When a series of African American mayors took office throughout the '70s and '80s, few understood the significance this would have on one of the tinier pockets of the financial markets.
Cities such as Detroit and Washington, DC, elected their first African American mayors in the '70s, while the money centers of Chicago and New York followed suit in the '80s and '90s, respectively.
These mayors paid it forward, taking a chance on bankers from minority communities to arrange their debt requirements.
Wall Street dealmakers like James Reynolds and Ronald Blaylock became go-to bankers for municipalities' funding needs. After years at Merrill Lynch, Reynolds created Loop Capital in 1997, while Blaylock, a former Citi and UBS banker, founded Blaylock & Co. in 1993.
Today, firms run by people of color, women, and service-disabled veterans are stalwarts in the municipal-bond market. Loop, for example, has helped arrange more than $1 trillion in municipal finance for 49 states since its inception. And Siebert Williams Shank, founded in 1996, became the first minority- and women-owned business enterprise to crack the top 10 in US municipal-debt underwriting.
"You can't thank Jim Reynolds enough for suffering through the growing pains of setting up his firm and paving the way for the rest of us," said Ron Quigley, a managing director who runs the fixed-income syndicate at Mischler Financial Group, a firm owned and operated by service-disabled veterans.
But amid a heightened discourse over racial equity and gender equality, these minority-led firms want a bigger piece of the pie. And many within the financial markets are seeking ways to cultivate diversity and inclusion initiatives.
Coming off the sidelines
Despite success in the municipal world, minority-led firms have been relegated to bit-part roles in themarket. Diverse firms have struggled to compete with cash-rich lenders like Bank of America and JPMorgan, which have massive resources and balance sheets at their disposal to win business.
But the tidal wave of social unrest has pushed big money-center banks and corporate America to sit up and listen.
"We could never have anticipated the events of 2020," Suzanne Shank, the CEO of Siebert Williams Shank & Co., said in reference to the killing of George Floyd. "People from diverse backgrounds have expressed their frustrations and minority-owned firms can benefit from corporates' renewed interest in being more inclusive."
Blue-chip US companies such as the insurer Allstate and lenders like Citi and Deutsche Bank have turned to minority-led firms to lead recent bond deals, which has given them a slice of greater fees and exposure to the rigors of the corporate-bond world.
Deutsche Bank, which raised $750 million in bonds earlier this month with support from 11 minority-led firms, received over $1.1 billion in demand from bond buyers, which underscores that strong pedigree exists well beyond the confines of Manhattan's financial district. Siebert Williams Shank, Loop, R. Seelaus, and Mischler were four lead banks on the deal.
"What Deutsche Bank did, having us as co-lead managers, was significant," Sidney Dillard, the head of corporate and investment banking at Loop Capital, told Insider. "That was not how we worked with these firms in the past. But Deutsche, Bank of America, Morgan Stanley, Citi, and others sent a strong message to the market."
Verizon, too, mandated Loop and Siebert Williams Shank to lead a green bond alongside Bank of America and Citi in September.
Typically, minority-owned firms have been assigned lower tiers on corporate-bond deals, such as comanager or arranger. The fees are minimal, and lower-tier firms are not part of pricing discussions, nor do they have visibility over the investor orders. In capital-markets parlance, this is known as a passive role on transactions.
As deal leaders, minority-owned firms are not only on the ticket but also oversee all investor orders and liaise with top-tier fund managers like BlackRock and Pimco, tasks they wouldn't have as comanagers or arrangers.
They're also part of the decision to ultimately launch a bond sale, a move that can hurt a firm's reputation if the deal doesn't sit well with investors.
"Being part of the 'go or no-go' call and the pricing discussion is important," Annie Seelaus, the CEO of R. Seelaus & Co., said. "Getting to lead deals with regular bond issuers is also great to get that repetition in our sales force and build our chops so we can get bigger business."
Looking beyond a 'label'
Women comprise 75% of R. Seelaus' C-suite, roughly two-thirds of Loop's staff comes from minorities, and Shank cofounded her firm at a time when few women contemplated careers on Wall Street. Mischler, too, was formed on the idea that service-disabled veterans who want to transition to financial services should get an opportunity to do so. Today, it's the securities industry's oldest broker-dealer owned by veterans.
Shank, who described Wall Street's lack of diversity as "woeful," said minority-led firms were more likely to give back to underrepresented communities. But she's confident that Wall Street can support diversity in a way that's more than a mere flash in the pan.
"Black entrepreneurs are the stewards of the Black community. Employing us, engaging with us is significantly impactful," she told Insider.
Seelaus, who took over from her father in 2015, didn't anticipate how powerful corporate connectivity was going to be around diversity and inclusion initiatives, and acknowledges that the movement has galvanized her business.
"I faced challenges in the beginning in being taken seriously, but that's starting to be less and less," she said. "We struggle a bit to be seen as more than just our label. I think that's why the Deutsche Bank deal and the last year has been positively affirming for us."
Seelaus' asset-management team also launched a one-year rotational job program alongside Apple for young women of color to enter and learn the asset-management business. As part of the arrangement, Seelaus will manage a portfolio for the tech giant. The firm, which announced the initiative in March, is due to make its first two hires imminently.
"We're trying to draw from schools that don't normally get recruited or kids that don't usually get a chance," she said.
Wall Street isn't rolling out the 'welcoming mat'
While lending stalwarts may be opening up to the idea of sharing the workload, it's a slow process.
An industry fueled by profits is reluctant to give up slices of something that isn't getting bigger.
"Wall Street has never been a place that's going to put out a welcoming mat for firms coming in," Dillard said. "Because the firms already there like what they're getting."
But bulge-bracket banks on Wall Street are starting to "buy in" on diversity and inclusion, even if they make less money on some transactions.
"Bulge-bracket firms might have to say 'we're OK with the fact we might get slightly less economics' for making sure that companies are doing what they should to be on the right side of history," Dillard said.
But in seizing momentum from deals like Deutsche Bank or Verizon, bankers think it's integral to keep conversations of racial and gender equity at the forefront of corporate America.
"These moments in time that create opportunities are easy to respond to in a moment, but then things can go back to business as usual," she said. "It's our collective job to keep it front and center."