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Introducing Ariel Alternatives and Project Black



TO:

Clients and Friends of Ariel Investments, LLC

FROM:

Mellody Hobson, Co-CEO and President

DATE:

February 17, 2021

RE:

Introducing Ariel Alternatives and Project Black




Headline:

The time is right for the formation of an investment firm that scales sustainable, minority-owned businesses by simultaneously solving for two critical factors: capital and customers.


What?

Today, I am pleased to announce the creation of Ariel Alternatives—a new affiliate of Ariel Investments led by Leslie A. Brun. Les is the former Founder and Chairman and CEO of Hamilton Lane—a publicly-traded global investment firm with over $500 billion in assets under management and supervision that provides private markets solutions to its clients. He currently serves as Chairman of CDK Global, lead independent director of Merck & Co., Inc. and Broadridge Financial Solutions, Inc., and a director of Corning, Inc., and Ariel Investments, LLC.

Les will oversee the business of Ariel Alternatives as Chairman and CEO. I will continue to co-lead the parent company, Ariel Investments. Likewise, beyond an advisory role with this affiliate, John Rogers will remain focused on his portfolio management and Chief Investment Officer duties as Co-CEO of the parent company. We anticipate Ariel Alternatives will benefit from shared services from most departments of Ariel Investments except our domestic and international equity research teams will have no role in this new initiative.

Project Black is Ariel Alternatives’ first private equity initiative. This innovative effort will invest in middle-market companies that may or may not currently be minority owned; transforming these entities into certified minority-owned business enterprises (MBEs) of scale and forging a new class of Black and Latinx entrepreneurs. These companies will seek to provide differentiated, high-quality products and services to Fortune 500 customers in some of the largest areas of corporate spend. This scale—which heretofore has been largely absent among minority-owned businesses—will enable these enterprises to compete on the same footing with Tier 1 suppliers. The key point here is that Project Black leverages existing corporate spends—what Fortune 500 companies are already doing—in a way that can help narrow the wealth gap in underrepresented communities. We are helping to nurture a virtuous circle of spend and build. By spending with firms owned and run by people of color, big business is able to simultaneously help foster and elevate our communities. This is a powerful dynamic.


Why?

While many C-Suite executives have acknowledged the merits of having both an employee base as well as a supply chain that reflects our broader societal demographics, little tangible progress has been made to-date. “There are 124,000 Black-owned employer firms in the US, representing only 2.2 percent of all employer businesses even though Blacks make up 14 percent of the US population.”1 Moreover, according to the National Minority Supplier Development Council (NMSDC), Fortune 500 companies currently direct an average of two percent ($125 billion) of their total spend to minority-owned businesses. And yet, their stated target is 10-15 percent utilization of minority-owned vendors. With 95 percent of minority businesses having less than $5 million in revenue, few MBEs have the scale to accommodate this $1 trillion opportunity.

Additionally, many Fortune 500 companies often seek more than one supplier—especially in critical areas. As such, our companies will offer vendor diversification from both a business risk perspective as well as a more inclusive capital perspective.


How?

The fix for today’s societal challenges is economic. Consequential Black and Latinx businesses need to be forged in America. To the extent we can grow these companies, more and more people will be able to participate in the economic prosperity of this country. In the US, there are 200,000 middle-market businesses with revenues between $10 million and $1 billion. By some estimates, this middle-market segment represents one-third of US GDP. We will target these existing businesses—companies with the size to compete as Tier 1 suppliers. They will be transformed by operational excellence, financial resources, minority ownership and leadership as well as a commitment to building exceptionally diverse workforces.

Project Black plans to invest in standalone companies and corporate divisions in the middle-market with $100 million to $1 billion in revenue. Initially, the investment team will pursue 6-10 deal opportunities. Through a rigorous review and direct engagement, we researched the needs of Fortune 500 companies and will target investments in the following areas: healthcare, industrial, media and marketing, outsourcing, manufacturing and packaging, technology, transportation and logistics, and financial and professional services. Through our ownership and ongoing counsel, we believe these companies can become scalable platforms with long-term growth potential.


Who?

