#JustFinance: A BIPOC Centered Economy

VALERIE RED-HORSE MOHL, of Cherokee ancestry, is the former Executive Director/CEO of Social Venture Circle, a non-profit leading in the field of social impact; building and galvanizing the business world to create social, economic, and environmental change. She serves as the Advisory Board Chair of Stanford’s University Center for the Comparative Study of Race and Ethnicity and teaches two undergraduate courses on Entrepreneurship for Social Impact and Racial Equity. She is the CEO/founder of Red-Horse Native Productions, Inc., a film production company focused on bringing important documentaries to the screen for which she directs, produces, and writes. Red-Horse Mohl is the CEO/founder of Red-Horse Financial Group, Inc., she has more than 20 years of experience in the financial services industry with a unique expertise in the Native American tribal government sector. She has raised, structured, and managed over $3 billion in capital and holds seven FINRA registrations.

BIPOC represent over 70% of the world but manage less than 2% of global capital. Our goal is to correct the unjust distribution of assets by ensuring investors come from the communities historically left out. This year, $500B+ in federal stimulus was deployed to offset the impact of COVID-19 on small businesses, but over 90% of businesses owned by people of color were locked out and excluded. The only way to ensure critical, life-saving investment is directed towards communities of color is to shift who manages capital in this country. Fundamentally, we reject the idea that communities of color need saving. Instead, we intend to secure a place for investors of color to flourish.  It is people of color, equipped with investment capital, and an ecosystem that supports them, who will most effectively overcome the root problems of poverty and economic injustice that prevent our communities from thriving.

There are over 130 million Black, Indigenous, people of color in the U.S., approximately  40% of the country. But at 23.4 million earning under $20,212 a year, the majority of us live in poverty.  Yet money lives in our communities; at $3.9T, the spending power of BIPOC would be the 4th largest GDP in the world.  But that power isn’t being harnessed within our communities because people of color have been systematically deprived of the opportunity to build wealth through asset ownership. My goal is to leverage the catalytic capital of this award to finish building (and capitalizing) a financial platform to begin shifting the market. Unlike a strictly non-profit structure, we are designing this to meet and ideally exceed market returns while correcting the country’s distribution of wealth, at scale. The data supports this thesis. For example, hedge funds controlled by women or minorities outperform their peers, delivering almost double the returns over the last three years, according to a 2020 Bloomberg analysis of hedge fund data. The hybrid for- and non-profit structure is designed to complement the investment vehicle with an organization dedicated to ensuring others can replicate what we build.

Asset allocators, managing large sums of capital (like pension funds, university endowments, foundations) are risk averse. As a result, they are reluctant to invest into emerging (new) fund managers, thereby making it challenging for BIPOC-led funds to break into the industry. We’re creating a three-pronged solution: 1) building a financial platform to invest in and scale emerging managers of color with the goal of building momentum (to help secure additional investments) that ensures their success. In doing so, we will massively increase the capital deployed into communities of color.  In addition to directing investment towards emerging managers, our platform will ensure investors of color are positioned for growth through incubation and industry-specific advocacy. Our platform cannot stand alone, emerging managers need a supportive ecosystem to thrive. To that end, we will also 2) create a resource network and publish lists of qualified BIPOC managers from all asset classes and 3) we will codify our best practices to ensure what we build is replicable using our blueprint and enforced through advocacy for government policies that hold institutions accountable for compliance and adoption; we are in essence building and open-sourcing what will become the global standard for investing for racial equity.

While conventional research, from focus groups to interviews and data analysis, is an important way to understand the needs of a community being served, nothing is stronger than lived experience. The communities we serve are the communities that my partners and I come from and continue to live within. Like me, my advisors, Latina builder capitalist and entrepreneur, Nathalie Molina Niño, Afro-Latino serial entrepreneur, and West Point army veteran, Perfecto Sanchez and seasoned African-Amerian finance guru, Jim Casselberry, each have a life-long track record of serving the needs of our own communities of birth, be they tribal nations, the Latinx or the Black communities. We share a common commitment to build an economy that is in constant conversation with all its stakeholders and is regenerative, equitable, and prosperous for all. In addition, in partnership with institutional capital leaders, we have already started building a comprehensive database and resource directory of diverse fund managers across all asset classes, which includes investing into local, community-owned banks, micro-businesses, and other place-based investments beyond just high-growth venture capital. Our human-centered methodology requires stakeholder engagement in order to develop best practices and proven, evidence-based mechanisms for increasing the median net worth of BIPOC communities.

