C.
Automotive Finance Mark-up
(source: Troubleshooter.com)
In a
case study done on the automotive markup practices of Primus
Financial Services Inc., it was discovered that African Americans
and Hispanic Americans pay more for auto lending, even when their
credit profile is similar to that of White Americans.
a.
61.8% of African Americans were charged markups compared to 57.9% of
Hispanics and 41.1% of White Americans.
b.
African Americans borrowers on average were charged 1.8 times the
amount of White Americans: $862 versus $475 a difference of $387
while Hispanics were charged $715.
c.
African Americans made up 16.3% of the borrower pool, although 31%
of them paid more than $3,000 in subjective mark-ups.
d.
Notably, African Americans mark-ups have declined over the past four
years due to increased consumer awareness (Rainbow/PUSH economic
literacy) and Class Action Lawsuits:
·
2001 average markup - $930
·
2002 average markup -$872
·
2003 average markup -$699
·
2004 average markup -$498
e.
We applaud GMAC and Ford Motor Credit Corp for imposing a 2.5% cap
on dealer markups.
D. Pension Defrauding
(sources: seniorjournal.com, Bureau
of National Affairs, Balitimore.bizjournal.com)
Recently, there have been several cases and allegations of
Investment Managers defrauding individuals out of their pensions.
In most cases the victims are unsophisticated, illiterate or merely
too trusting. The predators in most cases are either unscrupulous
or novice Investment Brokers.
a.
In one case, a Federal Grand Jury in Chicago returned an indictment
against two union leaders for engaging in a pattern of criminal
activity that included fraud, soliciting kickbacks, money laundering
and illegal currency transactions.
b.
In another case, a CEO of an Investment firm was
indicted for allegedly defrauding the system, raiding corporate
funds for private use and manipulating the stock market.
c.
In a pending case, over 300 retirees were victimized by excessive,
unauthorized and risky trading, which violated the state laws (in
that jurisdiction) for the management of pension funds.
II.
Merger & Acquisitions
A.
Worldwide, Mergers and Acquisition activity in 2004 rose 42% to $1.9
trillion, up from $1.34 trillion in announced activity recorded for
2003.
B.
December 2004 was the busiest month in history with 283.7 billion in
mergers and acquisitions worldwide. (Source: New York Times, January 2,
2005)
C.
Domestically, 2004 saw a 50% increase in announced transactions from
2003 to $875 billion. (Source:
Bloomberg, January 5, 2005)
D.
The level of participation here among minority managers remains
negligible (when compared to the total domestic volume of deals)
despite the best efforts of one very bright spot on the Bloomberg’s
M&A League Table – #52 Loop Capital.
E.
In 2004, Loop executed the $1.82 billion transaction to privatize
the Chicago Skyway, considered the largest privatization ever in a
US city.
F.
Out of over 300 advisers listed on Bloomberg’s M&A League Tables,
Loop Capital was the only African American firm. Its $1.82 billion
transaction represented significantly less than 1% of the total
amount of announced transactions in 2004.
III. The Benefits of Doing Business with Minority Investment
Managers
In
keeping with the notion that people tend to conduct business with
people that they know, like, and trust, minority firms naturally do
business with other minority firms. A good example here is when
minority money mangers are hired they, in turn, hire minority
lawyers, minority accounting firms and conduct their trades through
minority-owed brokerage firms that might not get the business of the
larger, majority owned firms.
A.
Minority participation on Wall Street means business growth,
professional development and increased philanthropy.
B.
Other examples of the benefits for doing business with minority
managers include:
§
Opportunities for those companies to invest in
minority-owned companies with IPO potential (IPOs create
significant wealth for invested parties and beyond)
§
The opportunity for minority-owned private equity
firms to invest in minority businesses (making capital more
accessible to those business owners who find it difficult to gain
private equity investment from majority-owned firms)
§
Increasing the probability that minority business
owners can secure the capital they need grow their businesses,
resulting in increased job creation and the initiation and
maintenance of urban renewal.
In
short, if given equal access to the financial community our firms
will help each other succeed.
C.
By increasing the opportunity to share the growth of Wall Street, we
are able to support our own communities through philanthropy.
