Fairview’s JoAnn Price Advances Diversity Through Fund Of Funds

JoAnn Price, cofounder of Fairview Capital, pioneered diversity, equity, and inclusion in private equity. Nearly 30 years ago, she and her cofounder, Laurence Morse, set out to show institutional investors—such as public pension funds and endowments—that talent is everywhere and investing isn’t a zero-sum game. If a marketplace is going to succeed, you need competition—other firms doing the same thing.

Fairview Capital has managed over $10 billion in assets to become one of the largest Black-owned venture capital and private equity investment firms. The company has built a strong track record of success investing in diverse managed funds. Recognizing her contributions as a leader, she was recently named to the Forbes 50 Over 50: 2023 list.

A Diversity-Focused Fund of Funds Starts Slowly

In the 1990s, a group realized that institutional investors who invest in funds needed to be educated about the opportunity of investing in diverse fund managers. Price was president of the National Association of Investment Companies (NAIC) and was asked to lead the initiative to educate and prove that investing in diverse fund managers provided market-rate returns. At first, Price said, “No.”

But Price believed in the need for the initiative and that a fund of funds was the right vehicle. A fund of funds holds a portfolio of other investment funds rather than investing directly in companies. This strategy would enable Fairview to raise large pools of capital from institutional investors—pension funds, endowments, insurance companies, and others—and provide data on the performance of multiple diverse-led funds.

She also believed she had the skills to lead the company that would do this and that the timing was right.

It took two and half years to raise the capital for the first fund of funds. During that time, Price ran both NAIC and Fairview.

Price recruited a cofounder, Morse, who had complementary skills and a strategic partner with expertise in funds of funds. The cofounders chose to be headquartered in Connecticut near the strategic partner. Fairview has since bought out the strategic partner.

Importantly, the duo had a national network of relationships with diverse fund managers and the companies they invested in. “It wasn’t like we had to discover what was out there and what was being done. We already knew what was there,” said Price.

The pair began the process of screening and vetting funds to invest in. Some were established funds. Others were emerging managers—just starting. Investment banks provided a diverse talent pool for buyout funds; at first, that’s where they concentrated.

A Fund Of Funds Firm Evolves

Over time, the funds Fairview invested in were more likely to be VC funds. “Venture funds have a greater affinity toward fund of funds, as opposed to going directly to public pension funds [for capital],” said Price. Many are diverse emerging managers. Emerging managers are venture capital fund managers whose assets under management (AUM) are below a certain threshold and have typically raised fewer than three funds.

Some investors wanted a single-client fund of funds, and the cofounders added this to their product offerings. These investors wanted specific investment strategies to accomplish their goals.

Fairview built its team, which is diverse in every way—including different social, racial, and ethnic backgrounds, genders, sexual orientations, etc. “It was very important that the investment professionals of Fairview were well known and had access to the broad market in the private equity business,” said Price. Being well-connected increases the chances of being in the right place at the right time.

“We want to be able to look at the broadest possible marketplace,” said Price. Talent is diverse. One gender, race, or ethnicity doesn’t have more talent than another. “If the returns are commensurate, there’s no difference!” The larger the pool, the greater the opportunity.

It’s not unusual to hear limited partners (LPs)—the fund investors—say that a pipeline of diverse-managed funds doesn’t exist. Fairview now does periodic reports demonstrating to investors that there are plenty of minority- and women-owned firms actively raising capital. The company does this to:

• Educate institutional investors about the investment opportunity of investing in diverse fund managers who invest in diverse companies.
• Help institutional investors identify and connect with women- and minority-owned firms raising capital.
• Promote the growth of minority- and women-owned businesses.

The most significant obstacle Price faced and still faces is opening the minds of institutional investors entrenched in doing business in the same way with the same people. The industry is changing but slowly.

In 2018, most venture capitalists (80%) were not diverse. By 2022, that number dropped to 75%, according to the 2023 VC Human Capital Survey.

Over the past few years, market conditions have been volatile. When the pandemic hit, everyone held their breath, but funding grew. VC investment is significantly down from 2021 and 2022 levels because of rising interest rates and a decline in companies going public.

Obtaining capital for emerging managers has become more challenging. Institutional LPs are reevaluating their investments and shifting their focus to late-stage companies close to a liquidity event like an IPO or acquisition.

Just 19.1% of VC dollars were allocated to emerging during the first half of 2023 compared to 44.6% in 2013, according to the Q2 2023 PitchBook-NVCA Venture Monitor.

Still, opportunities arise. Many of Fairview’s investments have been Small Business Investment Companies (SBICs). These private equity funds are licensed by the SBA, which lends them low-cost, government-backed capital to invest in U.S. small businesses.

Recent rule changes can improve access. The new Accrual Debentures debt structure better matches the incoming revenue streams of long-term equity investments such as VC. “We know from our data that’s where you find the most diversity in the private markets,” said Price.

The new Reinvestor SBICs essentially support funds of funds that invest in funds with an underserved focus. “We, of course, know how important funds of funds are to supporting small and diverse managers,” said Price. “It also seems like the new rules will make it so there are fewer administrative burdens for managers, which also helps with access. As always, it will be important for managers to assess how SBA capital may fit into their strategy and long-term plans, as it’s not always right for every strategy and firm.”

Fairview’s tactics may change, but it remains steadfast in its commitment to investing in diversity.

How do you navigate opportunities and challenges?