Tina Byles Williams is the chief executive officer, chief investment officer, and chairman of the board for Xponance, Inc.
She founded the $15 billion black-women-led, and employee-owned investment management firm in 1996. Xponance offers global and non-U.S. equity active investment strategies. Before establishing the firm, Byles Williams was a principal and senior consultant at WHP, Inc. And before joining WHP in 1994, she served as the CIO of the $2.5 billion City of Philadelphia Board of Pensions and Retirement.
Alternatives Watch asked Byles to share a few of her thoughts on her firm, its strategy, and how the current investment environment is impacting her investment outlook and on her views of alternative assets.
AW: Where does the name Xponance come from? What does it mean?
Byles Williams: The name Xponance is derived from the word Exponent, which means an advocate, a person who believes in and promotes the truth or benefits of an idea or theory. In addition, in mathematics, it represents the power to which a given number or expression is to be raised. We think of ourselves as raising the bar on investment excellence on the alpha benefits of investing with diverse and emerging investment firms and through diverse investment professionals for our direct investment platforms.
AW: How does Xponance’s investment approach add value/generate alpha?
Byles Williams: Our strategy offerings encompass direct index replication and systematic ESG strategies, fixed-income strategies, a multi-manager business that offers global and non-U.S. equity strategies that focus on boutique managers and, more recently, a private markets strategy that provides strategic capital through minority stakes to mid-market GP’s.
The GP staking strategy is designed to tap into the tremendous and underinvested universe of diverse and women-owned middle market GPs that offer buyout, growth equity, private credit, and special situations, as well as real assets strategies. Within this universe, we have identified a substantial number of diverse founder-led GPs with AUMs ranging between $500 million and $5 billion in assets.
We like this market segment because they are proven investors with a strong LP base; they have minimal survival risk yet ample opportunity for growth; they generally are accessed through proprietary sourcing through our team’s deep relationships within that community; they appreciate the value of strategic capital and partnership in areas such as distribution, business advice and operational assistance, and they represent an underinvested segment of the GP stakes universe, with the dominant players typically focusing on $10 billion plus GPs.
AW: When did the firm expand into alternative investment strategies, and why did you think Xponance could add value there?
Byles Williams: The firm established its alternatives subsidiary in April 2021 and launched the GP Staking Fund in the fall of that year. My five partners and I have been in the investment business for decades and are privileged to have nurtured relationships with some high-quality investment professionals and entrepreneurs, particularly in the diverse and women manager space. This enables us to generally avoid broad-based investment banker “auctions” and focus on transactions with GPs with whom we have a pre-existing relationship.
Once we invest in or with a GP, we become a strategic partner to help them to achieve their business objectives. As strategic partners to our GPs, we endeavor to provide meaningful assistance towards meeting their business objectives, whether the objective is to expand their franchise through additional distribution; whether it is to diversify their product platforms by acquiring teams that offer adjacent strategies, or whether it is to execute on retention initiatives related to generational transitions and succession planning, and/or to recapitalize their capital structure by replacing passive shareholders, such as seeders and transitioned founders. Our partnership with Investcorp expands not only our relationship network but provides additional underwriting resources for properly valuing opportunities at entry and exit.
AW: What does success look like for Xponance’s recently launched strategic partnership with Investcorp in support of diverse and women-owned managers?
Byles Williams: Success is being the market leader in the mid-market GP staking space because of the returns we have generated for our LPs and because of the quality of our strategic partnership with our GPs.
The characteristics that we seek in each GP investment generally include:
Investment Excellence (e.g., track record over multiple cycles, persistency, and ability to source, add value to and monetize investments);
Business Sustainability (e.g., platform diversification, quality of teams, quality and breadth of capital/investor base, and retention mechanisms, including dispersion of equity and carry);
Growth Profile (e.g., investment capacity, management vision, performance of marketing and IR functions and establishment of infrastructure);
Quality and culture of GP leadership – Their alignment with their LPs, their ability to inspire and get the best out of their people, their ability to execute on their growth strategy and their focus on creating value and growing their business sustainably;
Alignment – Our investment approach generally emphasizes alignment of interest with management, over outright controls, or veto rights.