Medical-device mogul Alfred Mann gave $200
million for medical research institutes in Israel and at Johns
Hopkins, and intends to leave his entire $1.4 billion estate to
charity. Bill
and Melinda Gates, the world's largest international donors, who
made history in 2004 by giving their estimated $3 billion Microsoft
Corp. dividend to their foundation. It's one of the largest
donations in history by a living donor.
(Source: Businessweek,
November 29, 2004)
·
Ariel Capital Management, LLC, the #1 Black-owned
Asset Management firm, takes civic responsibility seriously. Their
desire to be involved in their community led to the founding of the
Ariel Education Initiative. This non-profit endeavor is committed to
advancing educational opportunities in economically disadvantaged
areas through innovative programs which integrate academic
excellence, family involvement and community service.
D.
Also, Wall Street plays an active role in the support of political
candidates. For example, major securities firms hold seven of the
slots on the Top 10 list of contributors to President Bush. In
August of 2004, Morgan Stanley ranked #1 giving $527,030 in campaign
contribution and Merrill Lynch & Co. ranked second giving $495,604
(source: LA Times, October 21, 2004)
The money flowing from Merrill Lynch employees is part of a $12.14
million tidal wave of cash to the Bush campaign from the finance and
insurance sectors. (Source: Washington
Post, May 24, 2004) )The more deal flow minority managers gain, the more money
they can contribute to these activities.)
IV
Board Representation
In
1977, Congress enacted the Community Reinvestment Act (CRA), which
is intended to encourage depository institutions to help meet the
credit needs of the communities in which they operate, including
low-and-moderate-income neighborhoods. With nearly $7 trillion in
assets, mutual fund assets exceed those of bank demand deposits –
there is no legislation to encourage them to reinvest into the
communities they serve.
A.
We have long heard the cry for diverse corporate boards but one area
has been overlooked. We should be able to have a seat at the board
table of America’s mutual fund companies—companies that are managing
our own money.
B.
Nearly 91 million Americans own mutual funds-that is 1 out of every
3 Americans or nearly 50% of US households.
C.
Fidelity Investments of Boston is said the managed 10% of America’s
retirement has nearly $1 trillion in assets.
D.
Less than 1% of the mutual fund directors are from minority groups.
E.
Mutual funds are owned by their shareholders-not the companies that
manage them. Likewise, they are controlled by their boards of
directors.
F.
Minority mutual fund directors would be able to encourage corporate
diversity in hiring practices which would increase representation.
G.
Minority mutual fund directors would be able to encourage outreach
to minority investors which is largely an untapped market. Black
Americans are underinvested in the stock market which has been
proven to be the best performing investment since 1926. More
specifically, according to the 2004 Ariel/Schwab Black Investor
Survey, 68% of African Americans earning more than $50,000 in
household income own stock or stock mutual funds, (considerably up
from 2003(61%), it is still less than 2002’s all-time high of (74%))
compared to 81% of our white counterparts at the same income level.
Inevitably, this disparity leaves us with less total wealth, lower
401k plan balances and less financial security.
H.
Fortune 1,000 Companies (source:www.bsr.org)
Together, women and minorities contribute more than $1.5 trillion
annually to the U.S. economy, and studies estimate that women
make up to 70 percent of the consumer decisions in the United States
a.
Roughly 12,000 board seats among Fortune 1,000 companies
b.
Average turnover is 15%
c.
Average turnover rate create a need for 1,800 new directors/year
d.
60% of US Fortune 1,000 industrial and service corporations
have at least 1 ethnic minority
e.
39% have at least 1 African American
f.
12% have at least 1 Hispanic
g.
9% have at least 1 Asian
Although women and minorities continue to account for only a
small percentage of the total number of corporate directors (in the
United States, approximately 11 and 7 percent of Fortune 500
companies, respectively), their representation on corporate boards
has been increasing slowly over the last 15 years
I.
Number of Board Seats for companies trading over the NYSE,
NASDAQ and AMEX
a.
60,000 seats
b.
Average turnover rate is 15%
c.
Average turnover rate provides for 9,000 potential board seat
vacancies per year
J.
Minorities (Women)
a.
In 2004, women held 13.6% of all board seats in Fortune 500
companies
b.
Women of color hold 3% or 145 of the board seats of the 415 Fortune
500 companies
(1)
104 seats held by African American women
(2)
29 seats held by Hispanic women
(3)
12 seats held by Asian American women
K.