Three Black senior investment professionals will partner with Les in executing the day-to-day investment process. Richard Powell and Frantz Alphonse are Senior Managing Directors of Ariel Alternatives and Co-Founders of Project Black. Prior to Ariel, Richard and Frantz worked together for more than two decades as Co-Founders of APC Holdings LLC, a private investment and corporate development firm. Their personal stories are fascinating—from Jamaica (Richard) and Panama (Frantz), to the Olympics and professional soccer (Richard), to Harvard (Richard and Frantz). Charles Corpening will serve as a Senior Managing Director of Ariel Alternatives and Project Black. Previously, Charles worked at Citigroup Venture Capital and the Rockefeller Group, and most recently as Chairman of Joshua Partners, a private equity firm. (He also happens to be a fellow Princetonian!) These investors bring deep experience as well as important relationships with Fortune 500 C-Suite executives, board members and purchasing officers. Their prior transactional experience also directly informs Project Black’s targeted investment approach.

Beyond our investment team, major business leaders from a variety of disciplines have come together acting as “accelerants” to help advance our efforts. While we do anticipate additions to this group, those currently playing an advisory role are:

  • Paget L. Alves, former Chief Sales Officer and President of Business Markets Group, Sprint; Board member of Assurant, Inc. International Game Technology, PLC, Synchrony Financial, Yum! Brands, Inc. and Ariel Investments, LLC

  • James Bell, former CFO, Boeing; Board member of Apple Inc., CDW Corp., and Dow Inc.

  • William M. Lewis, Jr., Managing Director and Chairman of Investment Banking, Lazard Ltd.; Board member of Ariel Investment Trust

  • Robbie Robinson, Co-Founder and CEO, Pendulum Holdings, LLC; former partner, BDT Capital Partners

  • John W. Rogers, Jr., Chairman, Co-CEO and Chief Investment Officer, Ariel Investments. LLC; Board member of The New York Times Company, Nike, Inc., McDonald’s Corporation and Ariel Investment Trust

  • David J. Vitale, former Vice Chairman of Bank One; Board member of United Airlines Holdings, Inc., several Duff & Phelps investment company funds and Ariel Investments, LLC

We are also delighted that JPMorgan Chase & Co. supports our purpose, shares our values and wants to help boost our impact. They have committed up to $200 million to be co-invested alongside Project Black for future transactions.


When and Where?

Today, we are announcing the formation of Ariel Alternatives and Project Black. We expect to be operational beginning in the late spring or early summer of 2021. Ariel Alternatives will be located in New York City, separately from our International equity team which is also domiciled there.


Outcomes:

We believe our sizable MBEs will be able to generate approximately $8-10 billion in new diverse spend annually for our customers.

We are focused on creating 100,000 jobs for underrepresented minority employees within the next 10 years. In addition to job creation and career development, we will endeavor to share ownership so that Black and Latinx wealth can grow at every level—from the rank and file to the C-Suite.

We will nurture and grow minority businesses in our own supply chain while forging a new class of minority executives. By opening up leadership opportunities, we will help expand a pipeline of experienced and battle-tested entrepreneurs and business leaders who will infiltrate other majority-owned companies and perhaps even start their own successful MBEs with our help and support.

Our ability to strategically locate our growing businesses in areas that would benefit from community development is another lever that enables us to effect change. While these ambitions are not new, they have not been done at scale by people of color, for people of color. Herein lies a new narrative where we are not able to adequately characterize Project Black’s cultural impact. We have the ability to break today’s mental models which relegate minority-owned businesses to a second-tier status because they lack scale. Size matters. Just a handful of companies can shift this paradigm and lead to new possibilities for underrepresented communities.

Ours is a novel idea that has never been done before. We are attempting to magnify impact through financial success. Ariel’s 38-year history provides the foundation—the people, the relationships, the problem-solving skills and the passion—needed to urgently and patiently scale the opportunities that can change the business world.

Please know we sincerely appreciate your consideration and welcome any questions or comments you might have.




1 Bruce Katz, Ayiah Josiah-Faeduwor and Avery Harmon, “Who Holds the Key to Equity,” The Philadelphia Citizen. July 12, 2020.




 
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