June 18, 2025 • 46 mins
Employee ownership has gained increasing recognition and support from investors in recent years. However, attracting scaled institutional capital remains a challenge for the field. The perceived complexity of employee ownership, uncertainty about returns, regulatory and fiduciary challenges, and a lack of understanding about how the model works pose significant challenges to capital market adoption. In this conversation from the 2025 Employee Ownership Ideas Forum, panelists discuss the current state of employee ownership investment and examine how institutional investors, asset owners, and allocators can bring forward the investment the field needs to grow.
For additional resources, visit our website: https://www.aspeninstitute.org/videos/bridging-the-gap-institutional-investment-and-employee-ownership/
Or subscribe to our podcast and listen on the go: https://creators.spotify.com/pod/profile/aspeneop/
For other session videos, visit the Aspen Institute Economic Opportunities Program on YouTube: https://www.youtube.com/@aspeneop
The 2025 Employee Ownership Ideas Forum took place on April 9-10, 2025, virtually and in Washington DC. The Forum is proudly co-hosted by the Aspen Institute Economic Opportunities Program and the Institute for the Study of Employee Ownership and Profit Sharing at Rutgers University.
This year’s theme, “From Workers to Owners,” highlights how the experience of ownership changes the reality of work for workers. The forum highlights companies in a range of business sectors and explores how employee ownership fits their business strategy and approach to business leadership. We also discuss the particular role employee ownership can play in supporting business success, and we consider the role institutional investors can play in improving capital access for employee ownership conversions and expansions.
For more information about the Employee Ownership Ideas Forum, including our speakers, agenda, and additional resources, visit our website: https://www.aspeninstitute.org/events/employee-ownership-ideas-forum-2025/
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Transcript
Episode Transcript
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(00:04):
Good afternoon. My name is Jack Moriarty and it
is my esteem pleasure to introduce our first afternoon
panel on the topic of bridging the gap between institutional
investment and employee ownership.
And you know I'll offer very twovery quick thoughts before
passing the baton. The way I've sort of thought
about this and we had a great lunchtime conversation around
(00:25):
this is one of the, there's sortof two conditions you need
right, to sort of expand and scale this, this, this field
that that we all know and have come to love.
The, the 1st is when we talked about this yesterday, you need a
whole bunch of legislative regulatory policy strategies to
take what is right now a niche and turn it into a multi
trillion dollar asset class and really scale this all sorts of
(00:48):
different employee ownership models across the capital
markets, both here and around the world.
But that doesn't happen without really the first condition,
which is you need The Pioneers, you need the innovators, you
need the early adopters that cancollectively show us the art of
the possible. You can't scale what what you
don't know. And, and that's why I'm so
thrilled to introduce a panel offriends and, and, and a great
(01:10):
subset of these entrepreneurs and, and real leaders in the
field. First, Ted Marguerite, managing
partner at Periline, Catherine Toner, the managing director of
impact investing at Gary Community Ventures, Lindsay
Zumbo, executive director of theSorenson Impact Foundation, and
Allison Lingayne, the founder and CEO of Ownership Capital
Lab. I'll let Allison take it away.
(01:34):
Thank you, Jack, and thank you so much to everyone for being
here. And again to Maureen and Joseph
and everyone involved in bringing the these last two days
together. It's been a really powerful set
of conversations and I think we're going to have another
powerful conversation here today.
So you know, capital is such an important lever of growth for
(01:55):
employee ownership. And if you look back, we
certainly wouldn't be where we are today if it hadn't been for
all the ESOP lenders who have really helped with the growth of
the ESOP space, if it hadn't been for the CDF is who've
really leaned into the Co-op lending and the new EOT lending,
right. We really depend upon capital in
many ways to get for to have gotten where we are today.
(02:17):
And there's, there's this new set of employee ownership funds
that are to work with capital ina different ways.
And those funds need to be capitalized in a much greater
way. And I truly believe that that
that that is a huge lever of growth for us as a space if we
can capitalize. You know this earlier today, we
(02:38):
heard someone say we need to be thinking about 10 Xing.
I believe we need to be thinkingabout 10 Xing and then 10 Xing
again, right. And then from there, so, and we
can do that with capital. And we're going to talk a bit
about that today. So my name is Allison Lingay and
I'm the founder of ownership Capital Lab.
You may or may not know know me previously from my role as Co
founder of project equity. But you know, really what we do
(02:59):
at ownership Capital Lab is we work on that lever of, of
capital for for for growing the number of new employee owners
that that that we believe is possible in the United States.
So we what we want to do now is just ask each of our panelists
to introduce themselves. And I'm going to ask as you do
your introductions, if you can also, you know, have some brief
(03:22):
commentary on if you do look back 5 or 10 years, how the
employee ownership space is different so that we can be
thinking about the next, the next chapter moving forward.
And then also, you know, the framing of this is institutional
capital. So unpack that from your
perspective just briefly so thatfolks in the room who may not be
familiar with that lingo can geta sense.
(03:43):
So starting with you, Lindsay. Thank you, Allison.
Catherine and I figured out how to turn on our remotes.
So I feel like we're already successful today.
I'm Lindsay with the Sorensen Impact Foundation, and it's
great to be with you all today. I can't look back five years
because I've only been here for about a year.
(04:05):
So thank you for Joseph and Jackand other folks in this room who
have really helped us come up the curve really quickly.
And employee ownership, our foundation is is really
dedicated to moving more capitalinto the impact investing space.
I know that feels like a broad mandate, but we really impact
investing is still in and of itself a nascent space.
(04:26):
And so we've spent most of our time with that broad mandate.
But every once in a while a theme comes across really checks
across many verticals all the impact boxes for folks and and
as Margo said, across different programs and streams of capital.
And for us at the foundation, that is the ownership economy
(04:49):
and specifically within that home community employee helping
Americans own where they live, where they work and a stake in
the capital markets is incredibly important.
And last year we put out a a request for proposals for
funding for both philanthropic dollars and also catalytic
dollars. And it was the first time those
(05:10):
two teams had ever worked together, a success in and of
itself. For those of you who work in the
foundation world know how hard that is.
Margo's laughing. She appreciates my pain and I
know Catherine does as well. So as I think about the context
of of where you were five years ago, you know, I don't know, but
(05:30):
I do know you're having your moment and there's a lot of new
capital at the table and there'sa lot of capital still sitting
on the sidelines. We've got to get off the
sidelines. Our subtext at the foundation is
pioneering the gap or helping folks through the valley of
death. That is the role of foundations
and family offices and high net worth individuals that care
(05:53):
about impact and that care aboutimpact allocation and where
their dollars are going today. And if you ask me, there's not a
better place for those dollars to be going today if you care
about decreasing the wealth gap.So I'm excited to talk about
those things and how we can sortof bridge that gap to
institutional capital and what scale looks like for folks
(06:15):
because we're excited to see allthe employee ownership funds and
products that are out there get to scale.
I'm next. The microphone's working.
We did a really good job. Yeah.
Catherine Toner, I'm with Gary Community Ventures.
We're a hybrid family office private foundation based in
Denver, Co. We very much have a place based
(06:37):
mandate in Colorado for our philanthropic work, but have a
national portfolio and are uniquely 100%.
Not necessarily uniquely, but weare both 100% impact invested as
an endowment and we are also a sunset organization.
So I will be out of a job in 10 years.
I always make this joke on panels, but I'm serious.
I will be in the job market. But no, it's really, it's a,
(07:02):
it's a very cool structure, one that I moved to to Denver side
unseen to support because it really changes the way that
we're able to take risk and think about risk.
And I love the term be that kindof bridge in the valley of death
to real market rate and scalablesolutions employee ownership,
which is kind of emblematic of for us as well kind of that
(07:24):
structure that is both producingmarket rate returns and
implicitly creating impact for the folks that helped drive that
value in a in a company itself. I get to uniquely do a lot on
the investment side. Two of our investees are here to
run a group central owners fund as well as Avis and Heritage and
(07:45):
fund one and Fund 2. And so really learning through
our portfolio what structures work, how to actually implement
on the ground from the people doing the work and how
structurally that kind of translates into value and wealth
for for the employees. And that fits in our broader
(08:06):
strategy of I oversee our familyeconomic mobility investment
portfolio. And we view essentially the PNL
of the family and the balance sheet of the family as the
things that we want to affect. So increasing income, decreasing
expenses and increasing assets and employee ownership is very
much in that that asset bucket and thinking about ways that can
(08:27):
be generated through housing value, through homeownership,
individual assets and now employee ownership and other
structures in real estate. So excited to talk to you all
today. Great.
Thank you, Catherine. My mic's working as well.
So we're off to a good start. Well, good afternoon.
First, it's been such an honor to participate in this important
(08:48):
conversation. It's been so inspiring today and
yesterday to hear all the great ideas, the excitement, not just
in, in my space, the South world, but across employee
ownership, things I, I wasn't even aware of.
It's, it's just so, so, so powerful.
So I'm Ted Marguerite, I'm the managing partner of Periline
Capital Partners. We're a bit of a unique animal.
I've been in the ESOP space for coming up on 20 years.
(09:10):
Throughout that period, my role has been advising business
owners as they've evaluated ownership transition ESOP
primarily, but not exclusively. Our role of Periline, where I
founded Periline 2 years ago wasto expand the awareness of
employee ownership and that takes 2 forms.
And we we have two parts of our business on one hand where we
(09:30):
spend frankly most of our time is advising and that's going to
find business owners whatever they want to do, whether it's
sell the private equity, do an ESOP.
