- When Allstate needed to raise money, it turned to a Black-owned investment bank, Loop Capital.
- As corporations tighten DEI requirements, diverse-owned banks stand to earn more business.
- This article is part of the "Financing a Sustainable Future" series exploring how companies take steps to set and fund sustainable goals.
When Allstate needed cash from the capital markets to purchase personal insurer National General in the summer of 2020, its CFO Mario Rizzo approached CEO Thomas Wilson about appointing a diverse-owned firm to lead the effort.
Wilson encouraged Rizzo to go further. Why not appoint a group of investment firms, owned by diverse communities, rather than just one? Their discussion homed in on companies' efforts to tackle inequity at a time when consumers and shareholders were starting to hold corporate citizens accountable for their inclusivity 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 met with Allstate's Wilson to determine whether a group of diverse-owned banks could raise the funds for Allstate — without the help of Wall Street mainstays.
What transpired was a bond deal that looked and felt like every other transaction Rizzo had seen, he told Insider. Loop, alongside a cadre of minority-owned firms, not only raised the $1 billion Allstate needed from the bond market, but it got so much demand, the transaction increased to $1.2 billion.
While most deals are led by giant global banks, Allstate's deal represented a new type of fundraising, led solely by minority-owned investment banks. These debt instruments, known as diversity, equity, and inclusion bonds, or simply DEI bonds, are one of the latest ways that sustainability measures are encroaching upon Wall Street.
Though once it was slim pickings for minority-owned firms, especially in the context of the broader bond market, the trendline is moving. Last year, minority-owned firms led transactions for machinery company John Deere and telecommunications firm Verizon, among others. Verizon, in fact, now has strict measures that its activities in the capital markets feature prominent, higher-paying roles for diverse firms.
It's not just corporations that are taking notice. Institutions like Deutsche Bank also mandated Loop, and a host of other minority-owned banks, to lead a $750 million transaction for the German lender last April.
In fact, diverse-owned firms, which count for only 21% of investment banks in the investment-grade market, participated in just over 50% of IG bond deals in 2021, according to Refinitiv data that was compiled at Insider's request. That's well ahead of the 22.5% rate in 2010, and up from 45% in 2020.
But while there's been improvement in participation by diverse firms, very few deals are led by them. That's why the Allstate example represents an important milestone.
For Reynolds, deals like the Allstate one were business as usual. He earned his stripes at Chicago-based Paine Webber and Merrill Lynch in the 1980s and '90s, before becoming an expert in municipal-bond sales and trading. He formed Loop in 1997. His peers watched admiringly as the firm grew from a team of six to a workforce of over 200 today.
DEI policies changing the way companies raise capital
Firms like Loop operate in the world of capital markets, a pocket of Wall Street that helps institutions like banks and blue-chip corporations raise money for their operations through bond or share sales. It's a sector not known for its inclusivity, and is dominated by investment banks.
Sidney Dillard wants to change how companies think about their capital-raising efforts. Dillard is the head of corporate and investment banking at Loop, and she wants more diverse-owned firms leading deals for America's largest companies in the 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 'veteran table.'"
When companies want to raise money in the capital markets, they will typically appoint a big, money-center global bank to lead a transaction. The lead bank, which earns the most fees, will then appoint other banks at different tiers to help distribute the sale of bonds or shares into the investor community. Black-owned firms like Loop usually get lower-tier roles.
Companies borrowing from the capital markets will often reward bigger banks with their business because those institutions have lent these businesses billions in loans over the years. Smaller firms like Loop do not have the balance sheet to provide credit to America's biggest companies.
But firms like Loop, as well as Siebert Williams Shank and Blaylock Van, are poised to win more business in the capital markets, as companies emphasize DEI-related policies.
"When we did our deal last year, we were hopeful it wouldn't be one-and-done," said Jeanmarie Genirs, Deutsche Bank's head of US investment-grade syndicate that helped shepherd its $750 million transaction with a group of minority-owned firms. "Our relationship with these firms have developed, the dialogue has increased, and that hopefully points to more opportunities to partner in future."
Learning to lead transactions
While it seems like yet another example of a global company paying lip service to DEI, what Deutsche Bank and other companies' deals did was allow diverse firms' staff — from the senior banker originating new business down to the analyst compiling the documents for a deal — to experience the rigors involved in leading a transaction.
The lead bank must do the lion's share of work from sourcing investor orders, placing it into an order book, and discussing with the borrower when to launch, or not launch, a deal. These processes are priceless when it comes to winning future business and upskilling bankers at minority-owned firms.
"You get to run through all the paces associated with the process," Dillard said. "The more you do it, the better you are."
The equity market is also another lucrative piece of the Wall Street pie where Black-owned firms can participate in initial public offerings or private advisory business. Unlike debt, the equity markets are less reliant on lending capabilities. Companies will often value high-quality advice over a burgeoning balance sheet, something that can aid smaller shops that lack the cash reserves of big Wall Street banks.
"There's an opportunity based on investments we've made in our equity research platform that can help companies wanting to IPO or place shares," Dillard said. "And we can get investor eyeballs on their name."
Genirs added that Deutsche Bank had discussed working with diverse firms on other financial products in equities, and also future underwriting efforts in other currencies.
"It's a work in progress, but these are conversations that didn't really happen a couple of years ago. They've developed in the last 12 months," she said. "We haven't hit the limit, that's for sure, but there's definitely upside in further collaboration."