New Capital Fund Targets Minority Firms : Investing: The goal is to raise at least $25 million to help create jobs and revitalize inner-city areas in the wake of the riots.
With an initial $100,000 from an African-American entrepreneur, two local investment firms on Monday announced the creation of a fund to invest in minority-owned companies, create jobs and revitalize inner-city areas in the wake of the Los Angeles riots.
The Community Development Fund, created by Pine Cobble Partners of Covina and H. J. Meyers & Co. of Beverly Hills, eventually hopes to raise $25 million to $50 million from corporate and individual investors to invest in 20 to 30 minority-owned companies.
“We really had a civic and social responsibility and wanted desperately to come up with a way to help put back something into this great city of ours,” said Harold J. (Bud) Meyers, head of the company that bears his name, at a news conference at the Pacific Stock Exchange. “A lot of people want to contribute and want to help, but they may not know how to help. And this is a good vehicle to allow them to do that.”
Some community leaders hailed the fund’s creation. “I think this is extremely significant and possesses a great deal of potential,” said John Mack, executive director of the Urban League’s Los Angeles office. “This is the kind of investment that can really lay the foundation for not just rebuilding, but building South-Central Los Angeles the right way this time around.”
Meyers’ firm has been fined six times in the last decade by the National Assn. of Securities Dealers--including a $10,000 fine and censure in 1987 for improper handling of investor accounts. Meyers dismisses the violations as minor.
Minority community leaders and business owners have long argued that business development in the inner city is hampered by a lack of access to capital--both in the form of loans and direct equity investment. But investment bankers warn that poorly managed or highly speculative funds might turn off investors.
The Community Development Fund, a limited partnership, will solicit investments from wealthy individuals and companies, said Donald L. Perry II, who is managing general partner of Pine Cobble, an investment management firm. The fund will be administered by Pine Cobble and Meyers.
Once the minimum $25 million is reached, hopefully by Sept. 30, the fund will invest in minority-owned companies--primarily existing enterprises interested in expanding or buying up other firms, Meyers and Perry said. Some money will also go to start-ups. Returns to investors will depend on the performance of the companies; the principals point out that a venture fund, by its nature, is risky.
The fund was inaugurated with $100,000 in seed money provided by Alonzo V. Wallette, an entrepreneur and chairman of AVW Electronic Systems, an aerospace contractor in El Segundo. Wallette expressed full confidence in Pine Cobble and Meyers’ firm.
But others in the Los Angeles investment community privately raised questions about the past performance of Meyers’ company.
Data collected by IDD Information Services shows that in 18 new stock offerings underwritten by the firm since July, 1983, the stocks, on average, lost 44% of their value within six months. The market price of nine of the 18 stocks declined in the first six months of trading, while nine gained value. No data was available on five other issues during the 10-year period.
In 1986, H. J. Meyers underwrote an initial public offering of stock in Allison’s Place Inc., a Los Angeles women’s apparel retailer. Two years later, the company filed for bankruptcy protection; the stock price collapsed.
In 1990, Meyers underwrote an offering for New Image Industries, a Canoga Park computer imaging firm. After opening strongly and climbing as high as $16 a share, the stock plummeted to a couple of dollars a share. New Image now trades at $6.75 a share on the NASDAQ national market system.
Last June, Meyers underwrote an offering of stock in Laser-Pacific Media, a Hollywood-based entertainment company. After debuting at about $6 a share, the stock fell to a low of 87.5 cents earlier this year and now trades at about $2.
“Our job is to raise money for corporate America, and certainly we try to choose our companies carefully,” Meyers said. But, he added, “as with any underwriter in the world, some companies work out, some don’t.”
Meyers’ firm has been fined six times by the NASD, the self-policing group that operates the NASDAQ electronic stock market and acts as a watchdog for the brokerage industry.
Most of the fines resolved charges of routine technical violations that are common to all investment firms. But in October, 1987, Meyers was censured and fined $10,000 for a number of violations, including failing to put investor money in a proper escrow account and failing to refund it as required.
Meyers characterized the violation as minor, saying it amounted to a labeling problem. He said no money was misused.
Arman K. Walker, a vice president at Sanwa Bank California and co-managing partner of the fund, said he was not concerned about the violations or the Meyers firm’s track record.
“In every firm you’ll find successes and failures,” he said. “If they did not have more success than failure, they would not be around. For this type of private placement, the smaller firms like Meyers are most appropriate.”
Times staff writer Tom Petruno contributed to this story.