But we want to put that ESOP option on the table form and
make sure it's considered, educate them on it might not be
the right solution, it's not theright solution for everyone, but
we want to make sure that they're making an informed
decision. So that's that's the first part
(09:52):
of that. The other part of how we want to
bring those market based solutions is by connecting
capital. One of the things and I'll come
back to this in a bit is that the the capital markets in the
ESOP world and and within the ESOP space we focus on companies
valued over $100 million. So large businesses.
I think last time I looked our average client had several 103
(10:15):
to 400 employees. At that size business, they have
a lot of options and for better or worse, the price of entry to
that conversation is what is a minimum level of liquidity that
they can pull out. And so how do we bridge that
capital gap? And we think the way to do that
is using an ESOP, bringing market focused investors and
(10:36):
having them invest in alignment in parallel, hence paralleline
in parallel. That was pretty clever, wasn't
it? ChatGPT does amazing work in
COVID. Yeah, it was phenomenal, also
ChatGPT. But bringing that together,
because we're staunch believers that when structured correctly,
investors can realize great returns, particularly great risk
(10:58):
adjusted returns and at the sametime deliver phenomenal outcomes
for owners and communities and employees.
And so that's what we do. So Allison, back to your
question, what have I seen over the last five years?
I'm going to go back even further probably.
So as I look back to call it theearly 20, you know, 20/11/2012
(11:18):
time frame, I have seen the explosion of private capital to
the extent that I think private equity is just simply run out of
things to buy. And that's leached over into the
ESOP space in that it's, it's, it's just increased the level of
expectations that business owners have and it's made Esop's
harder. I'm looking around the room at
(11:40):
some of the my fellow ESOP practitioners.
We all know that say pre 2022 wesold more ESOP companies than we
instituted new Esop's. Why was it because private
equity had a lot of money and they were they were offering
that. I think Tide is changing and
higher interest rates will bringmultiples down.
(12:01):
Private equity is realizing thatthey probably overpaid.
That's creating an opportunity to have more I think compelling
ESOP conversations. But I think we do need to figure
out how to bring more institutional capital on a
sustainable market based basis into this realm if we're going
to grow Esops at scale and that's what we set out to prove.
(12:24):
Yeah, love it. That's super helpful to get your
perspective, especially from theESOP vantage point, because
we've been having so many conversations about, about Esops
in the realm of the sort of the normal way that Esops are
created. I would say versus maybe some of
the newer ways where we've got these funds that are kind of
going shoulder to shoulder, if you will, with private equity
funds, you know, bidding on, bidding on these companies and
(12:45):
transitioning them. So appreciate that.
So we're going to go back to you, Lindsay.
And you talked about the the pioneering Pioneer Gap and the
Valley of Death. And you know, in our space of
the dedicated employee ownershipfunds, you mentioned Fund one
and Fund 2 for rapist and heritage.
We have two fund twos. So for those of you who are in
the investment landscape, that means that every one of our
(13:07):
funds in the space is an emerging manager, right?
So, so from your vantage point, you know, could you talk about
some of the ways that that you can pull on the levers of what
you have, but but also sort of the call to action about the
ways to to support and really lean into getting off the
sidelines or supporting these emerging managers, whether
(13:29):
they're in their fund 2 or theirfund one or even just getting
organized. Yeah, absolutely.
I think investors spend a lot oftime trying to understand
imperfect models before they invest.
And we all know that employee ownership can be a really hard
learning curve. I know that's been true for us
as an investor and other investors that we talked to.
(13:50):
But the reality is, is it's, it's not that complicated.
And especially if you care aboutimpact from an emerging fund
manager or first time fund manager there, there's quick
boxes to check there. But I think we do have to
continue to break down the education barrier.
We have to break down the data that exists.
We have to get that out and and have more transparency in the
(14:13):
market. I think that that's a big
problem. But from my vantage point,
foundations can play a really unique role in supporting the
ecosystem and sort of the, you know, different scales of
capital or spectrum of capital that exists in our, at our
fingertips. So you know, I met, we, we put
(14:36):
out a, a request for funding last year.
And I, you know, we did it for both our catalytic investment
portfolio and also our, our philanthropic or grant bucket.
And that was the first time our programs had talked to each
other, but it also became aware of how much grant capital needs
to go out to the space. And I don't think we're seeing
enough of that capital in in sort of this niche early
(14:58):
learning stage so that folks like the Aspen Institute and
their incredible work or transform finance, a number of
folks that are sitting in this room are doing Rutgers, others
that are sitting doing this incredible work behind the
scenes. We need to see more of that
grant capital go to the the learning academic scholar work
on and, you know, specifically to the funds and, and the
(15:19):
fundraise. As you, you know, we've had, you
know, we were at first and one of the first investors in the
A&H fund, you know, in early 2019 and, and so excited to see
them in, you know, raising theirsecond fund.
We have a lot of funds in the space and we have a lot of new
capital that needs to be raised in order for these funds to
succeed. Jacob said something to me
(15:42):
earlier that was great, which said, you know, don't tackle,
tackle the the bear in the cabinfirst, not the bear in the
woods. And I think it's incredibly
important that the funds that are in the market now are
successful. If they don't raise the capital
needed at this time, it's going to be a failure to launch in
(16:04):
this space as far as as an investor sees it.
And so whenever we have investors on the sidelines that
say what, how can I get involved?
Where should I start? Like get off the sidelines.
Put capital into these emerging fund managers, put them into
fund one, put them into Fund 2. You know there's twenty, however
many. Allison knows this 2727.
(16:24):
She knows the number of capital that's being circled, which is
more capital than been raised for funds in the employee
ownership space. 670 million if all the funds are successful
with their raises compared to a base of only 500 million of
assets under management right now in the specialized employee
ownership funds. So double, more than double more
than double, our work's cut out for us.
(16:44):
So I tell folks all the time, this is one way to think about
this is a private credit strategy.
Get off the sidelines, see the impact, see the return potential
and get in the game, especially as foundations are concerned.
I think Margo and I are always on the soapbox beating this
drum. A lot of our friends are still
sitting on the sidelines. So I spent a ton of my time
trying to help investors get offthe sideline.
(17:04):
But a lot of this comes from an education gap and understanding,
you know, all the different structures that are out there
and which ones work better and which ones don't with size of
the company have to be all thoselearning curves.
And then I think from an investor standpoint there
there's some innovation that canhappen.
I think there's an entry point that could be made easier so
(17:25):
that there is capital ready at, you know, at at at the employee
conversion place. So whether that's a fun to fund
model so people can start to diptheir toes in investors.
I think there are, there are different ways that we can play,
but I will say no matter which place your capital is coming
from, there's a lot of capital needed on the philanthropic
side, on the catalytic side. And as we move these funds up to
(17:48):
the market rate side, we've justgot to get off the sidelines.
Love that. Get off the sidelines.
You're already off it, so tell me what's next?
I hate sidelines. You were not a benchwarmer, were
you? Yeah.
So tell, tell us that was JV lacrosse.
But you know, we can talk about that later.
It's a lot of emotional trauma. So, so tell us what, what you're
(18:11):
doing, not being on the sidelines, talk to us about some
of your investments and, and what you're learning and seeing
about the gaps in the needs. And you know how at at sort of
the field level what the needs are in in in order to unlock
more capital flowing? Yeah, I think I agree with
Lindsay on the on the grand sidein understanding the learning
and Joseph has been working for decades and and Jack on and the
(18:34):
actual data behind the performance and efficiency of
the underlying portfolio companies under employee
ownership models. And that is a commercial
rationale we need the databases for to get institutional capital
at scale into these investments and in asset classes across
employee ownership investments. And I think that's a big thing
(18:56):
for us too is just the framing of this as institutional like to
attract institutional capital isnot I'm investing in employee
ownership or this is my impact strategy.
It's like, no, it is a private credit strategy that fits into
our endowment portfolio strategyand asset allocation that the
underlying investment and value creation is employee ownership
(19:18):
itself. And I think that framing is
really powerful for our investment committee and for
also getting, getting folks off the sideline and getting the
traditional CIO endowment folks at foundations to think about
this as more traditional asset allocation and not a niche
fluffy impact strategy because it's not.
It's a large driver of value in the workers that are creating
(19:43):
that value day-to-day. I think grant capital is also
incredibly helpful at the firm building level.
But Lindsey and I were talking about this earlier at the the
danger of too much grant capitalis, is creating that label of
impact only or impact 1st. And there's certainly an area
(20:04):
and an opportunity and a need for that type of capital and the
catalytic capital to bridge thatvalley of death.
But institutional capital long term in employee ownership
strategies requires a very market oriented approach.
And so we're. Supportive of that and
supportive of funds that are both experiment, experimenting
like essential owners in different structures that are
(20:26):
not necessarily full ESOP conversions as well as fully
Esops structurally, but the underlying credit or capital
being provided into those investments and conversions are
traditional asset classes. Fantastic.
I love what you said about we need to show up with the
investors in the way that they are used to being, you know,
(20:48):
being pitched and instead of saying I'm an employee ownership
fund, say I'm a private credit fund.
Oh, and the value creation happens through the employee
ownership. I mean, it's the same thing that
the funds are experiencing that in the space of being able to go
to a business owner and say instead of oh business owner,
you should fall in love with employee ownership.
No, go to the business owner andsay, oh, business owner, we have
(21:09):
capital. We want to acquire your company.
