Culturally Appropriate, Development Centered Investing
With the recent wave of Black emerging fund managers receiving funding, I wanted to help shift the narrative slightly so we can keep our eyes on the prize. I'll start with the conclusion... our primary problem is not a lack of resources, it is mismanagement of resources. We need more stage and industry agnostic Black-led funds with generalist fund managers who view portfolio management from an economic development perspective rather than just diversification and risk management. Specialists are certainly important, and you can hire them as needed as operating partners or consultants, but being able to look at the big picture, ask the right questions, connect the right dots, and operationalize a vision/idea is much harder to teach. That skill comes from experience and natural ability.
Anybody who has written anything significant specifically regarding Black economic development has made the observation that Black America effectively functions as a nation within a nation, and the Black economy as an economy within and economy, given the fact that Blacks have been shut out of the "mainstream" economy for so long. Investors in so-called developing economies operate within a different context than developed economies, and therefore, need different investment strategies. I've noticed too many Black fund managers operating as if they are investors that "happen to be Black" rather than being Black on purpose, creating development-centered investment strategies, and making full use of the cultural capital available to them. To be clear, investing in Black founders is not an investment strategy, it is a fund strategy. While important, it's not enough, and will result in trivial progress on its own.
Even more important than fund investment strategies is an overall economic development strategy. This is normally something that government agencies handle, but since Black America does not have a sovereign government and US government agencies have proven incapable or unwilling, we have to cobble together private and non-profit economic institutions as stand ins. No individual fund currently has enough capital to enact a broad economic development strategy on its own, and that's where the 3 C's of economic development come into play (culture, cooperation, and coordination). Black fund managers, across asset classes and industries, need to form syndicates to control verticals in key areas. Namely, food, energy, education, water, defense, information, and shelter.
Again, purely opportunistic investing in Black founders and/or fund managers will not have a significant, sustainable, or material impact on the economic state of Black America except possibly as a happy accident, and it certainly will do nothing about the economic inequality WITHIN the Black community. Our problems are bigger than a lack of capital, and we've seen Black people who had/have access to capital squander their potential for generations. The Western obsession with individualism/individual success is incompatible with our culture, and results in the barbaric, unequal, and destructive economic system we've been bamboozled into perpetuating and mislabeling as “Black excellence.”
Fundamentally, economic power stems from the control of the means of production and the ability to defend them. In America, Blacks do not have a dominant position in ANY industry and control an insignificant amount of productive capacity, with zero ability to protect said assets. Institutional capacity building is the only solution to this problem. Anything we build without addressing this will merely represent symbolic progress for all but a few tokens. Consequently, solving this problem will also create massive amounts of wealth for those who have the vision and courage to see it through.
Big KRIT is one of my favorite hip hop artists because he can rap his ass off, write his own lyrics, and produce and engineer his own beats. He's a full stack artist. He's like a one-man startup with a full stack entrepreneur at the helm, who can handle every aspect of starting and running a company in its early stages. Similarly, we need more full stack investors that can view entire markets, asset classes, and economies at the highest level but also get down in the weeds of fund and portfolio management (think Bobby Axlerod from the tv show Billions).
Venture capital and private equity in America essentially started out as a cottage industry, with fund managers usually being generalists as well as somewhat stage and industry agnostic at first. Black VC/PE is in a similar position now, and we simply don't have enough AUM to operate in highly specialized niches pursuing unfocused opportunism. We also can't afford to simply mimic majority-owned fund strategies who have the benefit of institutional support, including the institution of white supremacy.
The model that is more applicable to our situation is a sovereign wealth fund of a nation with an economy highly dependent on the export of a single resource, like oil. SWF's can help diversify economies and fund infrastructure, social programs, community development, etc., providing more than just financial returns for shareholders.
The Black economy is highly dependent on the export of our labor, and, therefore, our investment strategies need to focus on the accumulation of real/productive capital (i.e. capital equipment, real property, etc.). This is especially urgent now, more than ever, with the increasing automation of many functions in the labor market due to advancements in artificial intelligence, similar to how robots and globalization decimated Black jobs in the auto industry decades ago.
Another model would be a union pension fund that invests heavily in the technology that will eventually replace its members, like a truck driver union that invests in driverless vehicles and software, or a teachers union that invests in online education software.
In conclusion, Black fund managers need to be well versed in history and economic development principles in addition to finance and investment management in order to develop, coordinate, and cooperate on culturally appropriate, development centered investment strategies that will create equitable, resilient, and sustainable economic outcomes for the Black masses, not just the lucky few.
And for those of you who don't know the difference between investing and economic development, here you go:
Investment management principles
- Set short, medium, and long term investment objectives (capital growth, passive income, principal protection, etc.)
- Portfolio management (diversification and regular re-balancing)
- Manage downside
- Manage liquidity
- Adapt to changing market fundamentals
- Measure performance
Economic development principles
- Set goals
- Develop vision that integrates all stakeholders (government, business, education, justice/law enforcement, community organizers/leaders)
- Poverty reduction
- Exploit and strengthen existing capacity/capabilities before spending resources attracting new talent and assets.
- Reduce imports where possible and increase exports
- Resilience, sustainability, and environmental responsibility
- Invest in people and skills
- Maximize utility of existing spaces before clearing land to develop new spaces
- Regional collaboration to fill in local capacity gaps
- Create livable communities and community spaces
- Encourage cultural activities and traditions
- Encourage community and employee ownership programs and coordinate with traditional sources of finance/capital