In Your Own Backyard: Investment Opportunities in Emerging Domestic Markets

While the recent state of stagnation in the economy has fostered considerable hand-wringing, political debate and consternation, times of market depression and malaise are by no means new features of U.S. economic history. Waves of accelerating and decelerating capital investment and growth are components of our economic narrative. Historically, periods of rapid expansion have generally been associated with the deployment of capital to burgeoning technological innovations. More recently, technological innovations - the personal computer, telecommunications and the silicon chip - have led to a flurry of investment activity and growth. Another, non-technological change of the past century continues to influence our economy in numerous ways. The generation born following the close of the Second World War, now known as the baby boom generation, has demanded many changes in business and policy, as they have grown and matured. Today, another recent demographic trend promises further change in our economic lives: The rapid growth of Emerging Domestic Markets (EDM). While the rapid growth in Latino, African-American and Asian-American populations has generated considerable attention among government officials and policy experts, considerably less attention has been paid to the influence of these trends on economic opportunity and investment. This report is an effort to fill the gap in understanding by providing information about the influence of these trends on the entrepreneurial landscape. We believe that these trends are critical to business practitioners and present many opportunities for investment and innovation. We provide data on the burgeoning economic opportunities in EDMs, the professionals and firms operating in these markets, and we provide ideas on how policymakers, government officials and opinion leaders can assist in fostering investment in these markets. Most of us have simply been unaware of the potential these markets hold. A growing cohort of professionals, from academia, public and non-profit organizations, and the private sector are already mining these markets and have come together to author this report. Our intent is to move beyond creating awareness of these opportunities to facilitating access to capital and sharing best practices in investment and management. We highlight several case studies of successful investments in EDMs and many of the professionals that are active in this investor base. After exploring contemporary market dynamics and the future potential of these asset classes, we advance the following recommendations to those who concur that EDM markets present a unique diversification opportunity: • Encourage plan sponsors to make direct investments in EDM private equity firms in excess of $150 million. • Invest in EDM-focused Fund-of-Funds as a means of participating in smaller emerging manager funds; and • Require gatekeepers to hire and promote the development of diverse professionals in majority private equity firms. We invite you to join us. We are working to assist the collective business community in fostering entrepreneurship that would leverage the burgeoning opportunities in these markets. We foster investment and innovation through sharing best practices, providing capital, and assisting opinion leaders in developing policy to enhance the pursuit of opportunities in these markets.