US lawmakers have introduced a bill that would require the board of governors of the Federal Reserve, companies registered with the SEC, and companies registering securities with the SEC to consider minority- and women-owned asset management firms when seeking asset management services.
“Diverse individual-owned and controlled asset management firms continue to face obstacles, such as discrimination and other related barriers, when competing for asset management opportunities,” says the text of the bill. “Conscious efforts to facilitate diverse and inclusive asset management firm selection are required to overcome obstacles facing diverse individual-owned and controlled asset management firms.”
The bill includes provisions that would require companies publishing a request for proposal for asset management services to consider at least one diverse individual-owned and controlled asset management firm to provide the services. Otherwise they will be required to certify in a report that no such asset management firm submitted a proposal.
It also stipulates that if one or more diverse individual-owned and controlled asset management firms submits a proposal that satisfies the criteria in the request for proposal, the company’s board must invite at least one of them to present their proposal to the board, unless such an invitation is prohibited by other law or regulation.
In late June, the House Committee on Financial Service’s Subcommittee on Diversity and Inclusion held a hearing titled “Diverse Asset Managers: Challenges, Solutions, and Opportunities for Inclusion.” The hearing covered the challenges minority- and women-owned (MWO) firms face when trying to compete in the asset management industry, and discussed the legislation to increase the use of diverse asset managers by institutional investors.
According to memorandum issued by the subcommittee, MWO firms only manage 1.1% of all assets under management, or $785 billion out of $71.4 trillion, and are underrepresented as managers in every asset class. The memo also cited a 2017 Government Accounting Office report that identified 186 MWO firms in the asset management industry, but concluded that use of MWO managers for federal assets remained low.
The report found that four of the 10 federal pension plans they reviewed used no MWO firms to manage their funds, and said that of the pension funds the GAO reviewed that were using MWO firms, those MWO firms were managing less than 1% of pension fund assets.
Another report cited by the memo found that African American and Latino employees each represent only 4% of investment consulting firm management staff in the US respectively. The memo also cited a 2018 Investment Consultant Survey that found that only 27% of the firms they interviewed had a policy to consider a minimum number of candidates reflective of gender and racial diversity for hiring new staff.
“Diversifying the pool from which investment managers are able to compete and ultimately be selected makes good business sense for institutional investors,” Brenda Chia, co-chair of the Association of Asian American Investment Managers, said in testimony at the hearing. “We propose that minority and women managers not be limited to ‘set aside’ allocations where we compete against each other for a small slice of the pie. We would like to compete for the whole pie.”
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