No Longer Business As Usual - African American investment firms

Black Enterprise, June, 1999 by Lynnette Khalfani

So it was with some anxiety that Bassey took the plunge and invested $300,000 in 1998 to upgrade his firm's computer infrastructure, technology systems and to provide better execution and clearing for his institutional clients. He also expanded his business, opening several new branches across the country.

The results were mixed. His customers rave about the firm's service. But the expansion proved premature. In addition to the Denver office, Bassey had offices in New York, Cleveland, Chicago and Houston. Bassey had to close those branches after he quickly realized the overhead was more than he could afford to manage.

Now Harvestons has 18 employees in offices in Denver, Houston and Little Rock, Arkansas. "I don't want to go above 30 employees. If I didn't do the expansion, we would'ye turned a profit in 1998," he says. "But since we trimmed back, every month [in the first quarter of 1999] we've been profitable," Bassey says.

Harvestons' experiences, in many ways, offer a lesson for all African American investment firms. At every turn, success will be measured not only by clients wooed or by products sold, but also by how well firms adjust to changing or unworkable conditions.

Bernard Beal is already adjusting his business strategies based on client demands and sound management practices. "One of our goals is to let them buy securities over the Internet," he says. Beal decided to make the transition after many of his busy institutional clients said, in essence, that they wanted more service but less contact. "This business is going to become like the supermarket business, where different retailers compete for shelf space and visibility for their products," Beal predicted. In the case of investment firms, "you've got to be on people's screens; they've got to see your firm and know your name," he says.

Beal has another major change planned for 1999. "I own 99% of the firm and I would like to rationally see my ownership interest go down," Beal reveals. He plans to sell a piece--as yet undetermined--of the firm to his employees. "It's a logical first step," says Beal, adding that he sees the move happening "by year's end."

HEADING INTO THE MILLENNIUM

Looking forward, Chapelle expects minority broker-dealers to capture more corporate bond and equity underwriting business. In 1998, at least eight major financings, and in March of this year the $1.7 billion Delphi spin-off and the initial public offering of the Internet stock iVillage, involved African American investment banks. The trend toward diversification and a broader mix of products and services will also continue.

Powell, of Powell Capital Markets, says that to date most of his firm's success has been in school district financing and in solid waste restructuring. "Still, I don't think we'll ever return to the days when we made the money we made [15-20] years ago," Powell says. That's why his firm' is looking to diversify into other areas--most likely insurance brokerage and asset management.

For Williams Capital, 1999 will be a year of implementing plans that are already on the drawing board as well as new initiatives (see "Strength in Numbers," this issue). The firm has opened an office in London in an effort to extend its equity and fixed-income trading operation on the international side. But perhaps most important, Williams has completed the application process for membership on the New York Stock Exchange.