The number of seats held by women of color increased from 2.5% in
1999 to 3% in 2003.
L.
Of the S&P 1,500 Companies:
a.
63% have at least one women on the Board of Directors
b.
35% have at least one minority representative on the Board of
Directors
c.
29% of the S&P 1,500 companies have no race or gender diversity on
their board.
V.
Franchising (sources:
www.findarticles.com, www.minorityfranchising.com)
Minorities make up more than one-fourth of the American population;
minorities own only 6 – 9% of U.S. franchises. Together, women and
minorities contribute more than $1.5 trillion annually to the U.S.
economy, and studies estimate that women make up to 70 percent of
the consumer decisions in the United States
A. Growing Influence of Civil Rights and Advocacy Groups:
Over the past 15 years, civil rights and business organizations have
helped African-Americans gain entrée into franchising through a
number of agreements, including the NAACP's Operation Fair Share and
Operation PUSH Coalition's "moral covenants," voluntary
agreements with companies such as the Southland Corp, KFC, Miller
Brewing Company, Coca-Cola and Coors.
B.
Participation
During 1986-92, the proportion of minority-owned
franchises has grown 165 percent, from 3.2 percent to 8.5 percent of
all units. Although many minority franchisees operate such units as
restaurants, automotive services, and food retailing, minority
franchisees exist in every major business category. The most recent
figures indicate that blacks account for 36 percent of
minority-owned units. These figures are in sharp contrast to the
general population of minority entrepreneurs, in which blacks are
the least represented group.
C.
Company Commitments
The Athlete's Foot: The
company is growing in both inner-city markets and internationally.
The Athlete's Foot says it will open franchises in new and
under-served markets. Many of its current U.S. stores located in
predominantly African-American neighborhoods are
African-American-owned, and the company has facilitated partnerships
between community development corporations and franchisees.
Internationally, the Athlete's Foot is the world's largest athletic
footwear franchisor, with franchise agreements in over 43 countries,
including Agrentina, Belgium, Canada, China, Costa Rica, Denmark,
the Dominican Republic, France, Hong Kong, Japan, the Philippines,
Poland, and Taiwan (Large, Apparel/Shoes/Textiles, United States).
General Motors: There are 400
minority-owned dealerships, more than 5 percent of GM's total in the
U.S. "Long-term we're aiming for 15 percent," Romero notes (General
Director of Minority Dealer Development at GM). Minority-owned
dealerships sold over 237,000 new vehicles in 2003, totaling more
than $12.2 billion in revenue, and employ about 17,000 people. GM's
minority dealership owners are about 42 percent Hispanic, 32
percent African American, 14 percent Asian and 12 percent Native
American, Romero says.
Burger King: From
senior management -- "We want to make sure that Burger King's
customer base - 40 percent minority - is reflected in terms of
franchises and suppliers...We are growing the field with seed money,
but our goal is to get African American franchise owners to expand
in terms of multiple units and locations" (Large, Food, United
States).
Franchise Units: 10,144
Company-Owned Units: 1079
Total Units: 11,223
Units Owned by Minorities:
African-American: 227
Hispanic: 308
Asian-American: 174
Native American: 36
Other: 361
VI.
Success Stories Since We Last Met
Success Story #1 – The Boeing Company:
Progress Investment Management Company selected with Northern Trust
as the two Manager-of-Managers of a new Boeing fund targeting the
emerging investment manager community.
Name of Initiative:
The Boeing Prime Opportunities Fund
Summary:
It has been reported that planning for the “Boeing Prime
Opportunities Fund” had been underway since 2003. However, Reverend
Jackson’s work in championing the movement toward increased
investment with minority asset managers had an impact, as it helped
to create an environment in which such an opportunity could take
shape.
The Boeing Prime Opportunities Fund
Boeing Chief Financial Officer James Bell set the mandate and
expressed his intentions during the 2004 Wall Street Project
Conference to increase investment with minority managers.
In mid-June 2004, the Boeing Company announced its decision
to allocate $1 billion of its pension fund assets to emerging
investment managers. The theme of the fund reflected Boeing’s
desire to engage in earlier-stage, high-quality investments,
increasing its exposure to smaller investment managers to include
minority and women-owned firms.