Oh, and PS employee ownership isthe added value that you get by
going with us instead of by going with the other firm.
And is a captive, is the captivebuyer at the end of the day.
Like once the ESOP is set up andI'll use A and H as a example
(21:29):
and. He's not even here for this
panel. We kept using his name, Rude,
Phil and Todd. But a Unitron strategy is you're
essentially approaching the seller who has run the company
and put their blood, sweat and tears into it and providing A
Mesdet and a Unitron senior debtopportunity to achieve the end
(21:52):
goal for an EOT, for equity comp, for any broad based
structure, it is a dividend recap, like speaking in the real
terms of traditional finance to communicate what this actually
is. I think bridges that gap and
goes a long way to make this a normal non niche niche
(22:17):
investment strategy. Yeah.
And what that takes is that takes the marrying of of folks
who have backgrounds in investing and can speak that
language with folks who have backgrounds in employee
ownership, right. The two have to come together.
So over to you, you know, in your experience on especially on
the sell side advising on the ESOP front, you know, tell us
(22:38):
more about what you're seeing and what some, you know, you
touched on this in your opening remarks, but what you see as
some of the path to to more institutional capital.
You know, I'm happy to. So I think the biggest challenge
we have in the East, South worldtoday in terms of institutional
capital is twofold. As we speak to investors
currently that are invested withus or people who are evaluating
(23:02):
the structure for the first time.
Structurally, they love the ideaof ESOP, but that's like 3rd or
4th on the list #1 is how do yougenerate returns?
Why is this differentiated from what I'm doing today elsewhere?
OK, check that box. But where they struggle as they
understand the structure is duration.
And what we struggle with in theESOP context is, and I'm ESOP
(23:23):
specifically, but more specifically 100% escort peace
OPS because that tax savings helps generate the return that
the investor is looking for thatduration to get their capital
back as long. We always say it's 7 to 12
years. That is a hurdle.
But I would say even more so than that is the dearth of
(23:43):
institutionally investable businesses.
How many businesses over $100 million that have the the
reporting and the controls internally and the management
team to actually warrant institutional capital out of the
200 and some odd Esop's that arecreated every year.
I'd, I'd pull some of the ESOP folks in the room, but I think
we would all agree it's probablyless than 15 or 20.
(24:07):
That is the single biggest hurdle.
Now how do we, how do we addressthat that that network of buyer,
if you own a $200 million business in I'm from South
Dakota, so I used Sioux Falls, you're going to think that
private equity is the only option.
That's, that's just fundamentally how you're going
to think unless you're, you know, thinking of some sort of
(24:29):
gratuitous transfer via ESOP foremployee ownership.
That is the what needs to switch.
But what needs to switch is we need to reach that, that party,
that business owner before they engage the middle market
investment banker who's just incentivized to sell them to
private equity because those companies exist.
Those owners exist, but we need to get them before they already
(24:51):
went to a different asset class.And that's why we think it's so
important. And what we're doing apparel
line of our sell side business is that gets us in front of
those people first before they go to auction.
I don't want to invest, I don't want to bring my investors into
an auction. The person that win the auction
is either the smartest person orthe dumbest person, but they are
(25:11):
certainly the person that paid the most.
So we can get in front of that. Not only do we have the ability
to educate them on an ESOP before they're already down the
path somewhere else, but we alsohave the ability to create
really attractive structures andreturns for our investors
without the without the impact of that competitive auction.
I'm going to quote that. That's copyrighted.
(25:34):
You can quote it as a licensing.Fee I'll attribute.
I'll attribute. The smartest or the dumbest for
sure. So that's actually a good segue
maybe into the policy arena. But let's talk state policy in
Colorado and, you know, have youshare a little bit about the
(25:57):
good things that are have been and are happening there in
Colorado and then you know what what you'd like to see happen at
the federal level? Yeah, absolutely.
And I'm looking at my friend Jack over here who has been a
conspirator. Yeah, Colorado is ripe ground
for employee ownership. We have two of A and HS fund one
(26:20):
portfolio companies there a lot of activity, a lot of support
from our office of economic development.
We are one of a few states that have an employee ownership
office, have a cash collateral program for financing that
applies to employee ownership conversion transactions.
And in this session, we Gary helped develop legislation that
(26:42):
essentially provides the first state level economic incentive
to convert to employee ownership.
So taking kind of the 1042 rollover approach, but applying
it to state income tax, essentially capital gains
exemption for employers and sellers that are converting at
least 20% of their business to abroad based employee owned
(27:04):
structure in order to qualify for that capital gains
exemption. So as you can tell, I'm very
much like the traditional finance evil capitalist version
and like really wanting to narrow in on what economic
incentives. And I think you probably agree
with the need for this in the S Corp 100% ESOP conversion being
(27:28):
a large driver of returns. But how can we replicate that in
other areas and other structuresin order to incentivize behavior
that doesn't rely on just the goodwill and the the big heart
of sellers? It's we do live in a capitalist
society and I think have to design for that.
And so it's a it's an experiment.
It passed with great bipartisan support as we are not surprised
(27:50):
in the last two days out of the first two committee hearings
that it went through. And then appropriations is next
week. And then I'm learning about the
legislative process. I'm like, I have office hours
with our policy team. Yeah, it's, I feel very, very
silly, but it's it's exciting and there's tremendous momentum
(28:11):
and support at the state level, which I think is ripe ground
for, for testing for, for national and federal, federal
scale. Awesome.
Can you share about the cash collateral as well?
Yeah, the Office of Economic Development and International
Trade O edit and Colorado is administering a cash collateral
(28:34):
program as it's designed or as it implies that was originally
designed for small business lending at the state level, but
explicitly has been expanded to to use in employee ownership
conversion financing. So essentially providing
additional collateral and reducing the need for personal
(28:55):
guarantees from sellers in orderto attain the financing for
broad based employee ownership conversion.
So kind of a as the call to action institutionally as
catalytic capital. I think more ways not only to
support the MEZ funds and the the folks actually doing and
leading the conversions, but thinking about ways that you can
use your balance sheet and more traditional philanthropic and
(29:17):
impact investing structures to support the senior lending piece
to de risk, quote UN quote because it's like very
attractive cash flowing assets that we're talking about.
But. Perceived risk.
Perceived risk to to bridge to that institutional CRA oriented
senior financing world so. So, yeah, so, so the cash
(29:39):
collateral is basically you go to a bank to get a, a loan for
your, your ESOP or other employee ownership transaction
and there's not enough collateral based upon what the
bank requires to say yes to thatloan.
So the state is stepping in to fill that gap in order to get
the bank to say yes. To get yet, well, they would say
yes at a very high interest rate.
And so it's a lot of the pricingcontrol to eliminate that
(30:02):
perceived risk as it's represented in the rate of
return that you'd have to pay. Yeah.
Love it. That's great.
So comments on policy, what are your thoughts?
Do you have anything you want toshare?
Well, we share a border. I'm in Utah and she's in
Colorado. And I just have to say we have a
lot of work to do. We're no, we're nowhere near
(30:23):
that in Utah and I, I would havesuspect in other states as well.
So I think this the state leversa really, it's a really good
one, interesting one to pull. We've been pulling it on home
ownership, which has been much more successful for us.
So hoping we're just starting toeducate legislators on that
front and on the on the federal side.
I yeah, Jack's getting lots. I'm going to give him a mic.
(30:44):
There's is there an extra chair?We're going to pull him up.
You know, we have worked with Jack for years at Lafayette
Square Institute and he's doing incredible work on the Employee
Ownership Investment Act. I got it a little wrong, but
it's getting renamed anyways. I think so.
And that, that's a great programthat will, once passed, moved a
(31:07):
lot of capital into the space. I, I continue to think from this
side of the House, we've got to pull all the levers, policy
included. And so the more grant capital or
whatever capital is that you have that we can support in that
area, the better. And that there's an education
gap there as well. Yeah, I think that's probably
(31:28):
all I have. Jack, what did I miss?
Any policy asks that you would have from from the seat that you
sit in. You know, my biggest concern is
I don't want to lose what we have.
I'm a big believer and we have the tools.
We need to use the tools better and we need to demonstrate
better outcomes for investors because I know one thing, if
(31:50):
they're earning attractive returns, we will get a flood of
capital. And you know, if I look out 20
years, my goal is I want to makeEsop's the same.
You know, it's from a market acceptance perspective as
private equity LV OS. There's no reason they shouldn't
be. But we got to have real returns.
We got to have good outcomes. And if we can do that, I think
(32:11):
the capital's going to be there and the demand will fix itself.
Love it. All right.
So we're going to go to Q&A. But before we do that, are there
any just sort of quick thoughts you guys want to share with with
the group here before we moved to Q&A, Catherine do?
You anti sideline. I think it's just the.
(32:32):
Use my bearer in the cabin analogy from Jake in the back.
There and the smartest or or dumbest person, yeah, I'd really
just want that to be the take away.
But yeah, I would say just this is a moment to take risks and
risks that have data to back it up and support the field that
(32:56):
continues to support that. For that actual bridge to
institutional capital, we need to get to a place where every
pension fund sees the inherent risk of the underlying companies
and support and safety net of those companies or lack thereof
as a existential risk that they can mitigate through their
portfolios and their investmentsand put a high volume of capital
(33:19):
into these strategies that are sustainable and produce market
rate returns. And that's kind of that's kind
of it like the the impact piece is wonderful and important, but
to get to that institutional scale it requires a real market
based and market oriented messaging and approach.
