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ICYMI: Waters Pushes for Greater Diversity in Asset Management

Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, recently delivered the following remarks at the 22nd Annual Rainbow PUSH Wall Street Project Economic Summit, where she addressed issues including the racial wealth gap and the lack of diversity in asset management.

As Prepared for Delivery

The Rainbow PUSH Wall Street Project’s work to promote inclusion and equal opportunity on Wall Street is absolutely critical. Its mission should be shared and pursued widely.

The Racial Wealth Gap

At its core, the Wall Street Project is about building wealth. Reverend Jesse Jackson’s work here is vital because there is a large wealth gap in our country between African-Americans and other ethnic groups. The median wealth of White households is 10 times that of Black households and 8 times that of Hispanic households.[1] These lopsided wealth ratios are the largest since the government began publishing such data a quarter century ago, and roughly twice the size of the ratios that existed between these three groups for the two decades prior to the Great Recession that ended in 2009.[2]

Moreover, in 2016, lower-income White households had a net worth of $22,900, compared with only $5,000 for Black households and $7,900 for Hispanic households in this income tier. These disparities rise when you factor gender into the equation.

Across all racial and ethnic groups, the wealth gap between rich and poor has widened. In the United States, the share of wealth held by the richest 10 percent of households stands at 79 percent.[3] The bottom 60 percent of U.S. households only holds 2.4 percent of household wealth.[4] There is even greater gender wealth inequality when looking across individual racial lines. Per the 2015 Asset Funders Network report, the median wealth of single White women was $15,640. In contrast, the median wealth for single Black women and Latina women was $200 and $100, respectively—about one cent for every dollar of White women’s wealth.[5]

This racial wealth gap isn’t accidental. It has been perpetuated and widened precisely because of policy choices made by lawmakers and the systemic racism that plagues those policies. When this President pushes to cut, for example, community block grants to pay for billionaire tax cuts, a very clear statement is made: fixing the wealth gap is not a national priority. Expanding it is.

America has a problem when it comes to providing opportunities for people of color to build wealth and Wall Street is emblematic of that problem. The asset management industry has about $70 trillion in assets under management and, in 2016, generated an estimated annual profit of $100 billion.

In some respects, the racial wealth gap isn’t a gap as the term applies to African-Americans accessing wealth. It’s a chasm. When we look at African-American household wealth, we know that for every dollar Whites have, African-Americans have one dime. But on Wall Street, for every dollar White asset management firms manage, African-American firms have one penny.

The Systematic Exclusion of Diverse Asset Managers

In 2017, the Government Accountability Office released a report. I requested that report with Rep. Gregory Meeks (D-NY) and Senator Cory Booker (D-NJ) on diverse asset managers and Federal pension programs. The results of the report were certainly unsettling. The report found that even though there is $70 trillion in assets currently under management by asset management firms, minority- and women-owned firms only manage 1 percent of that amount. The report noted the challenges minority- and women-owned firms face in breaking this glass ceiling, including investors’ preference for brand names or companies that they are familiar with, a false assumption that minority- and women-owned firms aren’t as “good” at managing funds as their majority-owned counterparts, and the old canard that minority- and women-owned firms are too small to compete. Make no mistake, these are not the reasons why these firms aren’t being included. These are excuses, and ladies and gentlemen, they’re old and tired excuses.

How California’s Pension Funds Included Emerging Asset Managers

They’re the same excuses that I encountered 30 years ago when I was in the California State legislature and I was working to get the two largest pension funds in my home state of California, CalSTRS and CalPERS, to open up management of their assets to diverse asset managers. I heard from diverse asset managers, an old friend, like Marx Cazenave and Victor McFarlane about the challenges that they faced. Unfortunately, the pension funds were resistant to change. However, back then I chaired the Ways and Means Subcommittee #1 in the California State Assembly and CalSTRS and CalPERS were not yet self-funded. So, I used my power as chair of that Subcommittee to hold up their budgets until they committed to uphold diversity in the management of their assets and in their staffs.

In 1991, CalPERS began using emerging asset managers. In 2000, CalPERS formally established its emerging asset managers program. Although California’s passage of Proposition 209 in 1996 explicitly prohibits the use of race or ethnicity in selecting contractors for state programs, CalPERS has focused on what we then created as emerging asset managers, which includes diverse asset management firms.

