Perspectives

September 15, 2020

Celebrating the 22 Pobladores

This month, we celebrated the founding of Los Angeles by the 22 Pobladores in 1781. On September 4th, these men and women of color – predominately of African, Native American and Latinx ancestry – made LA one of the few cities in the world with such a diverse beginning, which continues to this day. The 22 Fund is named for these founders and for their diversity, tenacity, ingenuity and productivity. 

We also are celebrating the 100th year anniversary of women’s right to vote. Yet missing from this landmark legislation were women of color, despite their important contributions towards this achievement. 

From the founding of Los Angeles to the suffragette movement to today’s investment climate, Black, Indigenous and people of color (BIPOC), especially women of color, have been leaders, but have not received commensurate recognition and investments in their enterprises. For example, less than 2% of capital is invested in companies led by women, and less than 1% for in women of color.

At The 22 Fund our investment strategy is based on the value of diversity in delivering high returns and productivity by investing in today’s high potential, diverse entrepreneurs, like the 22 founders of Los Angeles and the suffragettes.

Confirming that diversity brings higher returns, Goldman Sachs recently found that U.S. funds run by all women or mixed-gender teams outperformed all male portfolio management teams. This raises fresh questions about the investment industry’s record in addressing its gender diversity problems. 

Women-led funds remain a rarity across the investment industry in spite of a growing body of evidence that more diverse teams produce better results. Of the funds analyzed by Goldman, just 14 teams were all women and 49 were “female-managed” out of 496 US funds – or only 13% of the total. In contrast, 380 of the funds had all male teams – or 77%. So far this year, the female-managed funds, on average, delivered 3X better returns.

“Even after adjusting for risk, female-managed funds outperformed their male counterparts amid the coronavirus-related market swings,” said David Kostin, Goldman Sachs’ chief US equity strategist.

Despite the onslaught of data that confirms over and over again that diverse fund managers deploy capital better, many in the financial industry continue to ignore the value of diversity. As a result, even less capital trickles down to companies that are run by women and people of color.

The 22’s investment strategy is rooted in identifying high potential, yet overlooked opportunities to realize competitive returns by investing in diversity, especially in global trade. These companies are at the forefront of manufacturing locally, and exporting globally, mitigating risk and delivering high-paying jobs to our economy.

We welcome your interest, your input and your involvement in achieving our goals. Please do reach out to us for more information.

The 22 Fund
Tracy, Monica, Rajan and Holli
www.the22fund.com

July 31, 2020

The 22 Fund is in the News

We wanted to share some recent publications about The 22 Fund on BBC Radio – “Venture Capital’s Diversity Problem”, in The Los Angeles Business Journal – “22 Fund Backs Manufacturers Led by Women, Minorities”, and from The Criterion Institute -“Q&A with The 22 Fund’s Tracy Gray: Catalyzing Systemic Change in Impact Investing and Venture Capital”.

Our founder, Tracy Gray, was featured highlighting key issues that The 22addresses regarding the lack of diversity in companies receiving investments from traditional sources of capital. 

As everyone knows, the capital markets rule the world and should be the first stop in our efforts to bring about racial and gender equality and equity.

Unfortunately, there is a highly unbalanced and unfair situation in regards to access to capital for women and people of color, despite significant research proving that diversity creates higher profitability, higher ROI and higher productivity. 

In these interviews, solutions are put forth on how to bridge the wide disparities in access to capital for women and people of color by adopting a “trickle down economics” approach that actually works!

Institutions that currently fuel Wall Street investment funds, such as pensions, endowments, insurance companies and investment banks, should adopt a a more razor sharp focus on diversity when they allocate the trillions of dollars to investment managers.

Please take a moment to see how we can bridge this divide while reaping high returns at the same time. 

Thank you always for your interest and support! We look forward to hearing from you and, most importantly, working together to invest in high potential women and people of color.

The 22 Fund
Tracy, Monica, Rajan and Holli
www.the22fund.com

BBC Radio – “Venture Capital’s Diversity Problem”

The Los Angeles Business Journal – “22 Fund Backs Manufacturers Led by Women, Minorities”

The Criterion Institute -“Q&A with The 22 Fund’s Tracy Gray: Catalyzing Systemic Change in Impact Investing and Venture Capital”.

June 24, 2020

Black Companies Matter

“Success is to be measured not so much by the position that one has reached in life as by the obstacles which [one] has overcome while trying to succeed.”

Booker T. Washington, educator, author, activist, and presidential adviser

Last month we sent you an email focused on the social and economic impacts of manufacturing. Since then, our world has changed. Protests around the globe are shedding light on the deep social and economic inequities of systemic racism. The murder of George Floyd was the tipping point that galvanized a multiracial, multigenerational drum beat of stubborn resistance to accepting the status quo. Much is being discussed about desperately needed moral and structural changes on all levels of society – justice, education, healthcare and employment – except one very, very important and essential white male dominated industry – the capital markets that rule the world.

We all agree that capital is the engine of business growth and intergenerational wealth. However, less than 1% of venture capital is invested in black and brown owned businesses, and less than 2% in women owned businesses. 

