Northwestern Mutual is backing Black- and African American-owned GPs as part of its strategy to invest $100 million in Black, African American and minority-owned businesses.
The Milwaukee, Wisconsin-based life insurance company, which has $270 billion in assets, announced yesterday that it had launched an impact investing fund – an allocation of $100 million from its general portfolio to social impact investments.
“The focus of the fund is to make investments that will help close the racial wealth gap and address inequality in our communities locally and nationally,” Ray Manista, Northwestern Mutual’s executive vice president (pictured above), told New Private Markets.
“To date, we have invested in externally-managed funds that specifically target Black and African American communities locally [in the insurer’s Milwaukee hometown] and nationally as well as a focus on Black and minority-owned businesses,” said Manista.
The insurer has already invested with two Black-owned GPs – the Clear Vision Fund and the Gateway Capital Fund – but it declined to disclose the capital amounts.
Do Black-owned GPs have an advantage in finding sustainable investment opportunities in Black- and minority-owned businesses?
“We can’t speak on behalf of those GPs,” said Manista. ”But we do know that nearly two-thirds of Black-owned businesses are financed outside traditional sources – either through cash, friends and family or cashing in retirement accounts – and when financed, Black-owned businesses receive about half the loan amount as white owned businesses. So we see GPs such as Gateway and Clear Vision Fund helping to close this gap.”
“When financed, Black-owned businesses receive about half the loan amount as white owned businesses. So we see GPs such as Gateway and Clear Vision Fund helping to close this gap.”
Ray Manista, Northwestern Mutual director
Research shows just how wide the racial wealth gap is in the US venture capital market: 23 percent of Black-owned small businesses have obtained funding from banks in the past five years – which is half as many as white-owned small businesses (46 percent), according to a 2020 survey of small businesses conducted by the 12 reserve banks of the US Federal Reserve System.
Meanwhile a 2016 paper by the Stanford Institute for Economic Policy Research found that Black-owned start-ups have an average of $500 from outside equity (funding from venture capital and angel financing) while white-owned start-ups have an average of $18,500 in outside equity.
With this context, investing to close the racial wealth gap requires Northwestern Mutual to “remain opportunistic and flexible as we identify potential investments that can deliver impact to these communities”.
Northwestern Mutual’s $100 million commitment has three core themes: physical and social infrastructure, access to capital for individuals and business, and healthy and sustainable neighbourhoods and communities.
“The Clear Vision Fund, run by Siebert Williams Shank, will make investments in minority-owned businesses with an emphasis on Black- and Latino-owned businesses, enterprises that operate in or serve underserved markets and businesses that foster inclusive growth through commercially sustainable business models,” explained Manista.
Gateway Capital Fund, an African American-led venture capital fund, is primarily targeting Milwaukee County for investment opportunities but also throughout the state of Wisconsin, he said. Gateway’s Fund will make investments in companies seeking seed and early-stage investments.
“We fully expect there will also be the opportunity to continue to provide value to our policyowners. We do not believe that return and impact are mutually exclusive,” he added.
Northwestern Mutual does not have a specific time horizon to deploy the $100 million commitment, “as we intentionally want flexibility to invest in the right opportunities”, he said.
The insurer has not ruled out direct investments or investing with GPs or funds that are not Black-, African American- or minority-owned. “We’ll continue to remain opportunistic with our approach,” added Manista.