Priority, accountability, and pro-activity must exist before the anemic levels of diversity in the asset management industry can be reversed, experts say.
Until those strategies are ingrained in the culture of institutional investor firms, managers of color will likely keep getting shunned by the game-changing players.
Black Firms Receive Asset Crumbs
A fresh study shows that firms owned by minorities and women represent just 9% of the number of mutual funds, 8.8% of hedge funds, 5.9% of private equity funds, and less than 3% of real estate funds. Overall usage is even lower: firms owned by minorities and women manage only 1.1% of the industry’s total $71.4 trillion in assets under management.
Further analysis showed no statistically significant difference in performance between diverse-owned firms and their industry peers. In fact, 28.4% of minority-owned mutual funds and 27.8% of minority-owned hedge funds performed in the top quartile. The study, viewed by observers as the most painstaking of its type on ownership diversity within the industry, was commissioned by the John S. and James L. Knight Foundation. It was led by Josh Lerner of the Harvard Business School and done by the Bella Research Group.
“This study, and our experience, confirm that there is no legitimate reason not to invest with diverse asset managers in the 21st century,” Alberto Ibargüen, president of the Knight Foundation, stated.
Finding Solutions to the Problem
The study stems from the foundation’s efforts to diversify its endowment investments. The Miami-based foundation has moved $472 million of its endowment—or 22%—to management by women- and minority-owned firms in the past decade, with no compromise on performance.
There are other mega institutional investors that do business with smaller firms. CalPERS (California Public Employees’ Retirement System), the nation’s largest defined benefit pension fund, has Emerging & Transition Manager Programs that are designed to place money, across numerous asset classes, with small-and middle-sized funds. Many times, these funds are minority- and or woman-owned, says spokeswoman Megan White.
The agency’s goal is to identify and place up to $11 billion in new commitments with qualified managers by 2020. CalPERS’ pension fund serves more than 1.8 million members in its retirement system and administers benefits for 1.4 million members and their families in its health program. CalPERS’ total fund market value currently stands at about $323 billion.
The New York City Pension Fund, the nation’s fourth largest pension fund, conducts business with diverse managers. The pension funds, valued at $175 billion, provides retirement security for New York City’s teachers, firefighters, police officers, and other city employees. New York Comptroller Scott M. Stringer is custodian to the fund.
The Comptroller’s Office has an innovative emerging manager program that includes minority and women business enterprises as managers. The office also has an MWBE broker-dealer program that encourages its investment managers to use MWBE brokers to execute trades.
Comptroller Stringer says, “We know that when different perspectives are considered, better decisions are made. Studies have shown that diverse groups lead to stronger returns. Diversity can’t just be a box you check—it needs to be a living, breathing commitment.”
Next Page: The Unique Challenges of Minority-Owned Asset Management Companies