Now, private equity firms and venture capital firms are jumping on the bandwagon, proclaiming new emphasis on investing in companies founded and owned by people of color, attempting to pivot from their 98% focus on white men. We can only hope that they fulfill their promises and are not just grabbing the limelight, profiting on the buzz to improve their public image, maybe even enjoying “a feel good moment”.

We at the The 22 Fund do not need to pivot. The foundation of our strategy is investing in women and people of color, and has been since our inception.. because we ARE women and people of color.

Forever, excuses by traditional sources of capital have been:

  • Businesses owned by women and people of color that are high growth are too few – “pipeline problem.” False. 
  • Businesses owned by women and people of color are “riskier”. False.
  • Businesses owned by women and people of color are “small time”. False.
  • Businesses owned by women and people of color are not “high tech”. False.
  • Businesses owned by women and people of color are not “global”. False.

However, this is what is true:

  • People of color and women owned businesses added over 72% of new jobs during the Great Recession.
  • During the last downturn, combined gross receipts of firms owned by people of color increased 35% between 2007 and 2012.
  • 94% of businesses owned by people of color did not get PPE loans.

There is no doubt that there are incredible investment opportunities that have been ignored, overlooked and marginalized by institutional investors who cannot see beyond the color of someone’s skin and their gender.

Frankly, women and people of color have been vetted more than any other groups in history. Yet, systemic racism in the capital markets continues to arbitrarily shut them out. This is not only ignorant, this is an ongoing story of missed opportunities, over and over again. Numbers do not lie (source: NAIC and Prequin).

  • Diverse PE Funds outperformed 62.5% of the time (IRR and MOIC)  
  • Diverse PE Funds outperformed both U.S. Buyout and All U.S. Private Equity funds 1.39x vs 1.32x and 1.27x
  • First-time funds outperformed established managers in every year except 1 over the past 13 years

Fairview Capital Case Studies:

  • Diverse Manager #1: 40% of underlying 650+ portfolio companies featured women or people of color executives
  • Diverse Manager #2: 31% of 125+ portfolio companies featured woman or people of color executives
  • Diverse Manager #3: 58% of 100 portfolio companies featured woman or pwople of color executives.

One of the best investments you can make is in women and people of color fund managers, like The 22 Fund. 

This is the one time when “trickle down economics” actually works. 

Please, reach out to us for more information and/or to discuss a potential investment in The 22 Fund and our vision to invest in diverse businesses.

Thank you and stay safe!
The 22 Fund

Tracy, Monica, Rajan and Holli
www.the22fund.com

May 12, 2020

Manufacturing’s Social & Economic Impact

This past month, the Brookings Institution published an important study affirming undeniably that never has the investment opportunity of The 22 Fund been more relevant and timely than today.

 “…rapidly evolving manufacturing technologies including artificial intelligence, advanced robotics and the “internet of things” – Industry 4.0 – will reshape the manufacturing landscape with important consequences. Developing countries’ comparative advantage in low-skill, low labor cost tasks is at risk as these low skill tasks are increasingly automated. Countries that currently possess or are investing actively in the skills, capital and infrastructure of the future are the ones that will dominate global manufacturing.” (Brookings Institution)

As you may recall, The 22 focuses on investing in U.S. tech-based manufacturing companies (intentionally targeting women and people of color business owners) to:

  • increase their global competitiveness and diversification through exports
  • create the clean, quality jobs of the future in low- and moderate-income communities (LMI)
  • deliver both high ROI and social/economic/environmental impacts.

The entire world has been experiencing significant disruptive changes to everyday life and many people believe that we will never go back to the way things were. Spurred by supply shortages, job losses, a dismal stock market, systemic social inequities, climate change, and overall social distancing, a massive rethinking of how we organize our society is happening at breakneck speed.

Our investment strategy has always addressed the social inequities that the COVID-19 crisis has brought into the light, while delivering competitive market returns. Essential businesses that make products needed by all of us are being brought to the forefront, especially as manufacturing does not lend itself to remote work and shortages exist all along the supply chain.

Globalization is here to stay and it is imperative that we rethink our priorities to rebuild our economy. There has also been increasing public pressure on our over dependence on imports and the slow demise of the U.S. domestic manufacturing sector over the past 20 years. In response to COVID-19, many public officials want to shore up our manufacturing sectors and increase U.S. exports through financial incentives in order to address our current and future vulnerabilities in existing global supply chains.

Investing in U.S. manufacturing 4.0 increases our global competitiveness and national preparedness. Growth sectors like med tech and climate tech will offer new areas for job growth and opportunities in LMI communities largely ignored until now.

THIS is the best investment strategy to realize the highest social, economic and environmental impacts while scaling to meet the needs of the global market.

We would like to share with you The 22 Fund’s real solutions to create high impact with a high ROI opportunity for investors to expand our manufacturing sector in domestic and global markets. Please reach out to us for more information and/or to discuss our vision to invest in the future of industry 4.0.

Thank you and stay safe!

The 22 Fund

Tracy, Monica, Rajan and Holli
www.the22fund.com