The median net worth of a Black Bostonian is $8. This did not happen by accident. Our project is an intervention designed to correct the mechanisms that weaponized the financial system that has effectively locked communities of color out of most sectors, from the food we eat, schools we attend, homes that we raise our children in, to equal protection under the law. By profitably directing capital into historically ignored communities (and advocating on their behalf), we will measurably increase multi-generational wealth and the median net worth of communities of color, thereby creating sustainable, lasting change in our society.

In 2019, when serving as the CEO/ED for Social Venture Social, I encountered an African American fund manager who needed help applying for institutional funding. She met all the program’s qualifications except the minimum total “Assets Under Management” (AUM).  Most institutional managers who deploy assets have minimums that range from $100 million to $1 billion.  These minimums are extremely unrealistic, and represent the sort of structural bias in our financial markets that have long prevented accumulation of generational wealth for people of color. To solve for this gating item, we designed a fund of funds program without the double fees (minimal service fees only). We would meet the AUM qualifications by aggregating several funds and then allocate the capital to several qualified emerging fund managers. We created the model and I became convinced that this structure could become a much larger and far-reaching platform, to harness greater multiples of institutional capital and create an equitable market. The lack of diversity in financial management directly affects the lack of equality in distribution of wealth. And to move the numbers from the current 98+% concentrated under the management of only while males will take a methodical sustainable and profitable plan.

Early in my career, I imagined I would start working for a large bank or financial institution. However, prior to accepting any job offers, I met with a tribal nation who was stalled in launching their economic development plan, due to obstacles related to bias in tribal lending. Senator Daniel Inouye (at the time, head of the Senate Indian Affairs Committee) pulled me aside and politely, but sternly, told me that no group of people could truly thrive unless they controlled their assets and capital. He knew this tribe was being taken advantage of by predatory lenders and encouraged me to launch my own investment bank and focus on financial literacy, economic development, and ultimately, tribal control of tribal assets.  That moment changed my life trajectory. It wasn’t easy but I did launch the first Native American owned investment bank on Wall Street. Nearly 25 years after that conversation, I remain passionate about creating a fair and balanced market that centers BIPOC justice, equity, investors and leadership within our financial systems. I am dedicated to now apply my experience and knowledge beyond my tribal community into making a sustainable difference for all communities of color. 

I’m uniquely qualified given my nearly 30 years as a successful entrepreneur founding and growing three businesses with expertise as a securities professional helming investment banking and financial advisory firms. I have structured and/or managed $3 billion in transactions (all asset classes) and currently hold seven FINRA registrations. I specialized in sovereign finance whereby I have developed long term sustainable solutions for tribal nations. I frequently train tribal leaders on topics of finance and economic development and have witnessed firsthand the inefficiencies in our capital markets. I can bring all stakeholders together (and maintain relationships with) just as I’ve done before with government leaders, higher education managers, institutional funds, high net worth individuals, spiritual leaders, professional and NCAA athletes, celebrities, tribal leaders/nations, and community organizers. I have deep experience in global philanthropy and have also founded multiple non-profit organizations for which I have directed the overall planning, recruiting, fundraising and development process. As a filmmaker I have focused on producing/directing documentaries that raise awareness about overlooked topics (i.e. Code Talkers, Wilma Mankiller, etc.). Finally, creating didactic tools for teaching others and effective scaling the transfer of knowledge is second nature to me, as I am Board Chair of Stanford University’s Center for the Comparative Studies in Race and Ethnicity (CCSRE); and a Stanford lecturer teaching two courses (Entrepreneurship for Racial Equity and Social Impact and the SENSA Lab for Social Enterprise).

I once co-managed a transaction for a tribal nation in New Mexico, working with a large firm with a market cap in the billions and an all white, male team. While I was more senior than many of them, they treated me as a subordinate. The tribal project we were financing was in partnership with the City of Santa Ana and would bring much needed jobs to the local, primarily Black and Latinx, population. We divided up duties; I completed my work flawlessly but the other firm made a serious mistake that put the entire deal in danger. At the closing, they pressured me to reduce my fee to cover their mistake and threatened to bad mouth me to the tribe if I refused. I was shocked by the abuse of power, but did not capitulate. They asked me to leave the premises immediately, but ultimately covered their mistake and paid my full fee. I was, however, not invited to the closing celebrations and they did attempt, unsuccessfully, to harm my reputation. Speaking truth to power is at the core of everything I do. This project  continues my mission to confront and overcome obstacles to justice for the underestimated.

