Increasing diverse outside asset managers requires a full-bore commitment from the top, Angela Miller-May, chief investment officer of the $10.8 billion Chicago Teachers’ Pension Fund, told a congressional panel.
Miller-May, as part of a hearing in Washington, D.C. on boosting female and minority asset management, cited her fund’s efforts as an example of how to meet this goal.
“It is a part of our fiduciary duty… investing with diverse asset managers that demonstrate outperformance and deliver strong returns,” she said, and it “is more than just important, it is wise.”
The Illinois pension code has a goal of 20% of the assets managed by female and minority investment advisers, and her fund has surpassed that with 44%, or $4.6 billion, as of March 31.
In fact, the fund has its diversity policy goals in the whole range of asset classes: equities, fixed income, and alternatives, she said before the House Financial Services Committee’s subcommittee on diversity.
“Having diverse managers in your portfolio brings diverse thoughts, improved decision-making and solutions in a current market environment that is challenged,” said Miller-May, adding that diverse managers perform similar if not better than outside managers that aren’t diverse.
At this stage, minority- and women-owned manager firms account for 8.6% of the total and only run about 1.1% of all assets under management, according to the US Government Accountability Office).
Other problems such as unconscious bias from consultants and investors, as well as perceptions of weaker performance, are impediments, she said. The panel, in a background report, argued that this wasn’t so: A Bella Research Group study shows that women- and minority-owned asset management firms fall into the top quartile of fund performance when compared to peers who manage similar asset classes.
Solving the Problem
Miller-May’s pension plan has a robust outreach program, she said, discussing the issue with state legislators, the fund’s trustees, and her peers at the organization. Chicago Teachers’ also has sought help from several pro-diversity investor organizations, such as the Institutional Limited Partners Association and the National Association of Investors Corporation.
“Investors have the greatest power to affect change in the asset management industry,” she said, adding that more inclusion mandates such as those in the state pension code would really “move the needle and create opportunities for diverse managers on a much larger scale.”
Being a woman of color in finance who made it to the top of her profession, Miller-May also has personal ties to diversity strengthening.
“There is room for all,” she said.
Other panelists included Juan Martinez, vice president, chief executive officer, and treasurer, Knight Foundation; John Rogers, chairman, CEO and CIO, Ariel Investments; Brenda Chia, founding board member and co-chair, Association of Asian American Investment Managers; and Meredith Jones, MJ Alternative Investment Research founder and author of “Women of the Street: Why Female Money Managers Generate Higher Returns (And How You Can Too).”
When asked about solutions for creating greater manager diversity usage, Jones said educating young girls and minorities about the asset management business as well as firms about the topic is a start. Jones sits on the board of Rock the Street, Wall Street, a one-year program that teaches financial education and literacy to high school girls, a number of whom end up considering majoring in finance majors in college and eventual careers in the asset management business. “We’re trying to build the pipeline,” she said.
Jones also said institutional investors should push companies toward transparency reporting on their diversity and inclusion levels as well as implementing diversity mandates for these firms.
Miller-May agreed. “I think the first thing is to set policies to systematically remove barriers and to track and measure your goals and how your moving against those and to improve on that,” she said.
As for consultant bias, Miller-May said there should be checks and balances in place to deal with this problem.
“We’re hiring the consultant and therefore they work for us,” she said, adding that the retirement organization’s staff validates and challenges its consultants on the diversity of their managerial suggestions and also as the manager’s fees. “It’s about holding them accountable as well.”
Miller-May also noted that diverse managers should also reach out to the fund if they want to get noticed. “I tell diverse managers the RFP should not be the first time that I’m meeting you,” said Miller-May. “They need to build relationships way before we get to the point where were searching for managers.
Chicago Teachers’ has another mechanism in place for sourcing diverse managers called “First Fridays,” where managers conduct presentations to the fund every first Friday of the month. That gets them in front of Miller-May and the plan, which will keep the managers in mind when it begins a hunt.
“We are a trustee-led firm and a staff-led firm, not a consultant-led firm,” she said.
The plan is 51% funded.