The People Running Endowments and Pensions Are Largely White and Male. Here’s How Washington Can Change That.

Lawmakers in Washington are taking major steps forward in the effort to bolster diversity in a little-discussed, yet enormously powerful sector: the asset management industry.

Most people don’t think of the asset management industry as part of their everyday lives, but asset managers wield significant control behind the scenes. They dictate how college and university endowments invest their money — determining funding for years to come. They dictate how huge corporations invest funds. And they effectively run pension plans — in which one in every five American workers has his or her retirement invested.

This hugely influential sector has a major problem, one that sacrifices profits: Asset managers are overwhelmingly white and male. It’s well-known within the sector, and yet, the industry has gone to painstaking efforts to hide diversity data from the general public.

Fortunately, the push for change is growing — and Washington is taking notice. Reps. Maxine Waters (D-Calif.) and Joyce Beatty (D-Ohio) recently sent letters to 31 of the largest investment firms in the country requesting their data. And Beatty introduced the Diversity Data Accountability Act, which would require regulated entities to disclose their diversity data.

These are good moves. Now, federal policymakers must capitalize on this momentum.

It’s painfully obvious that the asset management industry does not want to reveal its diversity data. It’s no secret that we have a diversity problem at the top of financial services — so why not have an adult, public conversation?

On average more than 80 percent of regulated entities have not shared any diversity and inclusion metrics with their primary regulators. Just 69 companies out of about 1,500 responded to a Securities and Exchange Commission survey of the corporations it regulates.

Meanwhile, the Knight Foundation has tried to get information on 50 charitable foundations’ investment firms, and was only able to get data from half. And the Diverse Asset Management Initiative, which I run, has surveyed the top investment consultant firms in the nation for three years, and has consistently only gotten answers from about half of them.

The sliver of data we do have available shows stark racial inequities. All told, firms owned by women and minorities manage just 1.3 percent of assets in the $69 trillion asset management industry.

This diversity dearth is fiscally irresponsible. A mountain of research shows that ignoring diverse talent sacrifices potential returns — forsaking managers’ fiduciary duty to generate the highest possible returns for investors. In a 2019 analysis, the National Association of Investment Companies revealed that diverse-owned private equity firms generate “internal rates of return that exceed the median and top quartiles of the benchmark.” An October report from Willis Towers Watson stated that “investment teams with diversity, in particular ethnic diversity, tend to generate better excess returns.” And in 2017, diverse and women-owned private equity firms were overrepresented in the top-quartile of firms based on performance, according to the Knight Foundation.

Creating true and lasting change in the asset management industry requires putting pressure on the sector from all sides. Reps. Waters and Beatty’s latest efforts are great steps in the right direction. And Congress should absolutely pass the Diversity Data Accountability Act. But there’s also more Washington can do.

For one, policymakers can target pension funds, particularly because federal pension plans are among the worst performers in diversity. Officials should amend existing statutes to require pension funds to report the firms they use, mandate specific steps to increase the use of firms owned by people of color and women and require the release of demographic data on vendors. They can also establish a “Rooney Rule” for asset management, which would mandate that pension fund boards interview any asset management firm owned by a woman or minority that meets the specified criteria.

Like Reps. Waters and Beatty, lawmakers on Capitol Hill can also write to pension funds, endowments, corporations and others to push for diversity metrics. We saw an incredibly successful effort last year when Reps. Emanuel Cleaver II (D-Mo.) and Joseph P. Kennedy III (D-Mass.) sent letters to 25 leading colleges and universities requesting diversity statistics. At the time, only two major endowments had shared such data. But 24 of the 25 institutions ended up responding to the letter.

Washington can catalyze profound change within the asset management industry. It’s time for action.


Robert Raben is founder of the Diverse Asset Managers Initiative, an effort to increase the absolute number of, and assets under management by, diverse-owned asset management firms for institutional investors.

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