Black Entertainment Television founder Robert L. Johnson said yesterday that he is launching an institutional investment management firm as part of a broad effort to create what he hopes will be a major black-owned financial services operation.
Johnson said the firm, which will sell its services to large investors such as pension funds and endowments that want to put money into hedge funds, is a key part of his "second act" after his career in cable television.
"I'm approaching this in the same way I did 25 years ago with cable television," Johnson said. "Asset management is a sector that is open to opportunities by African Americans who can bring real talent to the effort. I see this becoming a major African American entity in this sector."
The as-yet-to-be named company will be majority owned by Johnson, with Deutsche Bank taking a minority stake. Deutsche Bank, a German financial services conglomerate with major investment banking and investment management operations in the United States, will also provide advisory services to Johnson's firm.
Johnson said he and Deutsche Bank began talking about a deal after Deutsche Asset Management representatives tried to enroll him as a client for their wealth management service. H. Van Sinclair, president of RLJ Cos. of Bethesda, which has been the conduit for Johnson's growing stable of businesses, then began a series of meetings with Deutsche Bank officials, including Kevin Parker, head of the bank's asset management group.
"I told them, 'It'd be great to have you manage my money, but while we're at it let's talk about something much bigger,' " Johnson said. Johnson's net worth, according to Forbes magazine in 2003, is around $1.3 billion.
The presence of Deutsche Bank could lighten a burden that all brand-new institutional money managers face: a lack of track record. Three years of operation and at least $2 billion of assets under management is seen as the starting point to be considered by most institutional investors.
However, most public pension funds have at least informal programs designed to find "emerging managers," usually small or minority-owned firms that would not typically be considered.
While there are few black money managers in the hedge fund industry, pension funds have in recent years sought to increase the diversity of their money manager base.
"The fact is there is no strong, leading African-American-owned player in this space," Johnson said. "A lot of state pension fund money comes from a growing class of African American and minority workers. And that money is all managed by others, by professionals. I think we can make the case that we have the talent, the skills and the strategic partnership to be a major player in that professional community. It's the same case I made in the cable industry."
Earlier this month the board of the California Public Employees Retirement System, or Calpers, the largest public pension system in the United States, conducted a conference aimed at increasing the diversity of the managers it hires to invest the retirement savings of its 1.4 million members, said Brad Pacheco, a Calpers spokesman.
"Our board recognizes that diversity in our investment portfolio managers is important," Pacheco said.
Suzanne Bernard, a principle at Ennis Knupp and Associates, a Chicago firm that advises 22 public pension funds on its investment manager selections, said many of her clients purposely seek out minority-owned money managers, even if they are new. "We do have clients that are searching specifically for minority- and women-owned firms," she said. "Even if a firm is new, we try to give credit to the managers' past experience, especially if they've worked for other investment managers. It's rare that someone starts a money-management business without ever having been an investment manager before."
Yet that is what Johnson is doing, which will put a premium on his ability to hire experienced staff. Johnson likens the effort to his hotel investment business, which is run by Thomas J. Baltimore Jr., a longtime hotel executive with both Hilton and Host Marriott. Johnson hired Baltimore in 2000.
"We are identifying talented young professionals to run" the business, he said.
The firm will operate under the umbrella of the RLJ Cos.
Johnson sold Black Entertainment Television to Viacom for $3 billion in 2000, and his five-year employment agreement with Viacom ends Jan. 26. In the past two years, Johnson has bought a National Basketball Association expansion franchise in North Carolina and launched a hotel investment company that owns an $800 million portfolio of more than two dozen metropolitan hotels. He has also made investments in music recording, Caribbean nightclubs and gaming, and an online IRA rollover service.
Hedge funds are pools of capital that seek high returns by employing higher-risk investment strategies. They are becoming increasingly popular with public and private employee pension funds. Johnson's firm plans to create what is known as a "hedge fund-of-funds," a type of investment vehicle popular among pension funds, endowments and wealthy individuals who want to lower the risk of hedge fund investing.
Johnson said that in the next year he will be announcing several deals in the financial services sector. Earlier this year, he considered buying the District's Independence Federal Savings Bank, an African American-owned savings and loan, as part of his nascent strategy to offer consumer banking services to wealthy African Americans nationwide.
"I'm still looking at opportunities to buy a savings and loan and will be making an announcement about that I hope in the near future," Johnson said.