I would add one thing, which is what we're seeing is that it's
(33:41):
working. So our, our investors are single
family offices couldn't spell ESOP before they heard of us and
met us. I, I love that because these are
real investors that are investing for returns and when
we bring them opportunities, they've been very excited.
And actually now what what they're doing is they're saying,
Hey, we, we want to invest more money in Nebraska with live
(34:04):
example. And so we turned around and
said, OK, let's go find companies in Nebraska that are,
that are family owned, that fit the profile of what this
investor is looking for. And let's go ask that owner,
Hey, I'm sure you get private equity offers all the time.
We're not that we're going to talk to you about an ESOP, but
we're also going to talk to you with the perspective of having a
checkbook. And those conversations have
(34:26):
been really productive. And so turning that around and
saying instead of us, you know invest in us, we'll go find some
generic opportunity, but we're actually going to our LP saying
what do you want to invest in? Let us proactively go pursue
that. In the ESOP angle.
The reception we have with business owners is so different
than talking about a private equity sale.
It's resonating. And so I think it is working.
(34:47):
I will say the one, the one thing I know as we, as we go
more truly institutional owner, investor, excuse me, in the
pension world, they don't know how to benchmark employee owned
vehicles. They have no idea.
Are you a debt? Are you equity?
Who, who do you talk to? How do we deal with you?
How do we know if you're doing good or bad?
To me that's actually probably the biggest hurdle as as we seek
(35:09):
investors is they like the concept, they they feel good
about it, they see the return potential, but they have no way
to benchmark us. Completely agree.
And I think that's goes back to the messaging point of it's not
an employee ownership strategy. This is a private credit
strategy. This is a this is above market
rate debt for a dividend recap. So you can convert part of it to
(35:31):
an employee own structure to align interest.
And I completely agree. And I think that's a huge
messaging issue that we collectively can solve all.
Right, Lindsay? Yeah.
I would just add that, you know,I mean, as we know, times are
incredibly uncertain, but luckily employee ownership is
not one of those issue areas that is hard to sell on either
side of the aisle. So as investors or foundations
(35:54):
or other folks are sitting on the sideline, this is a safe
place to, to, to play. And I, you know, I urge capital
allocators to get out there the,you know, yes, you said they're
mostly emerging fund managers. That doesn't make these
structures high risk or haven't been diligence.
(36:15):
These are incredibly, incrediblygood vehicles to invest in with
really strong fund managers withreally strong track records.
Since Phil decided to grace us with his presence, I'll call him
out specifically. As we know ANH is one of those.
And I'll just come back to harken on my drum again from the
beginning, which is we've got tosupport those that are in the
(36:37):
market now raising capital. This is our time.
When we look back in five to 10 years, we want to say that those
funds that are raising more thandouble the capital that's under
management now survived and madeit.
And those proof points, you know, we're, we're, we're
proven. And then we moved our way all
the way up into the market rate capital where someone doesn't
(36:58):
have to have 95 LP's there. They've moved to a a market rate
place with bigger checks and youknow, proof points.
So that's just my my call to action yet again, that's.
Great. So one quick comment because we
want to have time for questions.Go ahead.
My quick comment, Lindsey wantedto follow up on one thing and
that's in these uncertain times,we have to remember that
(37:18):
employee owned companies don't have equity.
So if they hit hard times, thereis going to be opportunity for
investors to provide that equityto let those companies weather
the storm. And I think as we think about
capital in this space, it's not just instituting new Esops.
We have to support our ESOP companies through downturns, and
(37:39):
we're talking to LP's about thatright now.
OK. So does somebody have a mic for
questions? We've silenced the room.
Nobody wants to be the smartest or the dumbest.
Yeah, hi. I think the question, Catherine,
you were the one who mentioned EO TS and there's a lot, I mean
the Esops have obviously been around for longer.
(38:02):
The S Corp conversion tax advantage strategy is really
well known. But can you EO TS seem brand
new? Can you just say a little bit
more about your perspectives on those?
I'm David Rolfe, by the way. I chair a pension fund with
about $450 million of assets under management in Seattle.
Excellent. Look forward to your investment
in several of these vehicles. I think we view Gary EO TS are
(38:28):
one of the tools in the tool chest.
I think we've talked to or alluded to a lot of tribalism in
this space and I talk about it very blatantly because I think
it's we need to focus on the bigtent, an EOT and the trust
structure and the perpetuity underlying a trust structure is
the right opportunity for some businesses, obviously very new,
(38:52):
but we do have, it sits under the perpetual purpose trust
umbrella. And there we have a few more
data points, but the governance piece is a, is a significant
piece of that, that a lot of strategies in the the Eastop
world integrate, but does so very intentionally just through
its legal structure. So broadly see it as a a tool, a
(39:13):
structural option and in our legislation is listed as one of
the options that would qualify for the capital gains exemption.
And it's not new in Europe. It's very well tested in Europe.
(39:37):
I said you kind of answered my question, but I'll answer it
anyway. Maybe others have comments, but
we've heard over the last coupledays that awareness, lack of
capital and policy, those seem to be resonate all the time.
Those that know me, I'm all about the awareness every single
day at the employee ownership expansion network.
I've always often worried that the more capital that's there,
(39:58):
do we have enough companies in the pipeline to do that?
You've made me think of something in a different way.
Does more capital actually help with the awareness?
And the reason I say this, you're going to business owners
and bringing it to them. I guess a comment there, do you
think more capital improves the awareness?
Yeah. I think at the end of the day,
(40:18):
business owners, they want to dothe right thing by their team
for that second to I want to make sure I get a fair deal.
And so the more capital that we have demanding that, you know,
that opportunity, you're going to create awareness because
they're going to hear about other success stories at other
businesses. It's it's sort of, you know,
where private equity was 30 years ago and why private equity
took over the world is everyone realized that they could sell
(40:40):
their business for way more money than they thought it was
worth. And so that's that happened
because capital was available. So I think capital will create
awareness, but at the same time we do have to make sure we can
deploy it because Lindsay, to your point, I think, you know,
it's great that we have people out fundraising and raising
funds, but there's a lot of pressure to deploy.
And I mentioned this over lunch to to my table.
(41:04):
But we have to be very careful as a as a space that when we
deploy capital that we're actually generating attractive
returns because if we get known for creating substandard
returns, that is going to be very difficult to come back
from. Either one of you want to
comment on that question? I mean, I'm not the smartest
person in the room, but I couldn't have said it better.
Yeah. Great.
(41:28):
Lindsay, I really appreciated you talking about Source and
kind of quickly moving up the the learning curve.
And I'm curious if you could talk a little bit about the
internal kind of stakeholder management and education that
you've done to be able to get the decision makers at Source
and comfortable and excited to step in the space.
(41:52):
Yeah, thank you. How long do you have?
I mean, I, I could we, you know,we, we started as a single
family office. And I think while Jim Sorenson
has renowned as, as you know, one of the earliest impact
investors, so he's not been hardto convince in any innovations
in this space. We do have folks on our board
and investment committee that are a different story, including
(42:13):
his own children who came from private equity.
And their first reaction was, ifthey can't sell the deal of
private equity, it's not that good of a deal.
So that was a real challenge forus.
And I think all of us deep in the space find that offensive
now. But, you know, we went on a
learning journey together. There's nothing.
(42:34):
I mean, an impact. Impact investor loves an
entrepreneur, right? That's what gets them into the
space, gets them excited. So we took the people to the
ground. And we've done that with
legislators in different states.You pull up a list, you call
Jack and you say, Jack, how manyemployee owned companies are
there in Utah or in Colorado or whatever state?
And he can pull a list and you go visit those.
(42:55):
And all of a sudden, you know you're not only on the ground
seeing the heart strings of of these companies, but you also
call Phil and you say, let me give me some of your data.
And he's got it. And the date Joseph just came
out with new data. That's fantastic there.
It's there. And so it's simply just taking
them on a hearts and minds journey that equals that, you
(43:16):
know, matches sort of a return expectation and what they're,
you know, what sort of their risk appetite is.
And when all of those things clear out of the dust, you see
what a great strategy this is. And I'll say it again to
Catherine's point, we look at itas a traditional portfolio model
within our investment strategy and that's changed as well.
But I one thing I wanted to say earlier too, I've never seen
(43:39):
investors be so willing to sharediligence as they have been in
this space. I mean, I've begged folks to
send me their diligence, you know, and I've worked with
Donovan and other folks and Spring Point and they're just
everyone's willing, openly willing to share investment
memos and diligence in the space, which is incredible.
You don't see this in other investment verticals.
(44:02):
And I only bring that up to say Margo said it great earlier.
We need every stakeholder at thetable for this movement.
And I think everybody is here for that.
But as investors, I think our job is to reduce the knowledge
or the coming up the curve and we can do that by creating new
investment products that make moving capital into the space
(44:23):
easier. And I think that's on a studio.
And I hope next year when I we said at this we probably won't
be invited again because we were.
We were just. You know, but if we are invited
here again, hopefully what we can do is share what some of
those models look like because Ithink we want to remove how long
it took us to take this learningjourney.
That's great. And so I'm going to close this
out now just to follow up on that and say, you know, one of
(44:45):
the things that we do at Ownership Capital Lab is I see
it as table stakes in our space to to do the sense making work
of what is the employee ownership investing marketplace.
