Private equity as public relations

Taking a cue from the largest state pension funds, Wal-Mart has recently announced a $25 million private equity fund targeting women- and minority-owned businesses. Can private equity be good for a company’s image?

Since its founding in 1962, the retail chain Wal-Mart has grown from a single store in Rogers, Arkansas to the world’s largest corporation in terms of revenue. Employing approximately 1.7 million people, the company operates more than 5,000 stores in 10 different countries around the world including Germany, South Korea and China. It sells everyday products ranging from milk to patio furniture to shotguns. Its in-house TV network is the fifth most watched in America and its real estate arm is the largest property company in the country.

Now, the retail behemoth that sells everything to almost everybody is taking on a different role: private equity limited partner.

Two weeks ago, the retail chain announced a $25 million (€21 million) commitment to a private equity fund that will invest directly in women- and minority-owned businesses. Operated by Dallas-based boutique investment firm Aldus Equity, the vehicle will focus on companies in the retail sector and, according to a statement, “complement and extend [the] company’s long-standing supplier diversity programs.”

Wal-Mart’s move is not unique among the corporate titans of America – General Motors and DuPont, to take just two examples, have been investing in private equity partnerships for almost twenty years. But whereas most corporations look to the asset class in order to boost the values of their pensions, Wal-Mart is perhaps hoping for a different result – a better public image.

Wal-Mart: private equity on aisle 3

For years, the company has been dogged by criticism over its hiring practices and its treatment of employees – it is currently facing a class-action sexual discrimination lawsuit and earlier this summer, two black truck drivers brought a discrimination case against the company. As reported earlier this week by the New York Times, Wal-Mart has recently established a campaign style “war room” at its headquarters in Bentonville, Arkansas where high-profile political consultants use aggressive public relations tactics to counter the company’s many critics. An unflattering documentary, “Wal-Mart: The High Cost of Low Price”, was released earlier this week.

Although a Wal-Mart spokeswoman told the Times that there was absolutely no connection between the establishment of the private equity fund and its ongoing legal problems, a private equity as public relations move is not exactly uncommon among the institutional investor community. Limited partners such as CalPERS and CalSTRS have made significant efforts to invest in women- and minority-run businesses in their home states. And many of the emerging manager private equity programs that have become increasingly popular among large state pension funds include firms run by minorities or women in their target criteria.

Of course, limited partners are quick to point out that they are not sacrificing returns in order to satisfy political constituents – money targeting these types of businesses, they argue, can not only generate strong profits, they can also have the added benefit of promoting diversity.

Wal-Mart no doubt feels the same way. But if a little private equity money can buff the company’s public reputation, then that may be return enough.