The building of the Black financial world.

PIVOTAL PERIODS IN HISTORY ARE GENERALLY invisible to those living in them. Looking back, 1970 was a year when literary, political, social and business events thrust a new generation of African Americans into positions of power and influence. In that year, Maya Angelou's I Know Why the Caged Bird Sings was published, the Census Bureau documented white flight from cities, Ken Gibson was elected the first black mayor of Newark and Charles Rangel defeated Adam Clayton Powell Jr. for Harlem's congressional seat.

Change also came to Wall Street. On February 12, Joseph L. Searles III, a former aide to New York City Mayor John Lindsay, became the first black floor member of the New York Stock Exchange (NYSE). Between then and August 7, 1970, he traded securities before selling his seat on the exchange and moving on to corporate finance.

But even with Searles' success, few would have predicted that black-owned investment firms would prosper both domestically and internationally. Now, by contrast, few financial observers are surprised when Calvin Grigsby, CEO and founder of San Francisco-based Grigsby Brandford and Co. Inc. (No. 1 on the 1995 BE INVESTMENT BANK list) signs a multi-million dollar leasing deal in Beijing. And no one blinks when Pryor McClendon Counts (No. 2 on the 1995 BE INVESTMENT BANK list) not only manages the publicly traded three-year-old Atlanta Growth Fund--which consist primarily of Peach Tree state stocks--but is also part owner of banking and venture capital firms in Ghana, Ivory Coast and Zimbabwe.

But the inspiration created by Searles' eight-month stint at the NYSE far outlived his tenure. In 1970, affirmative action was not an epithet, and many of the CEOs of the firms currently on the BLACK ENTERPRISE INVESTMENT BANK list (see June 1995) were either just starting what they imagined would be long careers at white securities firms or pursuing undergraduate or graduate business degrees.

At the time, blacks had been on the Street for less than 20 years. Paul Haywood joined Prudential Securities in 1961, where he is now an international and special accounts financial advisor. When he joined, there were "only six or seven of us [in the securities industry] and we would meet at the National Insurance Association conventions," he recalls.

But soon, those numbers increased, encouraging the creation of the NYSE's first black member firm. It started when Haywood introduced the late Travers Bell Jr. to Willie Daniels. Bell was an operations manager at Dempsey Tegler, a Chicago stock brokerage firm. Daniels was a stockbroker with the former Bache Securities Inc.; he is now president and CEO of New York's United Daniels Securities Inc.

Both Bell and Daniels wanted to start an independent black-owned securities company. No sooner had the duo met than they created a business plan and started soliciting black and white investors. Shortly thereafter, they founded New York-based Daniels & Bell Inc. And on June 24, 1971, they purchased a NYSE member seat.

But opening shop and getting business are different. Black entry into corporate trading was blocked. Bell's response was to specialize in public finance, the niche he and others used to create a business base in cities with newly elected black mayors.

Bell quickly convinced mayors Earl S. Lucas of the 109-year-old all-black town of Mound Bayou, Miss., and A. J. Cooper of Prichard, Ala., to hire his firm to underwrite their bonds. Lucas sought out African American brokers. Looking back, Lucas says he "tried to do as much as possible with black contractors" and was determined to use a black broker and investment firm to fund 50 units of public housing in Mound Bayou.

Indeed. Hiring Travers & Bell, says Lucas, also broke a monopoly held by an underwriting firm owned by the family of John Stennis, Mississippi's ultra-conservative senator.

From that point on, Bell committed himself to making state and local governments open their business to blacks, says Harold E. Doley Jr., CEO of New Orleans-based Doley Securities Inc. (No. 12 on the BE INVESTMENT BANK list). In short, says Doley, Bell "created the municipal bond industry that we know today."

These humble and uncelebrated beginnings set in motion events that would lead African Americans to finally become participants in America's finance and securities industries.

Pioneers such as Haywood worked without mentors 6r swift advancement, but conditions changed in the early 1970s. Well-educated affirmative-action baby boomers hit the Street. Their road to acceptance was paved by newly elected black mayors, such as Cleveland's Carl Stokes and Atlanta's Maynard Jackson. These mayors controlled their municipal budgets and gave white firms, eager to win negotiated bond issues, no choice but to train a generation of black securities professionals.

