Little diversity in wealth management

[view original post]

The House Financial Services Committee held a hearing entitled: Diverse Asset Managers: Challenges, Solutions and Opportunities for Inclusion

In the hearing, some startling statistics were introduced about the lack of women and minority owned firms controlling any significant assets. 

“In fact, according to a report by Harvard Business School and Bella Research group entitled ‘Diversifying Investment,’ majority diverse owned firms represent less than one percent of assets under management across four assets classes: mutual funds, hedge funds, private equity and real estate. Yet, empirical research shows there is no statistical difference in performance between diverse owned firms and their peers,” said Joyce Beatty, a Democrat from Ohio, during her opening statement. 

The study to which Beatty referred was commissioned by the Knight Foundation, a multi-hundred million dollar non-profit dedicated to “fostering informed and engaged communities.”

Juan Martinez is the Vice President/Chief Executive Officer and Treasurer of the Knight Foundation, and during his opening remarks, he expanded on the findings.

“Among the studies major findings were that women and diverse owned firms, managed a very small percentage – about 1.3% of assets managed by US based firms – with their medium fund size typically smaller than non-diverse peers.” Martinez said in his opening statement. “Bella found no statistical differences in performance either, and, certain investors, like public funds, represented a proportionally larger investment in diversity owned firms.” 

John Rogers is Chairman, CEO and Chief Investment Officer, at Ariel Investments, which is one of the biggest African American-led investment firms. He echoed the findings presented by Martinez.

“There is no shortage of high-performing diverse-owned firms. Vista Equity Partners is one of the best performing private equity funds in recent years.” Rogers said. “Brown Capital was named Morningstar Manager of the Year in 2015. And our Ariel Fund is the top performing fund in its category since the financial crisis. Yet, when compared to the largest asset management firms, we are essentially rounding errors.”

He continued, “The financial services industry is well-served by dynamic leaders such as Eddie Brown, Mellody Hobson, Gilbert Garcia, and Robert Smith who are job creators, philanthropists, and important role models in our community.”

Garcia is the Managing Partner in Garcia Hamilton and Associates, another investment firm. 

Both Martinez and another panelist, Angela Miller-May who is the Chief Investment Officer for the Chicago Teachers’ Pension Fund, both talked about how their organizations have increased diversity in the money their entities have managed. 

Martinez said, “When we were asked in 2010 how much of our portfolio was investment by minority and women owned firms, we found that only seven and a half million dollars were being managed by one African American owned firm. That was, to say the least, a surprise. With the support of our board of trustees, we became intentional in searching out opportunities to invest with women and minority owned firms. Today, about thirty four percent – $790 million – is being managed by women and diverse owned firms.”

He said the totality of the endowment to be managed is $2.3 billion. 

Ms. Miller-May stated, “Per Illinois pension code, an aspirational goal of not less than twenty percent of investment advisors shall be minorities, women, and persons with disabilities. We have far exceeded that goal by investing forty-four percent or $4.6 billion of total assets with minorities, women, and persons with disabilities.”


Miller-May said her fund manages $10.8 billion. 

Sylvia Garcia is a Democrat from Texas and during her five-minute question and answer period, she asked Martinez, “What can we do to get other foundations and other private industry to see the light as you do.”

In his answer, he noted that part of the problem is that diverse firms underperform. 

“I think there’s a misconception that comes from this idea of concessionary performance or underperformance: the belief that that exists, that it somehow would violate a trustee’s fiduciary responsibility to continue to ask for diversity,” Martinez said, “to the extent that we hold ourselves accountable to understand and educate ourselves that there is underperformance – or there is overperformance to be had – and then be transparent in our own data with each other, that would go a long way.”

Anthony Gonzalez is a Republican from Ohio, and during his question and answer period, he asked of Meridith Jones, another panelist, “What can be done to educate the industry about the incorrect biases toward the performance of women or minority owned asset managers?”

Jones is an investment researcher and writer, and she said that wealth management firms must be presented with this data “in a clear and cogent and quick manner.”

Jones noted that institutional investors, “are bombarded with information all the time so making sure that they have this information at their fingertips is critical.”