The Prime Opportunities Fund is Manager-of-Managers in structure.
It was thought that this method of fund management would allow
Boeing to partner with investment managers who specialized in the
emerging manager space. In this way, Boeing would increase its
exposure to a diversity of investment managers.
Success Story: Progress Investment Management Company
Many firms were interviewed for the opportunity to manage the new
fund. Two were chosen: Northern Trust and Wall Street Project
Trade Bureau Member, Progress Investment Management Company.
Progress and Northern Trust will split the $1Billion investment pie
equally. Each will work to identify and engage smaller managers
that include minority and women-owned firms.
Success Story #2 – The Boeing Company
The Boeing Company becomes a customer of World Wide Technology
Summary:
World Wide Technology is a minority-owned firm based in St. Louis
Missouri, and is considered to be the largest minority-owned
enterprise in the United States. The company specializes in helping
its government, Fortune 500 and automotive customers rapidly build
and deploy information technology infrastructure.
David Steward, Chairman of the Board, World Wide Technology, reached
out to Reverend Jackson to broker an introduction to key Boeing
personnel. Boeing ultimately became a customer of WTT. It is
expected that 2004 earnings will surpass the $1.1 Billion earned in
2003.
Success Story #3 – General Electric Company
General Electric Meeting of Minority Managers (Spring 2004).
Summary:
GE leadership, inspired, in part, by Reverend Jackson’s call for
increased investment by majority firms with minority investment
managers, organized a meeting at GE headquarters of minority
managers with key GE investment decision makers in Spring, 2004.
This meeting was very significant. It allowed minority managers the
opportunity to connect with GE investment professionals.
Relationships struck there have resulted in new business for some of
the Wall Street Project’s constituency.
Success Story #4 – General Electric Company:
Williams Capital and Blaylock & Partners serve as book runners on
large GE financing
Summary:
In November, 2004, Williams Capital and Blaylock & Partners were
book runners on a $750M financing. Williams Capital leadership
attribute this new business to the meeting of Minority managers held
on-site at GE in Spring 2004.
Success Story #5 – General Electric Company
New business for Ariel Mutual Funds – GE becomes a Mid-Cap Client
Summary:
In 2004, Ariel was selected by GE to become part of their Defined
Benefit plan. Ariel credits Reverend Jackson’s efforts to increase
minority manager access to key investment decision makers within GM
with this new business.
Success Story #6 – General Motors
GM Meeting with Minority Investment Managers
Summary:
General Motors hosted a meeting of minority managers (on-site)
following the Wall Street Project’s 2004 conference. Attendees
included GM’s Treasurer, Head of Asset Management, etc. – i.e., key
investment personnel. Follow-up meetings with minority managers
allowed GM to communicate what they do and how they do it. Members
of the Wall Street Project Trade Bureau credit these meetings to
creating an environment in which they were able to make key
connections that in some instances led to new business.
Success Story #7 – General Motors
GM invests in Williams Capital Private Equity Fund
Summary:
General Motors Investment Management Company manages pension
assets for General Motors. The aforementioned individuals held
meetings with other Minority private equity firms. They opted to
invest $20M in Williams Capital’s private equity fund.
Williams Capital Leadership credits Reverend’s efforts to increase
investment with minority managers for “creating an environment
where minority firms can compete at the highest levels.” Williams
leadership views Reverend’s work with corporations on behalf of
minority managers as very influential.
Success Story #8 – General Motors
GM selects Ariel as the first Minority Mid-Cap Manager within its
$20B Defined Contribution Plan. Ariel products were also selected
to be part of GM’s 401K.
Summary:
In Spring 2004, Ariel leadership met GM representatives at a meeting
of 40 minority investment managers (that Reverend Jackson’s helped
to make possible) who were instrumental in Ariel’s ultimate
selection and inclusion in GM’s Defined Contribution and 401K plans.
Addition to GM’s Defined Contribution Plan
As of November, 2004, The Ariel’s Mid-Cap offerings were included in
GM’s Defined Contribution Plan.
Addition to GM’s 401K Plan
Ariel is also, as of November 1, 2004, is one of 60 or 70 funds
(total), with Ariel offering 2 products within GM’s 401K plan.
Success Story #9 – General Motors
GM selects Utendahl Capital Management, LP for cash management
Summary:
General Motors placed $50M with Utendahl for cash management.