What are those opportunities creating spaces where investors
can come together and share due diligence with each other,
educate each other. So hold those spaces and advance
(45:07):
those conversations in order to be able to, to invite more
investors into the space and really encourage them to get off
the sidelines. So one of the things I do want
to say just before we wrap is that at Ownership Capital Lab,
we are launching an initiative and over the course of 2025 to
develop a road map for employee ownership capital in the space.
(45:30):
And you may have seen sitting onsome of the tables, we've got
some some Coastcards with a little QR code that I would
encourage everyone to take our survey and you can get to it at
tinyurl.com/EO Capital Survey. But we're really asking everyone
to help us map what it is that we should be doing as a field
(45:53):
and as a space to be very intentional about continuing to
grow the capital marketplace foremployee ownership, continuing
to get those investors off the sidelines, continuing to support
our emerging fund managers. So that when we say in 10 years
and we look back at this time period, we say that was an
inflection point. We saw a flow of capital coming
(46:15):
into the space that really changed the growth trajectory of
employee ownership. Thanks everyone for joining us.
Good afternoon. My name is Jack Moriarty and it
is my esteem pleasure to introduce our first afternoon
panel on the topic of bridging the gap between institutional
investment and employee ownership.
And you know I'll offer very twovery quick thoughts before
passing the baton. The way I've sort of thought
about this and we had a great lunchtime conversation around
(00:25):
this is one of the, there's sortof two conditions you need
right, to sort of expand and scale this, this, this field
that that we all know and have come to love.
The, the 1st is when we talked about this yesterday, you need a
whole bunch of legislative regulatory policy strategies to
take what is right now a niche and turn it into a multi
trillion dollar asset class and really scale this all sorts of
(00:48):
different employee ownership models across the capital
markets, both here and around the world.
But that doesn't happen without really the first condition,
which is you need The Pioneers, you need the innovators, you
need the early adopters that cancollectively show us the art of
the possible. You can't scale what what you
don't know. And, and that's why I'm so
thrilled to introduce a panel offriends and, and, and a great
(01:10):
subset of these entrepreneurs and, and real leaders in the
field. First, Ted Marguerite, managing
partner at Periline, Catherine Toner, the managing director of
impact investing at Gary Community Ventures, Lindsay
Zumbo, executive director of theSorenson Impact Foundation, and
Allison Lingayne, the founder and CEO of Ownership Capital
Lab. I'll let Allison take it away.
(01:34):
Thank you, Jack, and thank you so much to everyone for being
here. And again to Maureen and Joseph
and everyone involved in bringing the these last two days
together. It's been a really powerful set
of conversations and I think we're going to have another
powerful conversation here today.
So you know, capital is such an important lever of growth for
(01:55):
employee ownership. And if you look back, we
certainly wouldn't be where we are today if it hadn't been for
all the ESOP lenders who have really helped with the growth of
the ESOP space, if it hadn't been for the CDF is who've
really leaned into the Co-op lending and the new EOT lending,
right. We really depend upon capital in
many ways to get for to have gotten where we are today.
(02:17):
And there's, there's this new set of employee ownership funds
that are to work with capital ina different ways.
And those funds need to be capitalized in a much greater
way. And I truly believe that that
that that is a huge lever of growth for us as a space if we
can capitalize. You know this earlier today, we
(02:38):
heard someone say we need to be thinking about 10 Xing.
I believe we need to be thinkingabout 10 Xing and then 10 Xing
again, right. And then from there, so, and we
can do that with capital. And we're going to talk a bit
about that today. So my name is Allison Lingay and
I'm the founder of ownership Capital Lab.
You may or may not know know me previously from my role as Co
founder of project equity. But you know, really what we do
(02:59):
at ownership Capital Lab is we work on that lever of, of
capital for for for growing the number of new employee owners
that that that we believe is possible in the United States.
So we what we want to do now is just ask each of our panelists
to introduce themselves. And I'm going to ask as you do
your introductions, if you can also, you know, have some brief
(03:22):
commentary on if you do look back 5 or 10 years, how the
employee ownership space is different so that we can be
thinking about the next, the next chapter moving forward.
And then also, you know, the framing of this is institutional
capital. So unpack that from your
perspective just briefly so thatfolks in the room who may not be
familiar with that lingo can geta sense.
(03:43):
So starting with you, Lindsay. Thank you, Allison.
Catherine and I figured out how to turn on our remotes.
So I feel like we're already successful today.
I'm Lindsay with the Sorensen Impact Foundation, and it's
great to be with you all today. I can't look back five years
because I've only been here for about a year.
(04:05):
So thank you for Joseph and Jackand other folks in this room who
have really helped us come up the curve really quickly.
And employee ownership, our foundation is is really
dedicated to moving more capitalinto the impact investing space.
I know that feels like a broad mandate, but we really impact
investing is still in and of itself a nascent space.
(04:26):
And so we've spent most of our time with that broad mandate.
But every once in a while a theme comes across really checks
across many verticals all the impact boxes for folks and and
as Margo said, across different programs and streams of capital.
And for us at the foundation, that is the ownership economy
(04:49):
and specifically within that home community employee helping
Americans own where they live, where they work and a stake in
the capital markets is incredibly important.
And last year we put out a a request for proposals for
funding for both philanthropic dollars and also catalytic
dollars. And it was the first time those
(05:10):
two teams had ever worked together, a success in and of
itself. For those of you who work in the
foundation world know how hard that is.
Margo's laughing. She appreciates my pain and I
know Catherine does as well. So as I think about the context
of of where you were five years ago, you know, I don't know, but
(05:30):
I do know you're having your moment and there's a lot of new
capital at the table and there'sa lot of capital still sitting
on the sidelines. We've got to get off the
sidelines. Our subtext at the foundation is
pioneering the gap or helping folks through the valley of
death. That is the role of foundations
and family offices and high net worth individuals that care
(05:53):
about impact and that care aboutimpact allocation and where
their dollars are going today. And if you ask me, there's not a
better place for those dollars to be going today if you care
about decreasing the wealth gap.So I'm excited to talk about
those things and how we can sortof bridge that gap to
institutional capital and what scale looks like for folks
(06:15):
because we're excited to see allthe employee ownership funds and
products that are out there get to scale.
I'm next. The microphone's working.
We did a really good job. Yeah.
Catherine Toner, I'm with Gary Community Ventures.
We're a hybrid family office private foundation based in
Denver, Co. We very much have a place based
(06:37):
mandate in Colorado for our philanthropic work, but have a
national portfolio and are uniquely 100%.
Not necessarily uniquely, but weare both 100% impact invested as
an endowment and we are also a sunset organization.
So I will be out of a job in 10 years.
I always make this joke on panels, but I'm serious.
I will be in the job market. But no, it's really, it's a,
(07:02):
it's a very cool structure, one that I moved to to Denver side
unseen to support because it really changes the way that
we're able to take risk and think about risk.
And I love the term be that kindof bridge in the valley of death
to real market rate and scalablesolutions employee ownership,
which is kind of emblematic of for us as well kind of that
(07:24):
structure that is both producingmarket rate returns and
implicitly creating impact for the folks that helped drive that
value in a in a company itself. I get to uniquely do a lot on
the investment side. Two of our investees are here to
run a group central owners fund as well as Avis and Heritage and
(07:45):
fund one and Fund 2. And so really learning through
our portfolio what structures work, how to actually implement
on the ground from the people doing the work and how
structurally that kind of translates into value and wealth
for for the employees. And that fits in our broader
(08:06):
strategy of I oversee our familyeconomic mobility investment
portfolio. And we view essentially the PNL
of the family and the balance sheet of the family as the
things that we want to affect. So increasing income, decreasing
expenses and increasing assets and employee ownership is very
much in that that asset bucket and thinking about ways that can
(08:27):
be generated through housing value, through homeownership,
individual assets and now employee ownership and other
structures in real estate. So excited to talk to you all
today. Great.
Thank you, Catherine. My mic's working as well.
So we're off to a good start. Well, good afternoon.
First, it's been such an honor to participate in this important
(08:48):
conversation. It's been so inspiring today and
yesterday to hear all the great ideas, the excitement, not just
in, in my space, the South world, but across employee
ownership, things I, I wasn't even aware of.
It's, it's just so, so, so powerful.
So I'm Ted Marguerite, I'm the managing partner of Periline
Capital Partners. We're a bit of a unique animal.
I've been in the ESOP space for coming up on 20 years.
(09:10):
Throughout that period, my role has been advising business
owners as they've evaluated ownership transition ESOP
primarily, but not exclusively. Our role of Periline, where I
founded Periline 2 years ago wasto expand the awareness of
employee ownership and that takes 2 forms.
And we we have two parts of our business on one hand where we
(09:30):
spend frankly most of our time is advising and that's going to
find business owners whatever they want to do, whether it's
sell the private equity, do an ESOP.
But we want to put that ESOP option on the table form and
make sure it's considered, educate them on it might not be
the right solution, it's not theright solution for everyone, but
we want to make sure that they're making an informed
decision. So that's that's the first part
(09:52):
of that. The other part of how we want to
bring those market based solutions is by connecting
capital. One of the things and I'll come
back to this in a bit is that the the capital markets in the
ESOP world and and within the ESOP space we focus on companies
valued over $100 million. So large businesses.
I think last time I looked our average client had several 103
(10:15):
to 400 employees. At that size business, they have
a lot of options and for better or worse, the price of entry to
that conversation is what is a minimum level of liquidity that
they can pull out. And so how do we bridge that
capital gap? And we think the way to do that
is using an ESOP, bringing market focused investors and
(10:36):
having them invest in alignment in parallel, hence paralleline
in parallel. That was pretty clever, wasn't
it? ChatGPT does amazing work in
COVID. Yeah, it was phenomenal, also
ChatGPT. But bringing that together,
because we're staunch believers that when structured correctly,
investors can realize great returns, particularly great risk
(10:58):
adjusted returns and at the sametime deliver phenomenal outcomes
for owners and communities and employees.
