BAML Capital Access Funds Management LLC
Year entered alternatives: Began raising third-party money in 2002
Investment strategy: Emphasis is on backing lower-mid-market funds focused on underserved markets
Key officers: Managing Directors Craig Fowler, Matt HoganBruen, Edward Powers, Sanjiv Shah
Assets under management: More than $1.5 billion committed to funds to date
Target allocation to private equity: 100 percent of assets
Number of GP relationships: More than 35
Among those devoted to the effort in the private equity solar system is the team at advisory shop BAML Capital Access Funds Management LLC, a business housed within Bank of America Corp. Central to the adviser’s mission: funneling capital through fund sponsors into the hands of companies located in low to moderate-income neighborhoods, companies owned or managed by women and ethnic minorities, and companies that deliver products or services to a diverse set of customers in cities and rural markets with limited access to capital. By its nature the firm often ends up backing emerging managers run by women and minorities raising funds of up to $700 million or so in size.
It has been a relatively active time for the team. Distributions have been strong, which means plenty of fresh capital to cycle back into deserving sponsors. Today that often means lower-mid-market buyout funds. However, the adviser also has an appetite for mezzanine, growth capital, venture capital, special situtations and structured equity. Primary fund commitments are of most interest, followed by purchases on the secondary market. Funds recently backed by BAML Capital Access include Bison Capital Partners IV LP, Clearlake Capital Partners III LP, ICV Capital Partners III LP, Incline Equity Partners III LP and One Rock Capital Partners LP.
Matt HoganBruen, managing director, called the lower middle market attractive in part “because you have individuals who by definition have to stake a lot of their net worths to the success of their firms.” Given their fund sizes, the sponsors also aren’t generating an abundance of management fees. “They’re really in it for the carry,” HoganBruen said. He called the flow of opportunities seen by his team especially strong right now, thanks in large measure to the adviser’s sourcing activity. “We think we are now enjoying the fruits of all that work.”
All told over its history, the adviser has committed more than $1.5 billion across nearly 50 funds. Of late it has been on a pace of committing $10 to $25 million to each of five to 10 funds per year. It has three to four active separate account clients, according to HoganBruen, adding that a new client is expected to sign on shortly. The adviser’s most recent annual report lists its investors as California State Teachers’ Retirement System, California Public Employees’ Retirement System, New York State Common Retirement Fund and New York State Teachers’ Retirement System.
Many of the executives at BAML Capital Access trace their roots to community development banks, where they cut their teeth lending to small businesses in the early to mid-1990s. Before taking on his current role, for example, Washington, D.C.-based HoganBruen led Bank of America’s lending efforts to national charter schools. The three other managing directors leading the advisory shop are Craig Fowler in St. Louis, Edward Powers in New York and Sanjiv Shah in Chicago.
HoganBruen wouldn’t discuss specifics of track record, other than to say his group has ”been very happy with our returns.” As of March 31, 2013, nearly a year ago, returns on four separate accounts managed on behalf of CalSTRS and New York State CRF ranged from slightly negative to slightly positive (see table), although returns had improved dramatically on the youngest of the four over the prior six months. It is also important to keep in mind the long J-curve inherent in separate accounts, since money gets committed over several years to funds, which in turn draw the money down over several years. The final results won’t be known on these funds until they’re fully liquidated.
What BAML Capital Access has accomplished in channeling money to underserved markets is spelled out in the firm’s 2013 Social Impact Report, with data as of March 31, 2013. Here are some highlights:
- Emerging managers have been a major beneficiary of BAML Capital Access activity. Thirty of the 45 funds that the advisory shop had backed as of the report date had been Funds I or II, while 40 had been Funds I, II or III.
- Thirty-seven of the funds (82 percent) backed by the advisory shop had at least one female or ethnic minority partner, while 26 (58 percent) had more than one.
- At the portfolio company level, 94 of 244 companies (39 percent) were at least partially owned by women as of year-end 2011, while 18 (7 percent) were majority-owned or managed by women.
- Forty-two (17 percent) of the portfolio companies were minority-owned firms as of year-end 2011, while 73 (30 percent) were either majority-owned or managed by ethnic minorities.
- The number of female CEOs in the underlying company portfolio grew by 45 percent from 2008 to 2011, to 17.
- As of year-end 2011, 13 of the 244 portfolio companies had African-American CEOs; 29 were Asian and eight Hispanic.
- Forty-eight companies in the portfolio were located in the inner city as of year-end 2011, while 14 were located in rural areas.
- At the end of 2011 underlying portfolio companies backed by the adviser employed just over 100,000 people. The work force is diverse, with 40 percent ethnic/minority and 42 percent female in 2011. “I feel very strongly our team has had a lot of impact in terms of job creation since it started,” said HoganBruen.
HoganBruen added that one of the advisory shop’s more important achievements has been to blaze a path for other firms looking to channel money to the underserved.
“Hopefully our actions have helped others figure that’s a good thing to be doing,” he said.