NeuGroup members discuss details of including firms owned by minorities and women in debt and other transactions.
Talk about timing. Members of NeuGroup for Capital Markets discussed diversity and inclusion (D&I) in capital markets transactions on the same day 11 firms owned by women, minorities and veterans joined Deutsche Bank Securities in closing a $750 million bond underwriting for the bank.
- The role of the 11 firms—which received about 60% of the fees—underscores the momentum of the movement among banks and corporates to raise the profile and contributions of minority- and women-owned financial institutions.
- “I’m definitely interested in learning about how we can more fairly divvy up what we spend with D&I firms and elevate them,” one member said.
- Use of D&I firms by treasury has typically been prompted by the suggestion of a board member or another influential party, but that’s changing, he added.
Authenticity. Another member, who works at a technology company that has used D&I firms for years, said a key consideration is determining whether they are fulfilling their stated missions.
- The big question: Are they are doing what they set out to do and creating benefits for their communities and constituencies?
- He noted using D&I firms for the company’s investment portfolio and starting a program that pays one firm slightly higher fees, with the understanding that it will use the money to fund new jobs for women, particularly minorities.
- Either the D&I firm will offer the women full-time jobs or use its network or the company’s to seek offers at larger banks.
- Asked how treasury tracks the D&I firm’s efforts, the member responded that, “We were very clear that the expectation is for it to effectively fund two new jobs, and we’ll be involved throughout the process to make sure that’s happening.”
Allocations and feedback. The member said D&I firms can diversify a company’s investor base and are expected to bring “quality orders” from accounts that are not covered by the large banks.
- “We spend a lot of time to make sure they get allocated their fill if it’s a quality order,” he said.
- Then treasury provides the firms with feedback on what worked well and what didn’t, so they can “elevate over time. It’s something we take very seriously and we continually think about other ways we can engage them across our treasury function.”
Linked to credit? One member asked peers whether D&I firms brought into bond offerings were linked in any way to their credit facilities.
- His company has added some foreign banks in the revolver that are not broker-dealers; so to give them a share of wallet in debt offerings, the banks share fees with D&I broker intermediaries who sell the bonds.
- Many D&I firms currently have insufficient capital to participate in credit facilities.
- “We’ve been reluctant to go beyond that and just bring folks in for the sake of bringing them in, from a wallet perspective,” he said. “We feel like we have to save every nickel for the banks in our credit facility.”
- A peer responded that his company has a similar arrangement with a D&I firm partnering with a commercial bank. He said the arrangement may not please other banks in the revolver but doesn’t create a problem.
- “I feel there’s enough precedent,” he said. “Banks have accepted it and it’s just another part of the conversation when banks are vying for wallet share.”