Over the past 25 years, each generation of African Americans entering the Street differed in approach, but a pattern emerged; As each individual or company punched a hole in the white wall of finance and securities, those coming after them broadened and deepened the opening.

Some black businesspeople concentrated on gaining the capital and experience needed to join the NYSE. Other black brokers and dealers working in white firms used their knowledge to open their own municipal bond firms. Between the mid-'80s and early '90s, black CEOs also established powerful money management, fixed-income and private equity companies.

None of this growth surprises Joseph Searles, the original lone black wolf on the NYSE. White brokers never expected anything to change, says Searles, so a black firm "getting a seat on the exchange was a monumental thing."

Once done, the success that followed wasn't totally unexpected. Perhaps whites on the Street secretly knew what they would never admit: "Blacks always had the capacity to succeed [on the Street]," says Searles. "They just did not have the access."

THE FIRST INDEPENDENTS

Daniels & Bell was not the only independent black securities company for long. Russell Goings Jr. was right behind them. In 1960, Goings, now 63 and retired, was a broker at J.W. Kaufmann, an over-the-counter trader. At the time, "the chances [for a black person] to work for a white-shoe firm were nil to none," says Goings, an honor graduate of Xavier University in Cincinnati and former pro football player.

During the following years, Goings built a solid client base at several firms. Finally in 1968, Shearson Inc. asked him to join the firm as its first black branch manager. The branch location: 144 West 125th Street, the Studio Museum in Harlem.

The Harlem business was hot. Goings' branch was within Shearson's top rank for revenue per transaction. Goings was so encouraged that he bought the branch from the firm, renamed it First Harlem Securities Inc. and paid $250,000 for a NYSE seat. The deal bought Shearson a lot of good publicity domestically and internationally.

Formation of Harlem Securities "changed the character of Wall Street because I brought on seven or eight allied members when I joined the exchange," Goings said in a recent interview. (An "allied" member is a principal of the firm owning voting stock.) This means the African American principals with voting stock in First Harlem joined the exchange "and the walls came tumbling down."

Goings does not claim sole credit. He is quick to affirm the far-reaching influence of Abe Venable, a now retired General Motors executive director of urban affairs. In 1971, Venable persuaded GM to use First Harlem and Daniels Bell to execute stock purchases by its pension fund, Goings explains.

The move was unprecedented, Goings says. The fact that the nation's largest company had picked black firms with independent trading desks to execute its orders signaled that other major corporations could also rely on them.

The next black-owned NYSE seat purchase--and the only one by a firm that is still in operation--was made by Doley. The precocious New Orleans native entered the securities business in 1968 at the age of 21. In 1973, Doley paid $90,000 to become the first black individual member of the NYSE. Two years later, he started Doley Securities. Now 48, Doley--whose firm currently does both public and corporate finance business--initially served as a "$2 dollar broker," or independent trader executing transactions for other NYSE members and member firms.

Since then, the two other companies that had entered the Street's select fraternity have taken different paths. In 1976, Goings left First Harlem following an internal dispute, and retired from the industry two years later. The firm he founded was absorbed by W.R. Lazard & Co. (No. 3 on the BE INVESTMENT BANK list) in 1986.

Daniels & Bell kept growing, and by 1987 had reached beyond its municipal bond roots into securities trading and asset management. But a year later, Bell died at age 46 of a heart attack. Daniels had left the firm years earlier, and Bell had no apparent successor. Tragically, family and business disputes contributed to the firm's decline from prominence to financial oblivion.

WHERE POLITICS AND INFLUENCE MEET

Thankfully at least one Travers Bell legacy outlived his firm. When Bell opened shop, most municipal finance deals were simple, and managers were selected competitively on the basis of price. Since then, the industry has gained sophistication. Firms compete in complex negotiations with bond issuers to show that their firm is the best one to manage bond sales.

During the 1970s, as the number of black mayors rose, so did the number of blacks in municipal finance. The catalyst was Maynard Jackson, Atlanta's mayor at the time. In 1977, Jackson unveiled the power of black political influence when he declared he would favor investment banks giving blacks equal training and opportunity. The first prize up for grabs: the financing of Atlanta's $305 million Hartsfield International Airport.

