INVESTMENT FOCUS

LMI and Minority Communities

LMI and minority communities are often economically disadvantaged areas that, as a result, may suffer from standards of living and employment conditions that are below national norms.

In addition to LMI communities, the Diamond will invest in businesses that are located in communities with large minority populations and businesses in which the equity is significantly owned by minorities.

The Principals believe that the Diamond’s proposed activities are well suited for underserved communities. Immigration and changing demographic trends in the U.S., combined with the large number of LMI or Ethnic Minority Businesses and competitive advantages these businesses derive from their location or minority certification, should present the Diamond with a large and attractive set of investment opportunities.

It is well documented by the National Minority Supplier Development Counsel (minority vendor and diversity trade association) and the U.S. Minority Business Development Agency that minorities and women enjoy preferential purchasing initiatives with government, diversity, and corporate initiatives.

Despite the presence of attractive underlying investment fundamentals and strong financial accomplishments, senior executives of LMI or Ethnic Minority Businesses often cite financial constraints as an impediment to future growth. The Principals believe that the lack of dedicated financial resources for LMI or Ethnic Minority Businesses creates the opportunity for attractive returns on investments for investors with the knowledge, skill and discipline to identify opportunities in these challenging and sometimes politically complex environments.

The following table summarizes the geographic concentration and industry clusters of Ethnic Minority Businesses in select metropolitan areas across the U.S.

 

Geographic and Industry Profile of Ethnic Minority Businesses
(1) Metropolitan Statistical Areas for the following areas have been combined due to geographic proximity: San Francisco, CA and Oakland, CA; Washington D.C. and Baltimore, MD; Miami, FL and Fort Lauderdale, FL; and Raleigh, NC, Durham, NC and Charlotte, NC.

(2) Industry clusters exclude real estate and commercial and residential construction given that SBA regulations prohibit the Diamond from investing in such businesses.
Source: United States Census Bureau 1997 Economic Census, Survey of Minority- and Women-Owned Businesses. Only certain statistics will be updated in the 2010 Census.

National Association of Investment Companies (NAIC)

The NAIC commissioned a report of minority managed firms,

Demographic Trends Affecting LMI and Minority Communities
Statistics indicate that minorities (U.S. citizens who are African-American, Caribbean, Hispanic, Asian and Pacific Islanders, or American Indian) will comprise a significantly greater percentage of the overall U.S. population in the coming years.

Driven primarily by immigration trends into the U.S. over the past 30 years and the larger average size of minority households, minorities will increase at a compound annual growth rate that is seven times faster than the growth rate of non-minorities between 2000 and 2030, and will increase from 28.5% to 37.0% of the total U.S. population over the comparable period, according to the U.S. Census Bureau estimates.
The minority-owned business community directly and indirectly provides over 16 million jobs for U.S. citizens, over $2 trillion of annual economic output to the U.S. economy, and is the Nation’s fastest growing business sector.[1] The 2010 Census noted that Hispanic-owned businesses increased by 43.7% to 2.3 million between 2002 and 2007, more than twice the national rate of 18%. These businesses generated $345 billion in sales since 2007. African-American-owned businesses increased 55.1% generating $137.5 billion in sales, triple the national rate. Women-owned businesses numbered 7.8 million in 2007 generating $1.2 trillion in receipts. Veterans lead FEDEX, AMWAY, Berkshire Hathaway and many other firms. More than 160 of the Fortune 500 companies are run by former United States Marines – more than those with degrees from Harvard and Stanford combined.

Despite their attractive underlying investment fundamentals and financial accomplishments, senior executives of Ethnic Minority, Women or Veteran owned or managed businesses often cite financial constraints as an impediment to future growth. Statistic after statistic, and report after report, solidly support that Diamond is in the right place at the right time with the right investment strategy.

 

Aggregate Size and Number of LMI and Ethnic Minority Businesses
Diamond will benefit from the aggregate size and large numbers of LMI or Ethnic Minority Businesses in the domestic economy. In addition, while the investment focus is primarily on the Mid-Atlantic and Southeastern regions of the U.S., the Diamond will have the ability to selectively consummate investments in LMI or Ethnic Minority Businesses located throughout the U.S. and operating within diverse industries. By opportunistically broadening the geographic and industry focus, the Principals believe the Diamond is better able to execute the outlined investment strategy and to build lasting enterprise value with portfolio companies. The following map illustrates the broad geographic locations of LMI communities in America and concentration of Ethnic Minority Businesses.

 

Demographic, Legislative, and Business Trends for Veterans
There are over 20 million veterans in the United States today and approximately 50% are minorities and women. Ethnic Minority and Women-owned businesses may benefit from incentive programs established by the Federal Government for them specifically as well as programs for veterans if they are also in that group of Americans. Veterans enjoy preferences and advantages even greater than minorities and women particularly service disabled veterans who have certain no-bid high priority preferences.

The Saving Our Heroes Act, for example, offers employment tax credits, incentives to hire and related benefits. The International Franchise Association announced a program to waive, finance, or eliminate, franchise fees for veterans. The Federal Government is required to deploy 3% of contracts to veterans through the VA. Mr. Peek in his roles at Treasury participated in numerous sessions where the Department of Defense (DOD) and Veteran Administration discussed stepping up enforcement of Federal laws in contracting.

Additional programs include: Veteranscorp, a national veteran agency that is establishing a $10 million early stage fund to help veterans; and the Jobs Act of 2010 requires states to market Treasury allocated dollars to minorities, women, and veterans.

The following chart shows that veterans are in Diamond’s investment geography:

Investment Focus

In addition to LMI communities, Diamond will invest in businesses that are located in communities with large minority populations and businesses in which the equity is significantly owned by minorities.

 

[1] Minority Business Development Agency, Annual Performance Report, Fiscal Year 2011.