2010-02

In Support Of Increasing Access To Capital To Minority-And Women-Owned Firms And Growing The US Economy

SENATOR IRIS Y. MARTINEZ (IL)

Minority-and Women-owned firms

WHEREAS, Growing the US economy must include specific attention to access to capital for minority and women-owned firms.

WHEREAS, Minority firms continue to lag in access to capital as illustrated by multiple indicators. According to the US Department of Commerce, Minority Business Development Agency (MBDA), minority firms lag across indicators: 17% of minority firms receive loans, versus 23%of non-minority firms; the average loan amount for all high sales minority firms was $149,000. The non-minority average was more than twice this amount at $310,000; For all firms, minority firms paid 7.8 percent on average for loans compared with 6.4 percent for non-minority firms. Minority firms also had the most trouble obtaining external equity with $2,984 on average compared with $7,607 on average for non-minority firms; and

WHEREAS, The gap in investment in minority business grows after the first year of business. Non-minority businesses invested an average of $45,000 annually into their firms, while minority-owned firms invested less than $30,000 on average after the first year of operation. The disparity in financial capital between minority and non-minority firms was much larger in percentage terms for the next three years in operation than their first year; and

WHEREAS, minority-and women-owned investment companies are an integral part of facilitating investments in minority-owned, women-owned and other emerging businesses, including partnership-based structures that facilitate urban development and other ventures that increase quality of life; and

WHEREAS, access to top talent for such partnership-based investment companies, incentivized through partnership share, equity and development is an important component of growing business, particularly by minority-and women-owned investment firms, whose partners realize returns primarily from the investment, growth and sale of assets, including real estate investments and small businesses; and

WHEREAS, access to capital must include new capital management opportunities at all levels by firms who are minority- or women- owned and operated. The strategic advantage provided to institutions from investing in emerging firms, including those who invest in emerging domestic markets, provides new opportunities to investments and growth as a component of their overall investment portfolios; and

WHEREAS, targeted policies are needed to break barriers and realize access to still-closed state, corporate and foundation investments for minority-and women-owned investment companies; and

WHEREAS, public pension funds in even the most minority-dense states with more than 20% minority population, have, on average 1-3% of fund managed by minority managers; and

WHEREAS, less than 1% of the corporate pension market is managed by minority managers; and

WHEREAS, proactive efforts are needed to ensure that institutions realize the benefits of minority and women talent offered by investment managers that are managed by “emerging managers” and which invest in the emerging domestic market; and

WHEREAS, tax policy should incentivize such investment and facilitate the long-term growth of capital across the marketplace, to grow the American economy.

AND NOW, THEREFORE, BE IT RESOLVED, that states, corporate and foundation institutional investors call upon their trustees and investment to staffs to develop proactive minority and women manager programs and emerging domestic market plans that create opportunity for qualified emerging managers and investment companies.

BE IT FURTHER RESOLVED, That federal tax policy, specifically the federal tax on carried interest should remain at its historical treatment as capital gains taxed at such rate, in order to maximize the long-term investments in infrastructure, entrepreneurship and development from partnership-based investment companies; and so that emerging and minority- and women-owned investment companies may continue to attract and incentivize top talent.

Sponsored by: Senator Iris Y. Martinez (IL.)

THIS RESOLUTION WAS ADOPTED BY THE NHCSL EXECUTIVE COMMITTEE AT THE SUMMER, 2010 EXECUTIVE COMMITTEE MEETING, HELD JULY 10, 2010 IN LOUISVILLE, KENTUCKY.