Morgan Stanley shares insights on its approach to partnering with diverse-led firms, including increased fees and mentorship.
Morgan Stanley recently shared how it is expanding the role of banks and broker-dealers owned and run by minorities, women and veterans—so-called diversity or diverse-led firms—in self-led bond deals. The insights came during a NeuGroup meeting of bank treasurers sponsored by Morgan Stanley.
- Many corporates in the NeuGroup network are encouraging banks that underwrite their debt offerings to allocate bonds to diverse-led firms and are working to figure out which of these financial institutions add the most value to transactions.
A bigger share of fees. Morgan Stanley’s $4.5 billion note offering in November increased the share of self-led bond underwriting fees it pays to diverse-led firms from 2% to 12%. It described other elements of its approach going forward:
- The bank’s presentation discussed the creation of a three-tier syndicate structure amongst the firms, creating three additional opportunities to participate.
- In addition to two D&I co-managers, the bank will include three D&I joint lead managers, with one given an “active” role and an increased percentage of the underwriting fees (4%; the two passive leads receive 3%).
- That firm will participate in all syndicate strategy calls, bring orders into the order book and be able to demonstrate its unique distribution capabilities with more modest-sized institutional investors, some of which are diversity asset managers.
- Beyond fees, the presentation included Morgan Stanley’s commitment to focus on mentoring diverse-led firms to help them continue to build and grow.
Initial steps. A bank treasurer asked about Morgan Stanley’s approach to engaging diverse-led firms in deals.
- A Morgan Stanley banker said that last summer, the Wall Street firm interviewed firms extensively to understand their priorities in terms of getting involved in the underwriting process and maximizing their roles in transactions.
- The calls served to also learn more about the firm’s business performance and distribution capabilities as well as each firm’s unique mission and approach to giving back, which along with connectivity of Morgan Stanley’s treasury and syndicate team, are all important attributes to grow the partnership.
- Morgan Stanley identified roughly 20 firms to engage and consider on future transactions, reviewing the group that has been regularly involved with investment-grade debt offerings over the last year.
Best practices. The presentation included an overview of best practices around process and execution on investment-grade transactions, with the objective of establishing “a process that is both inclusive and equitable, providing a foundation to ensure success for the diverse-led firms.” Highlights:
- Including a D&I coordinator to be the central point of contact for diverse-led firms “sets the tone to provide enhanced communication, transparency and overall support for firms.”
- Involving the firms early in the process and programmatically enables them to engage with their investors promptly.
- Notifying firms “immediately after the ‘go’ decision will allow for maximum time to clear logistics and gather orders.”
- Incorporating the firms in the allocation process by including their feedback provides an opportunity for them to advocate for their investors, prior to any allocation decisions that are made to the order books.