And so that's what we do. So Allison, back to your
question, what have I seen over the last five years?
I'm going to go back even further probably.
So as I look back to call it theearly 20, you know, 20/11/2012
(11:18):
time frame, I have seen the explosion of private capital to
the extent that I think private equity is just simply run out of
things to buy. And that's leached over into the
ESOP space in that it's, it's, it's just increased the level of
expectations that business owners have and it's made Esop's
harder. I'm looking around the room at
(11:40):
some of the my fellow ESOP practitioners.
We all know that say pre 2022 wesold more ESOP companies than we
instituted new Esop's. Why was it because private
equity had a lot of money and they were they were offering
that. I think Tide is changing and
higher interest rates will bringmultiples down.
(12:01):
Private equity is realizing thatthey probably overpaid.
That's creating an opportunity to have more I think compelling
ESOP conversations. But I think we do need to figure
out how to bring more institutional capital on a
sustainable market based basis into this realm if we're going
to grow Esops at scale and that's what we set out to prove.
(12:24):
Yeah, love it. That's super helpful to get your
perspective, especially from theESOP vantage point, because
we've been having so many conversations about, about Esops
in the realm of the sort of the normal way that Esops are
created. I would say versus maybe some of
the newer ways where we've got these funds that are kind of
going shoulder to shoulder, if you will, with private equity
funds, you know, bidding on, bidding on these companies and
(12:45):
transitioning them. So appreciate that.
So we're going to go back to you, Lindsay.
And you talked about the the pioneering Pioneer Gap and the
Valley of Death. And you know, in our space of
the dedicated employee ownershipfunds, you mentioned Fund one
and Fund 2 for rapist and heritage.
We have two fund twos. So for those of you who are in
the investment landscape, that means that every one of our
(13:07):
funds in the space is an emerging manager, right?
So, so from your vantage point, you know, could you talk about
some of the ways that that you can pull on the levers of what
you have, but but also sort of the call to action about the
ways to to support and really lean into getting off the
sidelines or supporting these emerging managers, whether
(13:29):
they're in their fund 2 or theirfund one or even just getting
organized. Yeah, absolutely.
I think investors spend a lot oftime trying to understand
imperfect models before they invest.
And we all know that employee ownership can be a really hard
learning curve. I know that's been true for us
as an investor and other investors that we talked to.
(13:50):
But the reality is, is it's, it's not that complicated.
And especially if you care aboutimpact from an emerging fund
manager or first time fund manager there, there's quick
boxes to check there. But I think we do have to
continue to break down the education barrier.
We have to break down the data that exists.
We have to get that out and and have more transparency in the
(14:13):
market. I think that that's a big
problem. But from my vantage point,
foundations can play a really unique role in supporting the
ecosystem and sort of the, you know, different scales of
capital or spectrum of capital that exists in our, at our
fingertips. So you know, I met, we, we put
(14:36):
out a, a request for funding last year.
And I, you know, we did it for both our catalytic investment
portfolio and also our, our philanthropic or grant bucket.
And that was the first time our programs had talked to each
other, but it also became aware of how much grant capital needs
to go out to the space. And I don't think we're seeing
enough of that capital in in sort of this niche early
(14:58):
learning stage so that folks like the Aspen Institute and
their incredible work or transform finance, a number of
folks that are sitting in this room are doing Rutgers, others
that are sitting doing this incredible work behind the
scenes. We need to see more of that
grant capital go to the the learning academic scholar work
on and, you know, specifically to the funds and, and the
(15:19):
fundraise. As you, you know, we've had, you
know, we were at first and one of the first investors in the
A&H fund, you know, in early 2019 and, and so excited to see
them in, you know, raising theirsecond fund.
We have a lot of funds in the space and we have a lot of new
capital that needs to be raised in order for these funds to
succeed. Jacob said something to me
(15:42):
earlier that was great, which said, you know, don't tackle,
tackle the the bear in the cabinfirst, not the bear in the
woods. And I think it's incredibly
important that the funds that are in the market now are
successful. If they don't raise the capital
needed at this time, it's going to be a failure to launch in
(16:04):
this space as far as as an investor sees it.
And so whenever we have investors on the sidelines that
say what, how can I get involved?
Where should I start? Like get off the sidelines.
Put capital into these emerging fund managers, put them into
fund one, put them into Fund 2. You know there's twenty, however
many. Allison knows this 2727.
(16:24):
She knows the number of capital that's being circled, which is
more capital than been raised for funds in the employee
ownership space. 670 million if all the funds are successful
with their raises compared to a base of only 500 million of
assets under management right now in the specialized employee
ownership funds. So double, more than double more
than double, our work's cut out for us.
(16:44):
So I tell folks all the time, this is one way to think about
this is a private credit strategy.
Get off the sidelines, see the impact, see the return potential
and get in the game, especially as foundations are concerned.
I think Margo and I are always on the soapbox beating this
drum. A lot of our friends are still
sitting on the sidelines. So I spent a ton of my time
trying to help investors get offthe sideline.
(17:04):
But a lot of this comes from an education gap and understanding,
you know, all the different structures that are out there
and which ones work better and which ones don't with size of
the company have to be all thoselearning curves.
And then I think from an investor standpoint there
there's some innovation that canhappen.
I think there's an entry point that could be made easier so
(17:25):
that there is capital ready at, you know, at at at the employee
conversion place. So whether that's a fun to fund
model so people can start to diptheir toes in investors.
I think there are, there are different ways that we can play,
but I will say no matter which place your capital is coming
from, there's a lot of capital needed on the philanthropic
side, on the catalytic side. And as we move these funds up to
(17:48):
the market rate side, we've justgot to get off the sidelines.
Love that. Get off the sidelines.
You're already off it, so tell me what's next?
I hate sidelines. You were not a benchwarmer, were
you? Yeah.
So tell, tell us that was JV lacrosse.
But you know, we can talk about that later.
It's a lot of emotional trauma. So, so tell us what, what you're
(18:11):
doing, not being on the sidelines, talk to us about some
of your investments and, and what you're learning and seeing
about the gaps in the needs. And you know how at at sort of
the field level what the needs are in in in order to unlock
more capital flowing? Yeah, I think I agree with
Lindsay on the on the grand sidein understanding the learning
and Joseph has been working for decades and and Jack on and the
(18:34):
actual data behind the performance and efficiency of
the underlying portfolio companies under employee
ownership models. And that is a commercial
rationale we need the databases for to get institutional capital
at scale into these investments and in asset classes across
employee ownership investments. And I think that's a big thing
(18:56):
for us too is just the framing of this as institutional like to
attract institutional capital isnot I'm investing in employee
ownership or this is my impact strategy.
It's like, no, it is a private credit strategy that fits into
our endowment portfolio strategyand asset allocation that the
underlying investment and value creation is employee ownership
(19:18):
itself. And I think that framing is
really powerful for our investment committee and for
also getting, getting folks off the sideline and getting the
traditional CIO endowment folks at foundations to think about
this as more traditional asset allocation and not a niche
fluffy impact strategy because it's not.
It's a large driver of value in the workers that are creating
(19:43):
that value day-to-day. I think grant capital is also
incredibly helpful at the firm building level.
But Lindsey and I were talking about this earlier at the the
danger of too much grant capitalis, is creating that label of
impact only or impact 1st. And there's certainly an area
(20:04):
and an opportunity and a need for that type of capital and the
catalytic capital to bridge thatvalley of death.
But institutional capital long term in employee ownership
strategies requires a very market oriented approach.
And so we're. Supportive of that and
supportive of funds that are both experiment, experimenting
like essential owners in different structures that are
(20:26):
not necessarily full ESOP conversions as well as fully
Esops structurally, but the underlying credit or capital
being provided into those investments and conversions are
traditional asset classes. Fantastic.
I love what you said about we need to show up with the
investors in the way that they are used to being, you know,
(20:48):
being pitched and instead of saying I'm an employee ownership
fund, say I'm a private credit fund.
Oh, and the value creation happens through the employee
ownership. I mean, it's the same thing that
the funds are experiencing that in the space of being able to go
to a business owner and say instead of oh business owner,
you should fall in love with employee ownership.
No, go to the business owner andsay, oh, business owner, we have
(21:09):
capital. We want to acquire your company.
Oh, and PS employee ownership isthe added value that you get by
going with us instead of by going with the other firm.
And is a captive, is the captivebuyer at the end of the day.
Like once the ESOP is set up andI'll use A and H as a example
(21:29):
and. He's not even here for this
panel. We kept using his name, Rude,
Phil and Todd. But a Unitron strategy is you're
essentially approaching the seller who has run the company
and put their blood, sweat and tears into it and providing A
Mesdet and a Unitron senior debtopportunity to achieve the end
(21:52):
goal for an EOT, for equity comp, for any broad based
structure, it is a dividend recap, like speaking in the real
terms of traditional finance to communicate what this actually
is. I think bridges that gap and
goes a long way to make this a normal non niche niche
(22:17):
investment strategy. Yeah.
And what that takes is that takes the marrying of of folks
who have backgrounds in investing and can speak that
language with folks who have backgrounds in employee
ownership, right. The two have to come together.
