FULL Disclosure: The SBA Outs the Investment Management Industry’s Participation in the PPP

COVID-19 Coverage

Too smooth to be so fast: the McLaren 570S (Photo by Jason Lawrence on Flickr)

Not much these days gets me to crawl out of my bunker and risk becoming a victim of the Coronavirus pandemic, but this weekend I had the opportunity to drive a new McLaren flat-out on a closed road course here in Memphis.  The question wasn’t “is it worth the risk?”  Rather, “where’s my helmet?!”

570 horsepower does wonders with barely 3,200 pounds to propel, and even though I “only” got the car up to 145 in the straights, it was the behavior of the car in the curves that really impressed me.  McLarens are built on a chassis that is essentially a “tub” of carbon fiber, not the usual cage of metal tubes.  Because of this, the ride is exceptionally smooth, even under race conditions.  Most supercars beat you to death at speed; no matter how many G’s you pull, the McLaren feels deceptively like you’re driving carpool.

Contrast this with a few observations I have about the investment management industry’s experience, so far, with the Paycheck Protection Program, which hasn’t gone smoothly at all.

Under pressure from many questioning the efficacy and/or execution of the Paycheck Protection Program, or PPP, the Small Business Administration released the program participants’ data.  Although the information given is described as “redacted,” it includes plenty, including approximate loan amount, name and address of the borrowing company, industry classification, number of jobs retained by the program, and sponsoring lender.

Few industries have generated as much controversy from participating in the PPP as has investment management, probably because asset valuations (and therefore revenue) have held up and in many cases grown because of Treasury’s support of financial market liquidity.  That said, we only know market behavior since inception of the PPP in hindsight, and we’re still many trading days away from the end of this pandemic and the recession it has precipitated.

In any event, we spent some quality time with the SBA’s release of PPP borrower data to see what impact the program has had on the investment management industry.  After scrubbing out some misclassified businesses, we found more than 2,400 program participants (RIAs, trust companies, financial planning firms, etc.) that borrowed at least $150,000 (a separate release covered smaller loans).  Even though the borrower pool is relatively small (there are at least 10,000 RIAs that aren’t participating), the demographics of the pool are telling.

Loan Size

The typical loan size that investment firms applied for through PPP is modest.  The SBA’s data release classified loan sizes in five categories.  Within those categories, about two-thirds (~1,600 or so) of the investment firm participants borrowed between $150,000 and $350,000.  About one-quarter of the participants received loans between $350,000 and $1.0 million.  134 firms received loans between $1.0 million and $2.0 million.  The remaining 50 firms applied for loans larger than $2.0 million, and we only found four who received loans in the largest category, between $5.0 million and $10.0 million.  This suggests that, for all the controversy of large businesses milking the PPP for unnecessary capital, few, in fact, got substantial funds from the program.


The largest pool of investment management firms borrowing through the PPP was not New York, but California, with over 350 borrowers.  New York was second, and if you add in New Jersey and Connecticut then that contiguous region had a few more borrowers than California.  On a stand alone basis, Texas actually had the third-largest number of borrowers, with nearly 200.  Unsurprisingly, Florida, Pennsylvania, Illinois, and Massachusetts all had between 100 and 150 program participants from the investment management industry, with states like Minnesota, Georgia, Michigan, and Washington producing more than 50 each.  The data suggests that the industry is not as concentrated in New York and California as many might think, although sixteen states produced fewer than ten borrowers each.

Type of Corporation

Approximately two-thirds of the borrowers listed themselves as either a Limited Liability Company, a Partnership, or a Subchapter S corporation.  This confirms our experience with the popularity of tax pass-through organizational structures in professional services firms.

Race/Ethnicity of Ownership

As the investment management industry has started the process of discussing the lack of minority inclusion in the space, the PPP data offers confirmation.  We found only 27 firms (around 1%) that listed themselves as being Native American, Asian, Black, or Hispanic owned.  Some minority-owned firms may have chosen not to answer (loan qualifications are not demographic-contingent).


Similarly suggesting the narrowness of opportunity in the investment management industry, only 49 firms listed themselves as being female-owned.  Again, some women-owned firms likely chose not to describe themselves that way (we have a woman-owned client who participated in the program but didn’t specify their firm as such), but the order of magnitude is what it is.


We counted fifteen firms as being veteran-owned and were surprised this number wasn’t larger (we also have a Veteran-owned firm as a client).

Jobs Retained

The data release also includes a disclosure for the number of positions used in calculating the PPP loan application, giving a good approximation of the number of full-time equivalent employees of the applicant.  The total group listed over 52,000 employees.  Consistent with the small size of the average loan amount, fully one-quarter of the program participants listed fewer than 10 employees.  The next quartile had 10 to 15 employees.  Almost another 25% of applicants had 16 to 30 employees.  Only 70 participants showed 100 employees or more.

So, if you’re an RIA owner and you’ve now been listed as a participant in the Paycheck Protection Program, was it worth it?  The disclosure of program participants puts investment managers in an awkward position if they are simultaneously telling clients that they are safe and well-managed while also accepting government aid.  That said, turning down low-cost working capital doesn’t seem prudent to me under any circumstances.  Firms can always pay the money back if they don’t need it, and if markets tank next week and RIA revenues plummet, the extra capital will do what it was intended to do: keep the workforce in place until conditions improve.

As I told my wife, what could possibly go wrong?