firms founded by successful veterans of those established firms. Money will also go to firms with demonstrated competencies in niche sectors."
The increasingly healthy venture and private equity market provides growing opportunities for middle-market Hispanic companies looking for funding. Experts have said that while minority-owned businesses remain largely underfunded by venture capitalists – only 1.5 percent of private equity capital goes to minority companies, according to the National Association of Investors Corp. – Hispanic-owned companies now have a greater opportunity to attract investors, though competition is increasing.
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