So over to you, you know, in your experience on especially on
the sell side advising on the ESOP front, you know, tell us
(22:38):
more about what you're seeing and what some, you know, you
touched on this in your opening remarks, but what you see as
some of the path to to more institutional capital.
You know, I'm happy to. So I think the biggest challenge
we have in the East, South worldtoday in terms of institutional
capital is twofold. As we speak to investors
currently that are invested withus or people who are evaluating
(23:02):
the structure for the first time.
Structurally, they love the ideaof ESOP, but that's like 3rd or
4th on the list #1 is how do yougenerate returns?
Why is this differentiated from what I'm doing today elsewhere?
OK, check that box. But where they struggle as they
understand the structure is duration.
And what we struggle with in theESOP context is, and I'm ESOP
(23:23):
specifically, but more specifically 100% escort peace
OPS because that tax savings helps generate the return that
the investor is looking for thatduration to get their capital
back as long. We always say it's 7 to 12
years. That is a hurdle.
But I would say even more so than that is the dearth of
(23:43):
institutionally investable businesses.
How many businesses over $100 million that have the the
reporting and the controls internally and the management
team to actually warrant institutional capital out of the
200 and some odd Esop's that arecreated every year.
I'd, I'd pull some of the ESOP folks in the room, but I think
we would all agree it's probablyless than 15 or 20.
(24:07):
That is the single biggest hurdle.
Now how do we, how do we addressthat that that network of buyer,
if you own a $200 million business in I'm from South
Dakota, so I used Sioux Falls, you're going to think that
private equity is the only option.
That's, that's just fundamentally how you're going
to think unless you're, you know, thinking of some sort of
(24:29):
gratuitous transfer via ESOP foremployee ownership.
That is the what needs to switch.
But what needs to switch is we need to reach that, that party,
that business owner before they engage the middle market
investment banker who's just incentivized to sell them to
private equity because those companies exist.
Those owners exist, but we need to get them before they already
(24:51):
went to a different asset class.And that's why we think it's so
important. And what we're doing apparel
line of our sell side business is that gets us in front of
those people first before they go to auction.
I don't want to invest, I don't want to bring my investors into
an auction. The person that win the auction
is either the smartest person orthe dumbest person, but they are
(25:11):
certainly the person that paid the most.
So we can get in front of that. Not only do we have the ability
to educate them on an ESOP before they're already down the
path somewhere else, but we alsohave the ability to create
really attractive structures andreturns for our investors
without the without the impact of that competitive auction.
I'm going to quote that. That's copyrighted.
(25:34):
You can quote it as a licensing.Fee I'll attribute.
I'll attribute. The smartest or the dumbest for
sure. So that's actually a good segue
maybe into the policy arena. But let's talk state policy in
Colorado and, you know, have youshare a little bit about the
(25:57):
good things that are have been and are happening there in
Colorado and then you know what what you'd like to see happen at
the federal level? Yeah, absolutely.
And I'm looking at my friend Jack over here who has been a
conspirator. Yeah, Colorado is ripe ground
for employee ownership. We have two of A and HS fund one
(26:20):
portfolio companies there a lot of activity, a lot of support
from our office of economic development.
We are one of a few states that have an employee ownership
office, have a cash collateral program for financing that
applies to employee ownership conversion transactions.
And in this session, we Gary helped develop legislation that
(26:42):
essentially provides the first state level economic incentive
to convert to employee ownership.
So taking kind of the 1042 rollover approach, but applying
it to state income tax, essentially capital gains
exemption for employers and sellers that are converting at
least 20% of their business to abroad based employee owned
(27:04):
structure in order to qualify for that capital gains
exemption. So as you can tell, I'm very
much like the traditional finance evil capitalist version
and like really wanting to narrow in on what economic
incentives. And I think you probably agree
with the need for this in the S Corp 100% ESOP conversion being
(27:28):
a large driver of returns. But how can we replicate that in
other areas and other structuresin order to incentivize behavior
that doesn't rely on just the goodwill and the the big heart
of sellers? It's we do live in a capitalist
society and I think have to design for that.
And so it's a it's an experiment.
It passed with great bipartisan support as we are not surprised
(27:50):
in the last two days out of the first two committee hearings
that it went through. And then appropriations is next
week. And then I'm learning about the
legislative process. I'm like, I have office hours
with our policy team. Yeah, it's, I feel very, very
silly, but it's it's exciting and there's tremendous momentum
(28:11):
and support at the state level, which I think is ripe ground
for, for testing for, for national and federal, federal
scale. Awesome.
Can you share about the cash collateral as well?
Yeah, the Office of Economic Development and International
Trade O edit and Colorado is administering a cash collateral
(28:34):
program as it's designed or as it implies that was originally
designed for small business lending at the state level, but
explicitly has been expanded to to use in employee ownership
conversion financing. So essentially providing
additional collateral and reducing the need for personal
(28:55):
guarantees from sellers in orderto attain the financing for
broad based employee ownership conversion.
So kind of a as the call to action institutionally as
catalytic capital. I think more ways not only to
support the MEZ funds and the the folks actually doing and
leading the conversions, but thinking about ways that you can
use your balance sheet and more traditional philanthropic and
(29:17):
impact investing structures to support the senior lending piece
to de risk, quote UN quote because it's like very
attractive cash flowing assets that we're talking about.
But. Perceived risk.
Perceived risk to to bridge to that institutional CRA oriented
senior financing world so. So, yeah, so, so the cash
(29:39):
collateral is basically you go to a bank to get a, a loan for
your, your ESOP or other employee ownership transaction
and there's not enough collateral based upon what the
bank requires to say yes to thatloan.
So the state is stepping in to fill that gap in order to get
the bank to say yes. To get yet, well, they would say
yes at a very high interest rate.
And so it's a lot of the pricingcontrol to eliminate that
(30:02):
perceived risk as it's represented in the rate of
return that you'd have to pay. Yeah.
Love it. That's great.
So comments on policy, what are your thoughts?
Do you have anything you want toshare?
Well, we share a border. I'm in Utah and she's in
Colorado. And I just have to say we have a
lot of work to do. We're no, we're nowhere near
(30:23):
that in Utah and I, I would havesuspect in other states as well.
So I think this the state leversa really, it's a really good
one, interesting one to pull. We've been pulling it on home
ownership, which has been much more successful for us.
So hoping we're just starting toeducate legislators on that
front and on the on the federal side.
I yeah, Jack's getting lots. I'm going to give him a mic.
(30:44):
There's is there an extra chair?We're going to pull him up.
You know, we have worked with Jack for years at Lafayette
Square Institute and he's doing incredible work on the Employee
Ownership Investment Act. I got it a little wrong, but
it's getting renamed anyways. I think so.
And that, that's a great programthat will, once passed, moved a
(31:07):
lot of capital into the space. I, I continue to think from this
side of the House, we've got to pull all the levers, policy
included. And so the more grant capital or
whatever capital is that you have that we can support in that
area, the better. And that there's an education
gap there as well. Yeah, I think that's probably
(31:28):
all I have. Jack, what did I miss?
Any policy asks that you would have from from the seat that you
sit in. You know, my biggest concern is
I don't want to lose what we have.
I'm a big believer and we have the tools.
We need to use the tools better and we need to demonstrate
better outcomes for investors because I know one thing, if
(31:50):
they're earning attractive returns, we will get a flood of
capital. And you know, if I look out 20
years, my goal is I want to makeEsop's the same.
You know, it's from a market acceptance perspective as
private equity LV OS. There's no reason they shouldn't
be. But we got to have real returns.
We got to have good outcomes. And if we can do that, I think
(32:11):
the capital's going to be there and the demand will fix itself.
Love it. All right.
So we're going to go to Q&A. But before we do that, are there
any just sort of quick thoughts you guys want to share with with
the group here before we moved to Q&A, Catherine do?
You anti sideline. I think it's just the.
(32:32):
Use my bearer in the cabin analogy from Jake in the back.
There and the smartest or or dumbest person, yeah, I'd really
just want that to be the take away.
But yeah, I would say just this is a moment to take risks and
risks that have data to back it up and support the field that
(32:56):
continues to support that. For that actual bridge to
institutional capital, we need to get to a place where every
pension fund sees the inherent risk of the underlying companies
and support and safety net of those companies or lack thereof
as a existential risk that they can mitigate through their
portfolios and their investmentsand put a high volume of capital
(33:19):
into these strategies that are sustainable and produce market
rate returns. And that's kind of that's kind
of it like the the impact piece is wonderful and important, but
to get to that institutional scale it requires a real market
based and market oriented messaging and approach.
I would add one thing, which is what we're seeing is that it's
(33:41):
working. So our, our investors are single
family offices couldn't spell ESOP before they heard of us and
met us. I, I love that because these are
real investors that are investing for returns and when
we bring them opportunities, they've been very excited.
And actually now what what they're doing is they're saying,
Hey, we, we want to invest more money in Nebraska with live
(34:04):
example. And so we turned around and
said, OK, let's go find companies in Nebraska that are,
that are family owned, that fit the profile of what this
investor is looking for. And let's go ask that owner,
Hey, I'm sure you get private equity offers all the time.
We're not that we're going to talk to you about an ESOP, but
we're also going to talk to you with the perspective of having a
checkbook. And those conversations have
(34:26):
been really productive. And so turning that around and
saying instead of us, you know invest in us, we'll go find some
generic opportunity, but we're actually going to our LP saying
what do you want to invest in? Let us proactively go pursue
that. In the ESOP angle.
