We may have a winner in the search for a positive agenda with the power to heal divisions and even provide an optimistic vision for the future: the Ownership Economy.
Strategies that cut workers, families and communities into ownership stakes in appreciating assets like businesses, real estate and financial accounts are attracting bipartisan support – and private investors. Rather than further concentrating rewards at the top of the economic pyramid, those strategies can drive shared prosperity and broad-based wealth-creation.
That can create more value for investors as well. Gary Community Ventures’ Santhosh Ramdoss, along with Spring Point Partners Margot Kane and Mari Kuraishi of the Jessie Ball DuPont Fund will join ImpactAlpha’s David Bank to discuss “Closing the Wealth Gap: Investing in the Ownership Economy,” at next week’s annual conference of Mission Investors Exchange in Atlanta. The conversation will unpack some of the complexities of investing in ownership strategies in service of bringing even more asset allocators to the table.
Gary Community Ventures and Spring Point Partners, for example, have backed Apis & Heritage Capital Partners to finance employee-led buyouts, particularly among companies with large representations of workers of color. A&H last month sailed through the $250 million target it had set for its second fund with backing from Gary, along with Ceniarth, A to Z Impact, Calvert Impact, Social Finance, Kachuwa Impact Fund and the Robert Wood Johnson Foundation and other asset allocators.
“Instead of concentrating wealth and power for private equity firms, they’re pointing those returns back to the employees themselves and creating a mechanism for them to share in that value,” Gary’s Catherine Toner told ImpactAlpha.
ImpactAlpha Edge has identified at least 140 LPs with at least one allocation to broad-based ownership strategies (see LP Scan, below).
“We are actively looking to support new fund strategies being launched to finance employee ownership conversions,” Candide Group’s Aner Ben-Ami writes in a guest post on ImpactAlpha. “We are also engaging with established private credit platforms that are not yet active in the employee ownership space, educating them on an opportunity they may have overlooked thus far.”
Shared prosperity
As mid-term elections approach in the US, candidates of all stripes are looking to address the well-founded economic anxieties of many families and communities. A major theme of the Mission Investors Exchange gathering will be, “Investing for collective prosperity,” including through ownership strategies and wealth-building initiatives. “This is precisely the moment to come together, refine our investment practices, and put more capital to work,” MIE’s Matt Onek writes in a guest post on ImpactAlpha.
A “new wealth agenda,” laid out several years ago by the Aspen Institute’s Financial Security Program, charted a path to increase by 10-fold the wealth of U.S. households in the bottom half of the country’s wealth distribution. The path starts with “affordability” measures to establish financial security by helping households establish positive monthly cash flows and reduce their burden of medical, student-loan and other debts.
To actually build wealth and set their families up for future prosperity, however, households need access to assets that appreciate over time. Chief among those assets is real estate, including commercial property as well as home ownership. Gary Community Ventures helped launch the Dearfield Fund, which has provided up to $40,000 in down-payment assistance to help hundreds of buyers purchase their first homes. The interest-free loans are paid back when the homeowners sell or refinance. They also pay Dearfield 5% of the home’s appreciated value.
That focus on appreciation has at times pitted ownership strategies against affordability measures that seek to insulate housing and communities from the pressures of speculative markets and gentrification (see, “From affordable home ownership to fair-shared appreciation and generational wealth”).
In Jacksonville, Florida, the Jessie Ball DuPont Fund has worked with community land trusts to create ways for families to get into housing ownership in ways that are easier than market forces often permit, Kuraishi said.
In Philadelphia, Kensington Corridor Trust is an ambitious effort to, at once, revitalize a disinvested neighborhood and protect local residents and small business owners from gentrification and displacement. Under the perpetual purpose trust, which is ultimately governed by the neighborhood’s roughly 32,000 residents, the properties have been effectively removed from the speculative market in an effort to ensure long-term affordability, collective ownership and community power (see, “Kensington Corridor Trust demonstrates neighborhood-led revival without displacement”).
Though advocates quibble over some of the details, the new “Trump accounts” created under last year’s budget bill fulfill a longtime goal of asset-building advocates to give more people a stake in the financial markets. The Council of Economic Advisors estimates that for a child born this year, the initial $1,000 federal contribution, topped up with maximum contributions of $5,000 per year, could be worth more than $300,000 when the child turns 18 (see also, “Stackwell seeks to help young investors start to compound their wealth early (podcast)”).
AI disruption
Ownership, of course, is central to all investing. “Everything you do on your balance sheet has an impact on whether you’re extracting or putting back wealth in the community,” says Gary’s Ramdoss. “How do you share a little bit more of it?”
Ownership Works, a nonprofit association of dozens of private equity firms, has set a goal of sharing $20 billion of wealth with workers by 2030. But that’s just a small percentage – typically about 3% – of the value of those companies (see, “Sharing wealth with workers creates value for private equity buyout firms. So why not share more?”). Few of those companies would likely be candidates for 100% conversions to employee ownership, Ben-Ami points out in his guest post.
In the vast middle-market of companies, however, there are plentiful opportunities for employee ownership. “We’re seeing a lot of interest from folks in channels that you wouldn’t have historically thought of, people who maybe aren’t as close to the employee ownership conversations,” said Katie Kimble, who with Michael McGinley has launched Monarch Investment Partners for finance conversions to employee stock ownership plans. “The quantum of interest in employee ownership is growing, but within that, the subset of sellers who need capital to make it happen is also growing.”
Chicago-based Monarch is seeking to raise $250 million for its inaugural fund to provide up to 100% of a seller’s financing to facilitate up to 10 employee-led ESOP buyouts.
“Rough sketch, through fund one, we’d love to see that there’s a couple thousands of employee-owners and a billion dollars of enterprise value and sustainable jobs in America,” McGinley told ImpactAlpha. Such companies, he said, “don’t have to change hands, jobs continue to flow in communities, and relationships with communities and suppliers and customers stay in place.”
The economic disruption caused by the accelerating adoption of artificial intelligence makes broad-based ownership strategies even more salient, and urgent. When workers share in the upside of productivity gains, they have incentives to embrace the tools that generate them, notes Integrated Purpose’s Devin Murphy. That can shift a firm’s focus away from cost-cutting and toward market expansion and value creation.
During the pandemic shutdowns, employee-owned companies were more likely to retain staff and less likely to cut pay than other companies. In earlier recessions, employee-owned companies were more likely to remain in business.
“Investing in employee ownership conversions now is a downpayment on reduced unemployment in the future,” Murphy says. “For asset allocators considering systemic risks, perhaps the tradeoff of a few basis points now is worth stemming the pain later.”