AW: What qualities and/or mindset do you seek in diverse and women-owned investment managers that Xponance will seed or support?
Byles Williams: We look for the same qualities as those detailed in response to the prior question. The good news is that the pool of diverse and women-owned investment firms is quite robust and because they have historically been overlooked, in some ways they provide a greater opportunity for partnership to create additional enterprise value.
AW: In which investment areas, if any, do you see potential for Xponance to grow and likewise for other diverse and women-owned firms to grow?
Byles Williams: So, our portfolio construction is designed to maximize exit valuations and mitigate various risks, including idiosyncratic GP and strategy risks, event risks, as well as industry and macroeconomic risks. The idiosyncratic GP and strategy risks are primarily addressed through diversification by strategy, industry, or geographic focus. Event risks are mitigated by vintage year diversification among the funds sponsored by the GPs in which we invest.
For Macroeconomic Risk, we focus on strategies that are less correlated to the more vulnerable segments of the market. With respect to the current environment, we at Xponance happen to believe that we are in the beginning stages of structurally higher inflation — even after current elevated levels subside as supply-chain distortions are resolved — as well as greater geopolitical instability and market volatility. Those companies that have optimized earnings through Ricardian trade theory to find the lowest cost of production in order to serve the U.S. consumer and optimized their balance sheet through just-in-time inventories will need to rethink their production and supply chains and, ultimately, rethink their balance sheet management strategy around working capital, capital allocation and liquidity, as we move from a just-in-time to a just-in-case model.
The relative winners in this environment will be real asset strategies or asset heavy companies, as well as strategies that benefit from operational volatility that can use the tools of distressed investing and restructuring to reset target companies’ cost structure. Financial engineering over the last 13 years has boosted the performance of asset light companies, many of which are heavily exposed to factor inputs such as labor and raw material, all of which are going up. In the highly leveraged environment in which we find ourselves today, where companies have coverage ratios of 1:1, it therefore does not take a whole lot of movement in the price of these factor inputs to drop that coverage ratio below 1, leading them to have trouble meeting their debts as they come due, which of course is one of the classic definitions of insolvency. This could lead to large wholesale opportunity to engage in solvency reorganizations in the coming period and boon for private credit, and particularly those focused on distressed and special situation credit strategies.
AW: What is the last book you read, and how did it grab you?
Byles Williams:I recently finished a book entitled The Mission Corporation — How Contemporary Capitalism can change the world one business at a time, by Michael T. Moe and Michael M. Carter.
It is a book about how capitalism can be transformed to be a force for more sustainable and inclusive growth. It argues that, as in the gilded age of the early 20th century or many other global parallels in history, the world is at a crossroads. One path leads to more tribalism, resentment, political extremism, and war. The other leads to a new enlightenment era of freedom, human creativity and expanding prosperity.
And so business leaders today face an essential question: Is the world better off because we are in it? Xponance’s answer to that question is that we have created a high-performing and diverse workforce of investment professionals who have in turn empowered and continue to empower hundreds of entrepreneurs, most of whom are women and diverse, to achieve their business dreams and in turn regenerate wealth in their communities. I believe that those that can clearly, compellingly, and credibly articulate a positive answer to this question will be the game changers and leaders in a newly sustainable economy. Those who cannot, will face a raft of existential risks. The economics of business as usual will not favor them, society will not accept them, and younger generations will not work for them.
Mark Fortune has more than 30 years of experience as a financial writer and editor, with a focus on institutional investment management. He has worked in various editorial roles at organizations that include Institutional Investor, Pageant Media, Markets Group and, most recently, at New York investment management firm Cohen & Steers.