In 2014, as the financial advisor to the Navajo Housing Authority (“NHA”) for several affordable housing developments, I found myself having to translate for stakeholders with little in common, in a high stakes situation. Although NHA receives funding each year from HUD, it wasn’t enough to pay for the developments needed.  I modeled a financing strategy, identified a purchaser (large Wall Street firm), hired qualified bond counsel and arranged group meetings with high level HUD officials. There were so many different background, language and cultural differences that I had to truly serve as a bridge to help them coalesce.  
 
There was obvious bias in the tax code and HUD had not structured protocols for tribes (as they had for non-tribal municipalities).  Instead of shaming anyone, I proactively authored the appropriate documents establishing the protocols that would satisfy the rating agencies’ and purchaser’s needs as well as meet HUD regulations.  I provided comprehensive financial analyses and led the team through a collaborative change management process.  That work has established a path for all tribes to leverage their HUD dollars through tax exempt bonds. This collaborative multi-stakeholder process is what we will utilize in building #JustFinance: A BIPOC Centered Economy.

Investing in undervalued assets to get above market returns, is one of the most basic and important best practices in investing, embraced and popularized by titans like Warren Buffett. So to say that my project, centering on communities of color, probably the most undervalued demographic in the nation, is innovative, would probably be a stretch. Given the strength of this thesis, and the data that supports it, it’s frankly baffling that it has not been deployed by others, at scale. But where it might lack in novelty, it makes up for in it’s uniqueness in the market and the potential to truly disrupt a sector that has long been heavy on bias and light on true diversification and inclusivity.

Last November, one of my team members penned an op ed in Fast Company, in collaboration with a number of leaders in our movement, asking the timely question, “Why Is #FinanceSoWhite?” You can find it, and the deep collection of research to support her suggestions for addressing the problem and deliver meaningful outcomes, here: https://www.fastcompany.com/90405621/why-is-financesowhite

Fundamentally, we believe that the solve for the problem of #FinanceSoWhite is a model of #JustFinance that is centered in two key things, a) an unwavering commitment to just and fair allocation of assets centering on communities of color (inputs)  and b) returns on investment that prove this is not just fair, but also a strategy for growth that can compete in the market (outputs). Our theory of change is rooted in interventions that deliver increased multi-generational wealth for the BIPOC community. In essence our Theory of change is to replace #FinanceSoWhite with #JustFinance.

The stakeholders on this project range from a targeted number of large, institutional capital managers (and indirectly the hundreds of thousands of contributors to the pensions and endowments that they manage) to hundreds of emerging asset managers of color and the dozens of investment partners who will be our anchor investors, initially. But the stakeholders that will be most directly impacted are the emerging managers of color who we will incubate, invest in and advocate for, and the founders of color that our investments will make possible. How many people will be directly affected will depend primarily on how much capital we’re able to deploy in the first five years, but my goal, provided I’m able to bring the right visibility, expertise and partners to the table, would be to ensure we’re touching at least a a few dozen emerging managers in the first year (each directly investing in dozens of companies that in turn will create hundreds of jobs), and hopefully 100’s of them by year five. 

I recently heard testimony from an Alabama native (https://bbc.in/2ZkKFQn) named Brian Rice, who returned to his home state to re-invest in his native, Birmingham community. After purchasing a few buildings in an urban, predominantly Black area, with the intent to refurbish them re-invigorate the local economy, he was denied the loans he needed because of unethical banking practices rooted in bias, including using misleading property comparisons to value his properties at zero (i.e. calculating the commercial property value by comparing it to rural farm land and abandoned lots). This rendered his application ineligible and unbankable. This is not a historical story like redlining from 50 years ago or Jim Crow before that. This is happening right now. While this project has specific growth, capitalization and performance metrics that we plan to hit each year, the larger goal here is simply this: to ensure that heroes like Brian Rice, in places like Alabama (and eventually far beyond), have a place to go to get the support they need to make their dreams and the dreams of his community come true, while being treated fairly and with dignity. We know there are pockets of these solutions scattered around the world, our hope is to create the brand and the cultural momentum to ensure that once we build it, all will come. This is why the media aspect of this is critical to its success, inclusive financial strategies don’t work if no one knows about or understands them!

One of the risks with a platform like this, is that we go through the massive effort of building it and no one comes. Meaning, securing the visibility to help ensure momentum, growth and, especially, widespread adoption and replication is critical to our success. Which means expertise, not just in building a brand and marketing a platform, but in truly helping to build a movement that educates the wider public about the importance of supporting the creation of BIPOC-led economy, is central. We already have the support and participation of many BIPOC emerging fund managers, but ensuring we have the expertise and access to movement builders, strategists and key stakeholders across all sectors we touch (not just finance), is a hurdle we think it’s important to clear, and clear soon. In other words, partnerships of all kinds are going to be key, as will savvy movement builders who will be helpful in the effort to scale both awareness and adoption. Among many other things, the pandemic and the current economic crisis have driven the point home that communications will make or break any initiative as capturing people’s attention becomes increasingly challenging.

