Minority- and women-owned asset managers face challenges when competing for investment management opportunities with retirement plans and foundations, managing just 1% of the $70 trillion managed by firms in the United States, according to a just-released Government Accountability Office report.
The GAO report, “Investment Management: Key Practices Could Provide More Options for Federal Entities and Opportunities for Minority- and Women-Owned Asset Managers,” found that institutional investors and their consultants “often prefer to contract with large asset managers with brand recognition and with whom they are familiar,” with small firms, including those owned by women and minorities, “often unable to meet minimum requirements set by institutional investors, such as size (assets under management) and past experience (length of track record).”
State, local and private retirement plans and foundations interviewed by GAO said they are addressing such challenges by requesting that their consultants include these small and minority-owned firms in their searches.
“Many plans also lowered their minimum threshold requirements so that the requirements were proportional to the size of the firms while maintaining the same performance requirements for all asset managers in their selection processes,” GAO reported.
GAO identified four practices that could be used as part of federal entities’ asset manager selection processes to help increase opportunities for highly qualified, diverse-owned firms that do not require targets or allocations for minority and women- owned (MWO) asset management firms or changes in performance standards. They are:
- demonstrating a commitment from top leadership at federal entities to increase opportunities;
- reviewing investment policies and practices to remove barriers that may unfairly limit the participation of smaller, newer firms;
- conducting outreach to inform MWO asset firms about opportunities and federal selection processes; and
- explicitly communicating priorities and expectations about inclusive practices to investment staff and consultants and ensuring that those expectations are met.
Rep. Maxine Waters, D-Calif., ranking member of the House Committee on Financial Services, said in a statement after the report was released that the “tiny percentage” of assets managed by minority-owned firms “reflects an alarming opportunity gap within the highly concentrated asset management industry, particularly in light of the growing body of research demonstrating that diverse-owned asset managers perform as well, if not better, than their majority-owned peers.”
While state, local and private pension plans and other institutional investors have started to use more diverse asset firms, Waters continued, “the federal government has largely failed to address and remedy the barriers faced by MWO asset firms to promote greater participation.”
Waters applauded the federal entities that have “acknowledged their shortcomings and committed to working to improve equal opportunities by incorporating these practices,” adding, however, that she’s “deeply disappointed” that the Federal Retirement Thrift Investment Board, which administers the Thrift Savings Plan, disagreed with GAO’s recommendations.
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