& Co. (No. 9 on the BE Private Equity Firms list with $270 million in capital under management). “Private equity firms would probably have to put a lot more money into a deal to entice a bank to come in,†she says. “And even with all of that, they’re not coming in.†But Iloani says her firm has benefited from the credit crisis because of its strategy at the mezzanine private equity level. Mezzanine financing is a hybrid of debt and equity financing and used to fill the gap between bank financing and private equity financing. With a bit less reliance on the credit market, the hit to the bottom line is lessened.
Smith Iloani says the firm has committed to do four deals out of some 155 it has looked at from January through September. She says that deal flow is up 20% from the same time a year ago. Yet even with the growth, the firm is being careful given the current environment.
ASSET MANAGERS: EXPLORING NEW OPTIONS
Black-owned asset managers and investment banks now find themselves in a more challenging position, largely due to their exposure to the equity markets. What hurts them most is that they don’t have the longevity of black-owned banks. “They’re in a very difficult position right now and they will have to do a lot of things differently,†Creative Investment Research’s Cunningham says.
Access to credit will change for most entities even with the bailout, says Gerald Smith, chairman and CEO of Houston-based Smith Graham & Co. Investment Advisors L.P. (No. 8 on the BE Asset Managers list with $2.7 billion in assets under management). As a result, Smith says the way his firm analyzes a client’s portfolio risk will change. “Essentially, the credit crisis will cause us to invest more of our assets in government and agency securities, including mortgage-backed securities, which are now backed by the federal government,†he says.
Indeed, those executive teams that keep their companies flexible and resilient will be able to adapt in the face of today’s seismic changes. Those that don’t will face extinction. Take the S&L crisis of the 1980s that led to the failing of hundreds of savings and loan associations. This too impacted the black financial firms. In 1987 there were 33 Savings & Loans on the BE 100s list. By 1992, there were four that in turn became