Success Story #10 – General Motors
Harlem Auto Mall
Summary:
In June 2003, Reverend Jackson’s work to bring the first auto
dealership above 60th street in 40 years, took a giant
leap toward reality as Reverend, Mayor Bloomberg, Richard Wagoner,
and Alan and Robert Potampkin (investors in the project) held a
press conference announcing details of a Harlem Auto Mart. The
proposed structure was said to accommodate 6 dealerships.
The first four dealerships to sign-up for the effort – Chevrolet,
Saturn, Cadillac and Hummer – were themselves expected to bring 250
jobs to the Harlem area. The auto mall would be the largest
automotive sales and service center in New York City.
The project is said to open in 2005. Minority Dealer Otis Thorton,
who owned a Buick dealership in Brunswick, NJ, was selected by GM as
the owner and operator of the Chevrolet and Saturn dealerships.
Success Story #11 – General Motors
Harlem Auto Mall Bond work to MR Beal & Company
Summary:
MR Beal & Company was selected to work on a bond transaction related
to the Harlem Auto Mall project
Success Story #12 – MetLife Inc.
MetLife Inc. hired Atlanta Life Investment Advisors.
Summary:
Met Life, Inc. hired Atlanta Life’s Asset Management Unit – Atlanta
Life Investment Advisors (ALIA) – to man gage $50M of MetLife’s
general account assets.
The deal nearly doubled ALIA’s total assets at the time of the deal,
from $67M to $117M. The two companies began working together in
2002 on the reinsurance side of the business. At the time of the
deal-signing, the companies (jointly) cover more than 800,000
employees with a combined $4B of life insurance in force.
Atlanta Life credits the work of the Wall Street Project, in its
efforts to encourage partnerships between majority firms and
minority investment managers, for creating an environment in which
this deal could occur.
Success Story #13 – Raytheon Company
Raytheon Advisors Investment with MDL Capital Management, Inc.
Summary:
Raytheon hired MDL Capital Management to cover Fixed Income. MDL
successfully competed in a ‘horserace’ – that keeps top earners and
dismisses lower performers – for four years.
MDL is no longer on the assignment. The interesting thing here is
that the relationship built and nurtured between the corporate
client (i.e., The Trading Partner) and the investment manager (i.e.,
The Trade Bureau Member). It is such that when a certain level of
performance is attained over a prescribed period of time, Norm Pao,
according to Steve Sanders, President, MDL, would invite MDL back
into the race.
Also interesting here is the fact that Steve Sanders credits the
Wall Street Project and Reverend’s work to creating an environment
where the partnership could take place (a common theme in these
stories).
APPENDIX
Top Pension Funds
(Source: Pensions & Investments,
Jan. 26, 2004)
Technology
IBM………………………………………………….. $60.1 billion
Lucent………………………………………………... $36.7 billion
Hewlett-Packard…………………………………….. $11.8 billion
Intel………………………………………………….. $5.1 billion
Consumer Related Companies
General
Motors………………………………………. $89.7 billion
Procter
& Gamble……………………………………. $9.7 billion
Pharmaceuticals
Pfizer………………………………………………… $12.4 billion
Eli
Lilly, Inc…………………………………………. $6.0 billion
Merck……………………………………………....... $5.8 billion
Defense Contractors
Boeing
……………………………………………... $58.2 billion
Lockheed-Martin…………………………………….. $32.9 billion
Northrop Grumman………………………………….. $25.7 billion
Raytheon……………………………………………... $21.3 billion
General
Dynamics…………………………………… $9.6 billion
Non-Profit/Foundation Funds
United
Methodist Church…......................................... $11.6
billion
Southern Baptist Convention………………………... $6.5 billion
Episcopal Church……………………………………. $6.4 billion
Presbyterian Church………………………………… $5.1 billion
Top
5 Public Pension Funds
1.
California Public Employees…………………….. $148.8 billion
2.
Federal Retirement Thrift………………………… $118.8 billion
3. New
York State Common................................... $106.8
billion
4.
California State Teachers........................................
$103.3 billion
5.
Florida State Board……………………………...... $92.3 billion
Top
5 Corporate Pension Funds
1.
General Motors…………………………………… $89.7 billion
2.
General Electric………………………………….. $61.6 billion
3.
