On the prospectus for $7 billion of Intel bonds issued in July 2015, the top billing was unsurprising: the banking powerhouses Wells Fargo and Bank of America. Then, in small print, came two lesser-known underwriting firms: Lebenthal & Co. and Williams Capital Group. Not exactly titans of Wall Street. So what were they doing there?
The answer has something to do with the push for diversity in Silicon Valley. U.S. technology companies are making a point of giving a piece of the underwriting action—long dominated by mostly male, mostly white companies—to firms owned by women and minorities. The name Lebenthal, for years synonymous with municipal bonds, disappeared from Wall Street more than a decade ago. Then Alexandra Lebenthal, the family scion, reconstituted the 90-year-old business and positioned it as a top women-owned underwriter. Christopher Williams, a former Lehman Brothers and Jefferies Group investment banker, founded Williams Capital in 1994 and built it into one of the largest minority-owned underwriters.
Intel says it is “stepping up efforts” to work with minority- and women-owned financial firms, according to its website. Apple turned to minority- and women-owned underwriters for the first time last year.
“What we used to think of as minority groups are starting to feel their own economic power,” says Ronald Hill, a professor of marketing and business law at Villanova School of Business. “If you’re looking at growth, ignoring that puts you behind.” Others, however, see the Silicon Valley move mainly as public relations: Allocating a tiny fraction of deals to the firms costs corporations next to nothing. “It’s entirely cosmetic,” says Roy Smith, a professor of finance at New York University and a former partner at Goldman Sachs. “It’s a sign of good behavior.”
Executives at women- and minority-owned firms say they earn their fees by placing securities with investors the big boys often overlook. They also say getting business is fiercely competitive. “Nobody’s just handing out money,” says David Jones, co-founder of CastleOak Securities, a black-owned firm in New York. “Maybe we get a look because we’re a minority firm, but you don’t get repeat business.”
Jones has been expanding his fixed-income sales and trading team, but he has no illusions about where CastleOak stands in the pecking order. “You can’t say we’re going to be the next Goldman Sachs,” he says.
On Wall Street, like elsewhere, it’s not always clear who benefits from good intentions. CastleOak, for instance, is 45 percent-owned by Cantor Fitzgerald, whose top management is made up of nine white men and one woman. A Cantor spokeswoman says CastleOak has a separate advisory board of three people, all African American.
In 2015 the two dozen largest tech companies issued $80.7 billion in debt, according to data compiled by Bloomberg. Firms owned by women, minorities, or veterans played a role in 11 of 14 deals, underwriting from 1 percent to 6 percent of each. Microsoft hired a half-dozen minority firms, including CastleOak and Williams Capital, to underwrite $65 million each of a recent $13 billion issue.
Rainbow PUSH Coalition, the lobbying group led by the Reverend Jesse Jackson Sr., has been prodding tech companies to include minority-owned firms in their underwriting. Qualcomm, for one, heeded the group’s message. “After a thorough evaluation, we decided it was a good opportunity,” says Emily Kilpatrick, a spokeswoman for the wireless equipment maker. Qualcomm issued $10 billion in bonds in May. CastleOak and Drexel Hamilton, a veteran-owned firm, were among the underwriters.
—With Ian King
The bottom line: Underwriting firms run by women and minorities are benefiting from a Silicon Valley push for more diversity.