The Unique Challenges of Minority-Owned Asset Management Companies
Juan Martinez, Knight Foundation CFO, says diverse-owned firms are underutilized by institutional investors. He said the foundation has made a conscious decision to change its approach, something it is encouraging colleagues to do the same.
Robert “Bob” Greene, CEO and president of the National Association of Investment Companies, says a lack of familiarity is a reason institutional investors don’t hire diverse firms.
He says another reason is if they do know diverse managers, their perception of the risk and performance attributes of investing with that manager is often not enough to overcome the tendency to invest with well-known asset managers such as BlackRock or The Carlyle Group. “It’s easier for them to stick with the household names that they’ve known for many years.”
NAIC is recognized as the largest network of diverse-owned and emerging manager private equity firms and hedge funds. The Washington, D.C.-based groups says its members manage more than $65 billion in combined assets and are widely used by the nation’s largest institutional investors, including many public pension plans, corporate pension plans, foundations, and endowments.
Another group, the Diverse Asset Managers Initiative, educates and advocates to asset managers about the tranche of high-performing minority- and women-owned firms.
“We do whatever it takes to get the decision-makers to see that we are long past the point of this being a ‘supply problem’; it’s a demand problem, and we push to improve the demand for minority talent,” says Robert Raben, DAMI’s director. Greene and Ibargüen are co-honorary chairs of DAMI.
So what will it take to close the disparity gap that asset managers of color face?
Trustees and fiduciaries of institutional investor firms—including public pension funds, corporate pension funds and endowments—who make the investment decisions need to require and demand diversity, Greene says. He added that investment consultants must be held accountable and required to report if they are being fair in their recommendation of what firms are hired.
“You must place a high priority and value on selecting a diverse manager,” Greene says. “If you don’t put a priority on diversity, then it’s hard to make the case.”
Martinez of the Knight Foundation added that more complete data on diversity in the asset management business would help effect change.
He says transparency is important. He says if boards and other stakeholders could see the percentage of assets under management by diverse managers in a portfolio as well as the portfolio’s return and compare those two measures against their peers as well as the returns of diverse managers, it would be increasingly difficult to say:
“There is no room in my portfolio, which is performing in the top half of peers, for diverse managers that are providing top quartile returns.”
And when it comes to landing new deals or doing more business with institutional investors, there are some steps for diverse managers to consider to make their cases stronger.
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