Private Equity Funds Investing in Growing Asian, Latino Markets
WALL STREET WEST
By CONOR DOUGHERTY
Staff Reporter
Seeking to capitalize on California’s growing Asian and Latino populations, several local investors are setting up private equity funds earmarked for minority investments.
One year ago, supermarket mogul Ronald Burkle’s Yucaipa Cos. was authorized to invest $200 million of funds from the California Public Employees’ Retirement Systems in low income communities. Now, several smaller funds are in the works.
Orange County-based investment advisory firm Takata & Associates is raising between $50 million and $100 million to be invested in minority businesses. The companies can be run by minorities, or by non-minorities if they serve a niche market or employ large numbers of minorities.
“When they need money they go to a local banker. But in general these firms haven’t participated in the equity side of the business,” said David Takata, president of Takata & Associates.
Los Angeles-based Nogales Investors, headed by Luis Nogales, former Univision Communications Inc. chief executive, is raising a $125 million to $150 million fund, and has its offices in Yucaipa’s headquarters. The funds are separate, although he plans to steer opportunities Yucaipa’s way, Nogales said. “We’re trying to look for businesses that other private equity funds are not already centered on,” he said.
Nogales said his firm has been looking at mostly consumer products firms, such as Mexican food companies and bottled water makers. He sees growth potential in this area, where markets are scattered among numerous players.
“With the economy having slowed, valuations are lower and there are lot of companies for sale that may not have been for sale before,” Nogales said. “So if you make an investment in one type of company, that can serve as a platform for consolidation.”
There is no shortage of private equity for mainstream investments. Local buyout shop Leonard Green & Partners recently raised an $1.9 billion fund, and others have been active in raising large war chests. But with so many investors chasing a limited number of mainstream deals, the price has remained high when compared to most minority-focused investments.
“There are a lot of billion-dollar private equity funds and the only way they can deploy that kind of money is with large investments,” Nogales said. “We’re dealing with companies with $10 million to $100 million in revenue. There is not as much money chasing those kinds of deals.”
One hindrance to a broader movement of funds into the minority business market is a lack of data that would give a clear picture of size and performance, Takata said.
“Financiers in general would like to know how the big opportunity is, and the kinds of historical returns they’ve provided,” he said.
According to the Milken Institute, minority firms grew 17 percent between 1987 and 1997, or six times faster than the annual growth rate of 3 percent for all businesses in that decade. The same was true for sales at minority businesses, which grew 34 percent between 1987 and 1997, compared with a 13 percent rise for all firms in that period.