Our strategy is, by design, collaborative, as it will require partnerships to execute well. To overcome market barriers for example, we are working with industry experts in sectors that have the biggest impact on BIPOC communities. Sectors such as real estate, food and agriculture, education, healthcare, banking and technology. In some cases we will need to form joint-ventures with leaders in these industries to accelerate and scale our investments. This would include co-investors, influencers and media partners who can help amplify the work. For example, to ensure widespread knowledge of our model and to tap into what we know is a high (perhaps latent) demand for equitable financing, we hope to partner with celebrities, influencers and thought leaders to share our vision of someday living in a world where asset ownership and wealth creation is available to anyone, and more and more of us can can shop, eat, and engage with BIPOC-owned companies. 

Our model, much like most emerging manager investment strategies, requires we partner with larger institutional investors (think: large investment banks and asset allocators, managers of pension funds and university or foundation endowments) as investment partners and also as co-investors. However unlike most organizations in this space, we will also need to partner with legislators and local civic and business leaders to ensure that we are prioritizing investment strategies that are tackling the communities and the geographies that need the most investment. In doing that (investing in undervalued assets, just like Warren Buffet does), we are increasing our chances of delivering great investment returns. Sometimes, however, returns will require a long view and blended finance (where not everyone at the table will be a traditional short-term investor) will become important. That means we’ll need partnerships with local municipalities and philanthropic sources of capital, to help de-risk investments, will also be key. I (and my colleagues in their own businesses) have been in relationship with these stakeholders, in many cases for years, as we have executed on similar models within our respective communities in the past.

As a hybrid for-profit and non-profit entity, we will need to engage in two models to be sustainable. In our for profit business model, our platform will charge standard investment management fees and carry (a percentage of earnings in an upside) in order to deliver returns to our investors while also competing in the marketplace. In our non-profit work, we will partially fund operations and advocacy by channeling tax deductible philanthropic dollars into a 501c3, and raise similar types of capital from external partners who directly benefit from our work and use our open-sourced resources.
 

We are raising capital primarily through family offices, endowments and foundations. Our goal is to announce our platform in September 2020 with several committed strategic investors and partners. We are happy to share our target and projected revenue model in detail closer to launch date.

We are happy to share partner organizations closer to launch date, but can share that our capital table will include both equity investment as well as real estate assets that our anchor investment partners will provide in order to help us leverage during this important launch phase. Catalytic capital (like real estate assets or a prize like Elevate), as we see it, is critical at this juncture because rather than being deployed directly into operations or investments, it can have a multiplier effect by coming in early and funding the planning, strategy and fundraising operations that will ultimately translate into exponential impact down the line. Every dollar to pay for a fundraising roadshow for example, catalyzes exponentially more capital and can make or break any ambitious, early stage project. 

We will be securing key anchor investors by September. At that point, with those named anchors in place, we will kick-off a fundraising roadshow to raise the rest of the capital needed to stand up the 1st phase of our operation.

I see the unrestricted Elevate Prize award as catalytic capital to help launch #JustFinance with the freedom to define it according to my vision and that of my team. Our expenses will include primarily general and administrative (G+A) costs, funding for commissioned research and legal fees. G+A includes partial staffing for myself and my two core members and the hiring of a new analyst. Research and Development will primarily be focused on collecting data, insights as well as the building of our investment pipeline. Legal will consist of the necessary expenses to form the financial platform itself. I’d be delighted to provide our current and projects budget files separately upon request.
 

I believe that in order to make sustainable, scalable and impactful change with this project, we need more than just good finance vehicles. We need a collective cultural shift in how we invest capital that aligns with anti-racist values. The Elevate Prize provides a platform to reach influential institutions and influencers with like-minded values who have the ability and willingness to support and accelerate bold change. Not all systems are meant to be ‘rebuilt’ and the financial system in particular, is poised and in need of disruption that is grounded in diversity. This project, with the help of Elevate, will set a standard for best-practices on how collectively, we can learn from the youth movements that have reached peak volume since the murder of George Floyd, and ensure that those lessons are codified into the DNA of the the economy that will power the new reality that communities of color have been dreaming about building for centuries.