New York City Comptroller Scott Stringer has taken formal steps to incorporate diversity into the decision-making process of how the city’s 5 pension systems select firms that manage assets.
The Comptroller’s Office has started a process that will require current and prospective money managers to take a survey that reveals the racial and gender composition of their employees and board members. The results will become part of the official criteria the consultants who select asset managers for the city use to award the funds. The process is expected to begin this Fall.
“We will do an analysis of the firm’s diversity practices. Who are the investment managers? Who sits on the board? Who makes the decisions? First we’ll get the data. Then we’ll set the standards. Firms that understand diversity will get a public shout out, as will those who don’t,” Stringer told BE.
“The next leg of the freedom march is Wall Street. There is a science that tells us that diverse groups make better decisions. When everyone has a similar agenda and perspective, they make the same assumptions. That’s a problem,” he adds.
Stringer points to a study by McKinsey that found that companies in the top quartile for diversity racial, ethnic, and gender diversity were 35% more likely to have above median financial returns. He says this is not reflected in research conducted by his office that found that 83% of portfolio managers in the United States are White.
“The financial industry is male, pale, and stale, and we want the companies to show us that they walk the talk when it comes to diversity.”
Setting the Standard
While there are efforts in Washington to diversify the asset management pool for the federal government’s retirement plan, the Thrift Savings Plan or (TSP), it’s been slow going. Right now, only one firm, Blackstone, manages the $439 billion dollar fund, which has 4.7 million civil service employees and retirees.
“Rather than wait for Washington to figure it out, we have already started the journey. This is the national game changer because there’s a diversity problem in portfolio management,” says Stringer.
Washington has taken notice. Speaking under the conditional of anonymity, a Democratic congressional staffer told BE, “The value of the Scott Stringer’s of the world is that they’re allowing these firms to build a track record.”
At the federal level, U.S. Senator Corey Booker (D-NJ), Congresswoman Maxine Waters(D-CA), the top Democrat on the committee responsible for oversight of the financial services industry, and Congressman Greg Meeks (D-NY), a senior member on the same panel, are leading efforts in Washington to diversify the asset management pool for the federal government’s retirement plan, the Thrift Savings Plan or (TSP). The Federal Retirement Thrift Investment Board, the body that sets investment policies for the TSP, has agreed to conceptually support the creation of a mutual fund window in order to expand the investment options available to federal employees. Congressional Democrats believe that including minority and women-managed mutual funds within a mutual fund window could present a potentially historic opportunity for minority and women-owned asset management firms by introducing them to nearly 4.7 million civil service employees and retirees.
A Big Apple
Firms that are selected to manage assets for the Big Apple will have access to the city’s $160 billion in pension assets, making it the 4th largest in the United States.
“My job is to make sure cops, firefighters, teachers, and public workers have a secure retirement,” says Stringer.