Diverse Asset/Money Managers. Tisa Forrest, Johns Hopkins University, Impact Investing Analyst
The House Financial Services Committee Subcommittee on Diversity and Inclusion held a hearing on Tuesday June 25, 2019 to explore the challenges minority- and women- owned (MWO) firms face competing in the asset management industry.
According to Bella Research Group’s Diverse Asset Management Project Firm Assessment, MWO firms account for approximately 8.6% of all asset management firms but only manage 1.1% of all assets under management, $785 billion out of $71.4 trillion, and are underrepresented as managers in every asset class but over-represented in the top quartile of fund performance.
False assumptions harm opportunities for MWO firms. Bella’s concluded that compared to peers who manage similar asset classes, 25% of women-owned and 28% of minority-owned asset management firms fall in the top quartile on average for fund performance.
Studies have shown that minority and women-led investment firms invest in more diverse entrepreneurs and businesses, enriching communitiesand creating more jobs, without sacrificing the returns pension funds need to meet their funding obligations.
Meredith Jones, Investment researcher and Author, stated that the lack of women and minorities in the asset management and investment industries is making everyone, from Wall Street to Main Street, poorer.
Access to diverse asset management talent can provide diversification within portfolios and help mitigate volatile market behavior. At least one study found that having more women on Wall Street could reduce market volatility due to the introduction of differentiated investing behavior.
The lack of funding outside of traditional money centers as well as the near exclusion of diverse founders represents a tremendous lost opportunity for investment, economic expansion and job creation in diverse and underserved communities.
Minority and women-led funds continue to be marginalized because of restrictions as to the types of investments that can be made. In order to achieve a level playing field Congress can create opportunity.
Witness John Rogers, Chairman, CEO & Chief Investment Officer of Ariel Investments stated some believe barriers exist and solutions do too for MWO firms. There is a tendency to work with people you know and with whom you are comfortable Due to implicit or unconscious bias, many do not think of black leaders as successful money managers. He proposed congressional legislation requiring banks and other entities to consider diverse-owned firms when aiming to fill new investment mandates.
Many banks, corporations and non-profits have embraced well-intentioned supplier diversity programs emphasizing construction, catering, janitorial services, and other fields. This could be addressed by measuring all spending by category, including asset management and other professional services, and replacing the term ‘supplier diversity’ with ‘business diversity.’ Mr. Rogers also suggested meaningful transparency as a way to make measurable progress.
Brenda Chia, Founding Board Member & Co-Chair of Association of Asian American Investment Managers (AAAIM) suggested Congress mandate that funds under federal management be subject to regular and periodic open competition. Congress could also recommend federal agencies ensure that qualified minority and women-led funds are considered as part of the RFP evaluation process.
Per Illinois Pension Code, an aspirational goal of no less than 20% of investment advisors shall be minorities, women and persons with disabilities. Angela Miller-May, Chief Investment Officer of the Chicago Teachers’ Pension Fund encouraged Congress to adopt a similar language.
As Ms. Miller-May put it “as an underfunded pension fund, we simply cannot afford to forego investing with diverse managers that represent a pool of keenly talented and innovative asset managers.”