William H. Hayden, co-head of public finance at Bear Stearns & Co., recalls what happened next. "I was [selected] the senior banker on the Hartsfield Airport financing and also for MARTA [the Atlanta subway]," says Hayden, who was then with First Boston Corp. Within months, all the major firms began to bring African Americans into their ranks, recognizing that this was necessary if they were to compete for business. "That's where it all began," Hayden says.

Fifteen years later, Pryor, McClendon, Counts & Co. (No. 2 on the BE INVESTMENT BANK list) lead-managed Atlanta's airport extension debt offering. This time, Hayden and Bear Stearns served as co-senior managers. To Malcolmn Pryor of PMC, "the financial market is the last piece of the civil rights struggle."

Of course, black mayors alone didn't open doors. The influence of three former Connecticut state treasurers, Henry E. Parker, Francisco Borges and Joseph Suggs Jr., dwarfed that of most mayors in encouraging African American underwriting, says Alphonso Tindall Jr., chairman of the National Association of Securities Professionals. The nonprofit association represents minorities and women in the securities industry.

Between 1975 and 1994, the trio decided which firms would work on state financing deals or manage portions of the state's $8 billion-plus pension fund. With those men in charge, Tindall says, blacks "not only got a seat at the table but determined what was eaten."

As a result, 75% of the 15 companies on the 1995 BE INVESTMENT BANK list were started between 1980 and 1988. Many baby-boomer securities and capital market CEOs were frustrated after hitting concrete ceilings at white firms; others simply wanted to run their own shop. All planned to capture potentially lucrative state and municipal set-asides.

In the late 1980s, two federal initiatives also inspired investment bank CEOs. First, in March 1987, the biggest initial public offering to that date occurred when the Feds privatized Conrail and made sure blacks shared in the $1.9 billion action.

Weeks before the IPO, Carolyn Jordan, then a U.S. Senate Banking, Housing and Urban Affairs Committee counsel, found out that Morgan Stanley would lead the deal but minority companies weren't involved. In response, she and others crafted a law stipulating that minority legal and financial firms had to get a piece of the deal. As a result, Doley Securities lead-managed a pool of shares sold by a consortium of minority securities firms.

This was a watershed event. From that point on, no one could say that blacks lacked IPO experience, says Jordan, a Fisk grad with a Howard law degree. "And this showed they could sell the product to a customer base different than the major firms."

The 1989 Financial Institutions Reform and Enforcement Act, supported heartily by the Congressional Black Caucus, had a similar impact. Created to clean up the S&L debacle, it stipulated that minority and female professionals must receive Resolution Trust Corporation contract opportunities.

Additionally, the act's "language," says Jordan, was adapted to create minority opportunities at the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corp. (Freddie Mac) and the Student Loan Marketing Association (Sallie Mae). That enabled black-owned firms to join the government's lucrative paper market.

MANAGING MONEY

In the early 1980s, when many black securities specialists were pursuing municipal business, John W. Rogers Jr. went his own way. In 1983, the then 24-year-old opened Ariel Capital Management Inc., the first black-owned investment manager. Twelve years later, the Chicago-based company has more than $1.7 billion under management, including money in two mutual funds. The older of the two, the Ariel Growth Fund, was the first black-owned mutual fund.

Rogers, a Princeton-educated, value-oriented witrepreneur, influenced scores of other African Americans to become asset managers, a $3 trillion market. On his heels. were Eddie C. Brown, who founded Baltimore-based Brown Capital Management in 1983, and Maceo Sloan, who started NCM Capital Management Group in 1986. Currently, those two firms manage more than $970 million and $3 billion, respectively.

Changes in federal law also aided these fund managers. The Employee Retirement Income Security Act established guidelines encouraging diversity.

DIVERSIFY, DIVERSIFY, DIVERSIFY

If location defines real estate value, diversification guides the survival of many security firms. To that end, black companies have developed global finance, federal government business niches and strategic alliances.

Looking outward doesn't mean overlooking domestic business. In the past few years, minority investment banks have sold discount notes, debentures and medium-term notes for quasi-government agencies. Since September 1992, 15 minority- and women-owned firms have sold or underwritten $25 billion in new Fannie Mae issues.