The reception we have with business owners is so different
than talking about a private equity sale.
It's resonating. And so I think it is working.
(34:47):
I will say the one, the one thing I know as we, as we go
more truly institutional owner, investor, excuse me, in the
pension world, they don't know how to benchmark employee owned
vehicles. They have no idea.
Are you a debt? Are you equity?
Who, who do you talk to? How do we deal with you?
How do we know if you're doing good or bad?
To me that's actually probably the biggest hurdle as as we seek
(35:09):
investors is they like the concept, they they feel good
about it, they see the return potential, but they have no way
to benchmark us. Completely agree.
And I think that's goes back to the messaging point of it's not
an employee ownership strategy. This is a private credit
strategy. This is a this is above market
rate debt for a dividend recap. So you can convert part of it to
(35:31):
an employee own structure to align interest.
And I completely agree. And I think that's a huge
messaging issue that we collectively can solve all.
Right, Lindsay? Yeah.
I would just add that, you know,I mean, as we know, times are
incredibly uncertain, but luckily employee ownership is
not one of those issue areas that is hard to sell on either
side of the aisle. So as investors or foundations
(35:54):
or other folks are sitting on the sideline, this is a safe
place to, to, to play. And I, you know, I urge capital
allocators to get out there the,you know, yes, you said they're
mostly emerging fund managers. That doesn't make these
structures high risk or haven't been diligence.
(36:15):
These are incredibly, incrediblygood vehicles to invest in with
really strong fund managers withreally strong track records.
Since Phil decided to grace us with his presence, I'll call him
out specifically. As we know ANH is one of those.
And I'll just come back to harken on my drum again from the
beginning, which is we've got tosupport those that are in the
(36:37):
market now raising capital. This is our time.
When we look back in five to 10 years, we want to say that those
funds that are raising more thandouble the capital that's under
management now survived and madeit.
And those proof points, you know, we're, we're, we're
proven. And then we moved our way all
the way up into the market rate capital where someone doesn't
(36:58):
have to have 95 LP's there. They've moved to a a market rate
place with bigger checks and youknow, proof points.
So that's just my my call to action yet again, that's.
Great. So one quick comment because we
want to have time for questions.Go ahead.
My quick comment, Lindsey wantedto follow up on one thing and
that's in these uncertain times,we have to remember that
(37:18):
employee owned companies don't have equity.
So if they hit hard times, thereis going to be opportunity for
investors to provide that equityto let those companies weather
the storm. And I think as we think about
capital in this space, it's not just instituting new Esops.
We have to support our ESOP companies through downturns, and
(37:39):
we're talking to LP's about thatright now.
OK. So does somebody have a mic for
questions? We've silenced the room.
Nobody wants to be the smartest or the dumbest.
Yeah, hi. I think the question, Catherine,
you were the one who mentioned EO TS and there's a lot, I mean
the Esops have obviously been around for longer.
(38:02):
The S Corp conversion tax advantage strategy is really
well known. But can you EO TS seem brand
new? Can you just say a little bit
more about your perspectives on those?
I'm David Rolfe, by the way. I chair a pension fund with
about $450 million of assets under management in Seattle.
Excellent. Look forward to your investment
in several of these vehicles. I think we view Gary EO TS are
(38:28):
one of the tools in the tool chest.
I think we've talked to or alluded to a lot of tribalism in
this space and I talk about it very blatantly because I think
it's we need to focus on the bigtent, an EOT and the trust
structure and the perpetuity underlying a trust structure is
the right opportunity for some businesses, obviously very new,
(38:52):
but we do have, it sits under the perpetual purpose trust
umbrella. And there we have a few more
data points, but the governance piece is a, is a significant
piece of that, that a lot of strategies in the the Eastop
world integrate, but does so very intentionally just through
its legal structure. So broadly see it as a a tool, a
(39:13):
structural option and in our legislation is listed as one of
the options that would qualify for the capital gains exemption.
And it's not new in Europe. It's very well tested in Europe.
(39:37):
I said you kind of answered my question, but I'll answer it
anyway. Maybe others have comments, but
we've heard over the last coupledays that awareness, lack of
capital and policy, those seem to be resonate all the time.
Those that know me, I'm all about the awareness every single
day at the employee ownership expansion network.
I've always often worried that the more capital that's there,
(39:58):
do we have enough companies in the pipeline to do that?
You've made me think of something in a different way.
Does more capital actually help with the awareness?
And the reason I say this, you're going to business owners
and bringing it to them. I guess a comment there, do you
think more capital improves the awareness?
Yeah. I think at the end of the day,
(40:18):
business owners, they want to dothe right thing by their team
for that second to I want to make sure I get a fair deal.
And so the more capital that we have demanding that, you know,
that opportunity, you're going to create awareness because
they're going to hear about other success stories at other
businesses. It's it's sort of, you know,
where private equity was 30 years ago and why private equity
took over the world is everyone realized that they could sell
(40:40):
their business for way more money than they thought it was
worth. And so that's that happened
because capital was available. So I think capital will create
awareness, but at the same time we do have to make sure we can
deploy it because Lindsay, to your point, I think, you know,
it's great that we have people out fundraising and raising
funds, but there's a lot of pressure to deploy.
And I mentioned this over lunch to to my table.
(41:04):
But we have to be very careful as a as a space that when we
deploy capital that we're actually generating attractive
returns because if we get known for creating substandard
returns, that is going to be very difficult to come back
from. Either one of you want to
comment on that question? I mean, I'm not the smartest
person in the room, but I couldn't have said it better.
Yeah. Great.
(41:28):
Lindsay, I really appreciated you talking about Source and
kind of quickly moving up the the learning curve.
And I'm curious if you could talk a little bit about the
internal kind of stakeholder management and education that
you've done to be able to get the decision makers at Source
and comfortable and excited to step in the space.
(41:52):
Yeah, thank you. How long do you have?
I mean, I, I could we, you know,we, we started as a single
family office. And I think while Jim Sorenson
has renowned as, as you know, one of the earliest impact
investors, so he's not been hardto convince in any innovations
in this space. We do have folks on our board
and investment committee that are a different story, including
(42:13):
his own children who came from private equity.
And their first reaction was, ifthey can't sell the deal of
private equity, it's not that good of a deal.
So that was a real challenge forus.
And I think all of us deep in the space find that offensive
now. But, you know, we went on a
learning journey together. There's nothing.
(42:34):
I mean, an impact. Impact investor loves an
entrepreneur, right? That's what gets them into the
space, gets them excited. So we took the people to the
ground. And we've done that with
legislators in different states.You pull up a list, you call
Jack and you say, Jack, how manyemployee owned companies are
there in Utah or in Colorado or whatever state?
And he can pull a list and you go visit those.
(42:55):
And all of a sudden, you know you're not only on the ground
seeing the heart strings of of these companies, but you also
call Phil and you say, let me give me some of your data.
And he's got it. And the date Joseph just came
out with new data. That's fantastic there.
It's there. And so it's simply just taking
them on a hearts and minds journey that equals that, you
(43:16):
know, matches sort of a return expectation and what they're,
you know, what sort of their risk appetite is.
And when all of those things clear out of the dust, you see
what a great strategy this is. And I'll say it again to
Catherine's point, we look at itas a traditional portfolio model
within our investment strategy and that's changed as well.
But I one thing I wanted to say earlier too, I've never seen
(43:39):
investors be so willing to sharediligence as they have been in
this space. I mean, I've begged folks to
send me their diligence, you know, and I've worked with
Donovan and other folks and Spring Point and they're just
everyone's willing, openly willing to share investment
memos and diligence in the space, which is incredible.
You don't see this in other investment verticals.
(44:02):
And I only bring that up to say Margo said it great earlier.
We need every stakeholder at thetable for this movement.
And I think everybody is here for that.
But as investors, I think our job is to reduce the knowledge
or the coming up the curve and we can do that by creating new
investment products that make moving capital into the space
(44:23):
easier. And I think that's on a studio.
And I hope next year when I we said at this we probably won't
be invited again because we were.
We were just. You know, but if we are invited
here again, hopefully what we can do is share what some of
those models look like because Ithink we want to remove how long
it took us to take this learningjourney.
That's great. And so I'm going to close this
out now just to follow up on that and say, you know, one of
(44:45):
the things that we do at Ownership Capital Lab is I see
it as table stakes in our space to to do the sense making work
of what is the employee ownership investing marketplace.
What are those opportunities creating spaces where investors
can come together and share due diligence with each other,
educate each other. So hold those spaces and advance
(45:07):
those conversations in order to be able to, to invite more
investors into the space and really encourage them to get off
the sidelines. So one of the things I do want
to say just before we wrap is that at Ownership Capital Lab,
we are launching an initiative and over the course of 2025 to
develop a road map for employee ownership capital in the space.
(45:30):
And you may have seen sitting onsome of the tables, we've got
some some Coastcards with a little QR code that I would
encourage everyone to take our survey and you can get to it at
tinyurl.com/EO Capital Survey. But we're really asking everyone
to help us map what it is that we should be doing as a field
(45:53):
and as a space to be very intentional about continuing to
grow the capital marketplace foremployee ownership, continuing
to get those investors off the sidelines, continuing to support
our emerging fund managers. So that when we say in 10 years
and we look back at this time period, we say that was an
inflection point. We saw a flow of capital coming
(46:15):
into the space that really changed the growth trajectory of
employee ownership. Thanks everyone for joining us.
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