WHEN drugmaker Amgen Inc sold US$24bil of bonds in February to fund its takeover of Horizon Therapeutics Plc, it had 12 banks as joint bookrunners and a further 16 as co-managers on the deal. Eight of the 16 were small investment banks certified as owned by women, minorities or military veterans.

In April, a US$5bil bond sale from Walmart Inc had seven similarly owned investment banks out of 15 co-managers, while on RTX Corp’s US$6bil issue in September, all seven co-managers were like this.

Broker dealers that qualify as diverse and inclusive firms because of their ownership have been on course for involvement in a record volume of bond deals this year, as Bloomberg News reported, surpassing the high-water mark set last year.

About 60% of US investment-grade bond sales by value employed at least one diverse firm in each of the past two years, up from fewer than half in 2020 and barely a quarter a decade ago.

Sounds like great progress.

Indeed, many issuers and the big banks that dominate capital markets have in recent years become more interested in boosting their own social credentials by involving such brokers.

However, in reality, there’s a very long way to go for the growth and relevance of diverse firms and the wider mission to change the makeup of Wall Street’s leadership and population.

These brokers may now be involved in a lot more deals, but their share of fees remains tiny – just 3% of the total paid by issuers so far this year and 3.5% in 2022, according to analysis from Independence Point Advisors, a women-owned investment bank.

Recent fee shares are also skewed by big bond sales from 20 large issuers like Amgen and Walmart that give more roles to diverse brokers, according to Anne Clarke Wolff, founder and chief executive officer of IPA, which she initially nicknamed Salomon Sisters.

Without these companies, the longer-term share of fees going to diverse firms is only about 2%. Clarke Wolff told me this should be set in the context of many large corporates in America having made pledges to ensure 10% of their vendor base is diverse.

Away from debt markets, these investment banks are struggling even for this level of impact.

The US initial public offerings this year of sandal maker Birkenstock Holding Plc and Arm Holding Plc involved several diverse firms, including IPA, Chicago-based, minority-owned Loop Capital and veteran-owned Academy Securities of New York.

But roles on equity capital markets transactions aren’t common. In mergers and acquisitions (M&As), roles for diverse firms are even fewer.

The reasons for this are partly about how these different transactions work and partly about the size and maturity of diverse investment banks.

In equity-raising deals, it’s more of a fight to get involved because issuers rely on brokers having either very strong equity research to help market the stock or strong distribution to place it with investors.

In M&A it’s even tougher: Clarke Wolff calls it the stickiest final frontier because it’s all about executives having trust in a firm’s advice, and that is harder to win.

It takes time (and a leap of faith or two by clients) for advisers to build a reputation for sound, confidential advice.

Low share of fees

In debt markets, the low share of fees is partly because diverse brokers are relatively small and mostly don’t take direct financial risk.

The vast majority of fees go to the bookrunners, large lending banks that ensure the company gets its funding.

Banks with a co-manager role might bring an investor or two to the table but aren’t typically involved in distributing the bonds.

They mostly provide market intelligence and marketing services.

Being a co-manager isn’t a sympathy vote, it’s a way of breaking into markets and proving yourself to issuers. On a recent Ford Motor Credit Co bond deal, Banco Santander SA’s US arm was a co-manager alongside Standard Chartered Plc, US Bancorp and four diverse-owned brokers.

Bookrunning spots are far less common: Just 5% of US bond deals employed a diverse broker in this role, and only eight of about 30 such firms have had any bookrunner credits this year, according to data compiled by Bloomberg.

An improvement

This is an improvement on last year, but the numbers were helped by a US$1bil bond sale from Verizon Communications Inc, which split bookrunning equally between Wells Fargo & Co and four diverse-owned investment banks.

To improve these figures requires companies to stay committed to using diverse-owned firms for capital markets work and to think more seriously about the perspectives some could bring to deals.

It also needs these firms to hunt out the people that the big banks either overlook entirely or let go too easily.

This is crucial for Clarke Wolff, who is on a mission to prove that diversity and top talent go hand in hand. The only way to change the rest of Wall Street is to show it what it’s missing. — Bloomberg

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. The views expressed here are the writer’s own.