Bigger Roles, Rising Fees
Issuers are increasingly realizing the value of working with diversity firms—not to tick the box on diversity, equity and inclusion (DEI) efforts but because they receive access to a wide breadth of small, medium and large asset managers, as well as differentiated relationships and insights.
“These firms are adding value to traditional deals, bringing capabilities to issuers beyond the rewarding diversity angle,” says Teddy Hodgson, Co-Head of Global Investment-Grade Syndicate at Morgan Stanley. “For instance, veteran-owned firms have facilitated access to retired military professionals with views on geopolitics.” Though some issuers are starting to pay minority-owned broker dealers higher fees, many are still evaluating how diversity firms will contribute to their transactions, he says.
Companies are increasingly choosing minority-owned brokers for their business needs, which has resulted in improved economics and responsibilities for these firms. Historically, diversity firms earned small fees as passive co-managers on bond issuances compared to big banks. That has changed in recent years: Fees paid by debt issuers to diversity firms quadrupled from 2019 to 2021, rising to $137 million from $30 million.1 In the same period, average fees paid to them as a percentage of total fees doubled to 8%.2
In Morgan Stanley’s own bond issuances, the firm has increased the number of minority-owned broker dealers it has hired and their payouts, which helps lend first-hand credibility when engaging issuers about working with these firms, Aklilu says. “While Morgan Stanley has worked with minority-owned broker dealers for over a decade, we revised our syndicate structure in 2020 to give additional opportunities and access to them in our own bond issuances,” says Kevin Sheehan, a Managing Director in Morgan Stanley’s Corporate Treasury Division. “By increasing access for diversity firms in our own offerings, we set a precedent for clients considering them in their issuances.”
Having had many long-established relationships with diversity firms over the years, since 2020 Morgan Stanley has grown that number to more than 25 and continuously looks to engage a growing number of new minority-owned broker dealers.