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.”