At the forefront of this trend ate black-owned firms that take on limited partners with deep pockets. Two New York-based firms specializing in taxable fixed-income securities are prime examples. Utendahl Capital Partners L.P. (No. 5 on the BE INVESTMENT BANK list) has Merrill Lynch as an investor, while Blaylock and Partners L.P. has Bear Stearns. (Several years earlier, the CEOs of each firm, John O. Utendahl and Ronald Blaylock, had been partners. They split in 1993.)

The strategy draws both applause and criticism. Harold Doley says such firms are trading on their ethnicity to do big business. "I don't think it is right for majority firms to benefit from minority programs no matter who is standing out front," he says. "The point is, if these programs were set up to encourage minority business development, minority employment and to encourage training, this is a violation of the letter of the law, intent and the spirit."

While refusing to respond to any specific criticism of strategic alliances, Bear Stearns' Hayden, a proponent of these partnerships, calls such talk sour grapes. Firms like Utendahl's and Blaylock's are boutiques with the capital and competence to penetrate different parts of the market. "I see those guys as being smart and able to survive," says Hayden. "Our salesmen cover the top 50 securities buyers; the smaller firms cover the regional and next 50 buyers."

Maynard Jackson, CEO of Jackson Securities Inc., a full-service investment bank in Atlanta, concurs. Last May, he sold 15% of the bank's equity to the securities firm of Wheat First Butcher Singer for "several millions of dollars."

Jackson says there are several categories of minority- and women-owned firms: 100%-owned firms; others, like his, that have nonminority investors with small stakes; and firms where substantial external control is exercised, creating a "hybrid."

"There is no reason that legitimately minority-owned and minority-controlled firms should deprive themselves of positive and profitable business arrangements that are otherwise common in the marketplace," Jackson says. "If a firm chooses to have significant [white] partnership and control, that is the choice they have the right to make."

The consideration for black firms joining whites is how they represent themselves. Many bond issuers have affirmative-action programs for legitimately recognized minority firms. But says Jackson, "it would be a sad day for Afro-Americans, for any black businessperson, to be ridiculed because they choose to set up their firm not as 100% or 51% black-owned, but in any way they choose to arrange it. In the overall marketplace, you can be anything you want to be "

PAY OR PLAY?

Ever since black elected officials and black-owned securities firms began doing business together, their relationship has been under scrutiny. The reality is that politicians seek money from people they know. Some observers contend that the recent Securities and Exchange Commission ban on political contributions by bond sellers will dry up minority candidates' campaigns, leaving white candidates unaffected. Fund-raisers for white candidates prowl the nearly lily-white corporate finance corridors of the largest investment banks, where such contributions are still allowed. To balance the situation, Kenneth Glover of WR Lazard & Co. (No. 3 on the BE INVESTMENT BANK list) has suggested that corporate money should also be banned. "If [contributions] are buying business on one side, they are buying business on the other," he said last year.

NEW PATHWAYS TO PROFIT

The way to avoid such issues may be to pursue more corporate business. Until recent years, few black securities firms explored that option. Now, new African American-owned companies do so exclusively. These companies include: Stamford, Conn.-based TSG Capital Group, a private equity buyout firm; and Chicago's Penman Asset Management L.P. and the Santa Monica, Calif.-based Savant Group, both private equity investment firms.

The exemplar of the nouveau corporate movement is Fletcher Asset Management, which makes money by taking stock positions in target companies based on a system designed by Alphonse "Buddy" Fletcher, the firm's 29-year-old Harvard University-trained founder.

How sharp is Fletcher? Put it this way: he left Kidder, Peabody & Co. in 1991 at the age of 26 over a salary dispute. He then sued and won a $1.3 million award a year later. And, since the new firm's inception--undoubtedly funded with part of that judgment--Fletcher Asset Management has had triple-digit returns for four straight years.

THE FUTURE

If past is prologue, what happens now? Financial projections indicate that during the next few years, high interest rates will flatten public and corporate finance spreads, and both large and small securities companies will cut staff. Ironically, black companies can benefit from this attrition as they cherry-pick professionals who'll be willing to work for less just to have a job.

During the next quarter century, African American securities companies and investment banks with diversified products or strong capital sources should survive, and may thrive. But those lacking such attributes will need partners, new equity capital or BE INVESTMENT BANK investors--or they will perish.