IBM……………………………………………..... $60.1 billion
4.
Boeing…………………………………………..... $58.2 billion
5.
Verizon…………………………………………… $54.6 billion
Top Endowments
Top
5 Union Endowments
1.
Western Conference Teamsters…………………... $25.0 billion
2.
Teamsters Central States…………………………. $16.5 billion
3.
National Electric………………………………….. $10.3 billion
4.
Operating Engineers International……………...... $7.0 billion
5.
Boilermaker-Blacksmith………………………..... $6.6 billion
Top University Endowments
(Public and Private)
Top 5 Private University Endowments
Source: Pensions and Investments, December 27, 2003
Measured by 2003 assets, in billions
1.
Harvard University…………………………………………. $18.8
2.
Yale University…………………………………………….. $11.0
3.
Princeton University……………………………………….. $8.7
4.
Stanford University………………………………………… $8.6
5.
Mass. Institute of Technology (MIT)………………………. $5.1
Top 5 Public University Endowments
Source: Pensions and Investments, December 27, 2003
Measured by 2003 assets, in billions
1.
University of Texas System………………………............... $8.7
2.
University of California……………………………………. $4.4
3.
The Texas A&M University System and Foundations…….. $3.8
4.
University of Michigan…………………………………….. $3.5
5.
University of Virginia……………………………………… $1.8
Mutual Funds Data
Source: Investment Company Institute (ICI), 2004 Mutual Fund Fact
Book
As
of December, 2003
Total Industry Assets…………………………………………... $7.9 trillion
Number of Individual Investors in mutual funds………………. 91
million
Number of US Households owning mutual funds……………... 53.3
million
Percent of US Households who own Mutual Funds…………… 47.9 percent
Total Number of mutual funds……………………………......... 8,089
Top Ten Managers of Mutual Fund Assets
(Source: Pensions and Investments, 2004
Money Managers Directory)
As of May 31, 2004
1.
Fidelity Investments……………………………….. $830.0 billion
2.
Vanguard Group…………………………………… $690.0 billion
3.
Capital Research…………………………………… $532.4 billion
4.
Morgan Stanley Inv. Mgmt………………………… $304.0 billion
5.
Wellington Management…………………………… $207.6 billion
6.
Mellon Financial…………………………………… $196.9 billion
7.
Franklin Templeton………………………………… $194.2 billion
8.
Federated Investors………………………………… $182.1 billion
9.
PIMCO……………………………………………... $171.4 billion
10.
Putnam Investments………………………………... $162.4 billion
TOTAL…………………………………………...$3,470.9
billion
Black Managers of Mutual Fund Assets
As of Nov. 30, 2004 - Source: Black Wealth Network (an Affiliate
of Black Enterprise)
1.
Ariel Fund…………………………………………. $3.5 billion
2.
Ariel Appreciation Fund…………………………… $2.9 billion
3.
Dreyfus Government Cash Management Fund……. $1.4 billion
4.
Brown Capital Small Cap Fund……………………. $623.6 million
5.
Calvert Capital Accumulation Fund – A…………... $111.9 million
6.
AIM International Core Equity Fund……………… $44.3 Million
7.
MDL Broad Market Fixed Income Fund……………$41.0 million
8.
Lou Holland Growth Fund…………………………. $37.6 million
9.
Ariel Premier Bond Fund…………………………... $26.0 million
10.
Edgar Lomax Value Fund…………………………. $12.8 million
11.
Profit Value Fund………………………………….. $6.9 million
12.
Brown Capital Mid Cap Fund ………………………results not available
TOTAL……………………………………………..$8.7 billion
Defined Contribution Plans
(Source: ICI as of December, 2003)
Total retirement assets invested in mutual funds……………… $2.7
trillion
Mutual fund assets held in 401(k) plans……………………….. $922 billion
Percent of 401(k) plan assets held in mutual funds………...
49 percent
Mutual fund assets held in 403(b) plans……………………….. $263 billion
Mutual fund assets held in 457 plans…………………………... $38 billion
Mutual fund assets held in other defined contribution plans……$133
billion
College Savings Plans
Source: ICI, as of year end 2003
Assets in Section 529 Savings plans ………………………….. $35.1 billion
Total number of 529 accounts………………………………….. > 4 million
