A pioneer in the effort to achieve diversity in CalPERS pension fund investments was Robert Aguallo, Jr. Named assistant executive officer of CalPERS Investment Operations in 1995, he recently became general manager of the Los Angeles City Employees' Retirement System (LACERS), which has 4 percent of its assets in alternative investments as of June 30. Under his leadership, LACERS backed a $10 million invest-ment with Palladium Equity Partners, which pursues PE investments in companies owned by or serving the fast-growing Hispanic population.
Though at this point Hispanic Business has seen no announcements of Palladium pension fund investments in Hispanic-owned firms, we will monitor this closely over the coming two to three years.
CalSTRS, the largest teachers' retirement fund in the U. S., has $6.3 billion in its PE portfolio, more than $2.5 billion managed by 19 minority firms in its domestic stock portfolio, and $35 million in its alternative investment portfolio.
In New York
New York City Comptroller William Thompson named Deborah Gallegos as the city's chief investment manager in January 2004, responsible for overseeing about $85 billion in assets with five major pension funds. With her at the helm, the New York PPFs are embarking on an ambitious program to place $2 billion with emerging managers and firms. In December 2004, for example, the New York State Common Retirement Fund reported committing $25 million to Palladium Equity Partners.
Previously, as deputy state investment officer for the New Mexico State Investment Council, Ms. Gallegos had participated in development of a plan that led to 10 percent of that state's investable assets going to New Mexico firms. This was in line with Governor Bill Richardson's plan to "invest New Mexico money in New Mexico business," which began with the state's multi-year, $1.6 billion transportation infrastructure improvement partnership. The result was scores of city, county, and business group-funded projects involving more than 100 contracts with local construction companies across this 44 percent-Hispanic state.
"It really is dependent on leadership," Ms. Gallegos says. "In New Mexico, we had the governor. Here [in New York] we have the comptroller and a lot of trustees who are supportive."
A Case Example
Luis Nogales, managing partner of Nogales Investors Fund LLC, received a $20 million investment from CalPERS eight years ago. Nogales Investors is a Los Angeles-based PE firm. After achieving a 29 percent yearly rate of return in a previous investment, Mr. Nogales had the track record for CalPERS to invest another $25 million two years ago. Now he's seeking his third round of investments, and the amount he is seeking is more than double the previous commitment.
But Nogales has made relatively few inroads into Hispanic company investments, notably including a five-year investment – rather than an equity position – in John Zamora's young Los Angeles-based company, Graphic Press, which with $56 million in revenues ranked 102 on the 2005 Hispanic Business 500®. The goal of the $9 million Nogales investment in Graphic Press is to recapitalize the company's balance sheet and provide working capital to position the company for future growth.
SBICs: A Different Route
Another approach to provision of public investment capital for Hispanic-owned enterprises is the Small Business Investment Company, or SBIC. Essentially, SBICs are privately owned and managed investment firms, chartered by the Small Business Administration (SBA), that provide government-sponsored debt and equity capital and guidance to new, small independent businesses.
Hispania Capital Partners is an example of the result. It is a $130 million PE fund launched in 2003 by the U.S. Hispanic Chamber of Commerce. The USHCC raised capital from institutional and individual investors, with matching funds from the SBA, to create a licensed SBIC.
Hispania is the first national PE fund focused solely on Hispanic-owned businesses. Its mission is to provide Hispanic entrepreneurs with annual revenues of between $10 million and $100 million with capital needed for growth and expansion. Its PE investments draw on a combination of SBIC funds, corporate funds, and assets from three Illinois public pension funds.
Hispania's investments in Hispanic-owned companies include Samy Cos., a Miami-based hair-care products company co-founded by Hispanic celebrity stylist Samy Suarez and ranking number 320 on the 2005 Hispanic Business 500 list; CSA Group in Miami Lakes, Florida, the largest Hispanic-owned engineering services firm in the United States and number 112 on the Hispanic Business 500; and Rossi Publications, publisher of Chicago's La Raza newspaper.
Other Sources of PE Funds
Of course, some PE funds are investing assets other than public pension capital. One Hispanic-owned example is Pinto America Growth Fund LP, a PE fund formed by the multicultural Pinto Partners group, which is affiliated with Cockrell Interests Inc. The fund, which focuses on companies serving the needs of the U.S. Hispanic population, in line with Cockrell's philanthropic interests, recently teamed with a group of other investors to invest $18 million in the continued growth of San Antonio-based Meximerica Media – the Hispanic-owned publisher of a chain of local daily Spanish-language papers in Texas.
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