CalPERS recently concluded a 5-year plan to strengthen and expand upon its investments with what is emerging asset management firms, including those owned by minorities and women. According to its last report on this effort, as of June 2016, CalPERS, the nation’s largest pension fund, has invested $8 billion in emerging asset manager programs. Of this amount, $4.5 billion was invested with diverse asset managers but that’s just the beginning. There’s a lot more that can be done.

Challenges Facing Diverse Investment Bankers

Diverse investment bankers also have challenges. They were challenged in obtaining opportunities with Fannie Mae and Freddie Mac. This is why I worked on legislation, specifically Section 1319A of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 that was eventually signed into law. The legislation required Fannie Mae and Freddie Mac to establish minority outreach programs to ensure the inclusion, to the maximum extent possible, of minority- and women-owned businesses in the enterprises’ contracts. This legislation led to the creation of Fannie Mae’s Access and Freddie Mac’s Golden Opportunities programs, which allowed minority- and women-owned firms to underwrite the debt of Fannie Mae and Freddie Mac. In 2008, after monitoring the progress of these programs, I wrote more legislation, which was included in the Housing and Economic Recovery Act of 2008, which further mandated the inclusion in all levels of business activities for minority- and women-owned firms. According to some accounts, these programs have been somewhat helpful in increasing the participation of minority- and women-owned businesses in underwriting this debt.

The Role of Big Banks in Providing Opportunities for Diverse Asset Managers

Although the GAO report that I requested found that the Federal Retirement Investment Board could do much more to expand opportunities for diverse asset managers, the report didn’t address the role big banks play in this space and the decided lack of opportunities that big banks provide for diverse asset managers.

According to one estimate, the top three US banks by asset size—JP Morgan Chase, Bank of America and Wells Fargo—have a combined total of $2.4 trillion in assets under management. Of that amount, $800 billion is externally managed, which simply means they contract that out. How much of that amount is managed by diverse asset managers is the question. We don’t have the data yet— and I will be getting that data—but I’m told by professionals in this space that it’s probably less than 1 percent. These very same banks required a combined $940 billion in taxpayer support during the financial crisis, and received an estimated $8.2 billion in tax relief from this President’s recent tax scam in 2018 alone. But let’s give them the benefit of the doubt and assume that it’s 5 percent. The Knight Foundation, a private endowment that has studied the business case for diversity, now invests 22 percent of its holdings or $500 million with diverse asset managers. If the Knight Foundation can see the value and make the change, why can’t the big banks see it?

The Barriers to Entry for Diverse Asset Managers

There are 186 diverse asset management firms in the US, according to the aforementioned GAO report. These are 186 firms that are subjected to high barriers to entry, that have been forced to play by different rules and that have had their work and accomplishments second guessed and diminished. We all know that that’s life as a person of color in this country, but when there are billions on the table, systems that are built to exclude us and devalue us aren’t just unfair, they’re larcenous.

To even get their foot close to the door, not even in the door but just close to it, diverse asset managers must have a long and successful track record, they say, of managing large pools of capital in an institutional environment.

They must show how much they have under management--even if their track record beats the market. They will be asked, among many other issues, how deep their bench is, what infrastructure support they have, is their track record portable, and a lot more. Even if they've managed the trading or proprietary desk at a major investment bank and/or managed capital inside an existing asset management firm for years, that experience might not count because in many cases that experience and track record might be viewed as the investment bank’s or the firm’s track record, and not the individual’s track record.

The Importance of Seeding and Asset Allocators

Seeding by Fund of Funds and asset allocators - like PAAMCO, Grosvenor, Blueprint, M2 and many others - for operations and/or AUM (assets under management) can help diverse asset managers to launch their own firms and to build their own track records over time, so that pension funds and/or institutional investors can accept their qualifications as their own.

Asset allocators and Fund of Funds aren't providing these funds to be nice or because it's the right thing to do. These asset allocators know the successful results of the long-standing research that has shown how diverse asset managers perform historically. Research has shown that, in many cases, diverse asset managers perform as well if not better than majority-owned firms.

For example, in a 2017 report commissioned by the Knight Foundation, researchers found that diverse asset managers have returns that are comparable to those of non-diverse asset managers. Nevertheless, the results are consistent with the findings of a 2018 study by McKinsey and Co., which looked at the business case for diversity and inclusion. McKinsey found that companies with high levels of diversity at the executive level were 33 percent more likely to be leading their industry in terms of profitability. McKinsey also found that companies with low levels of diversity at the executive level were 29 percent less likely to be above average when it comes to profitability. In short, the business case for diversity is strong. And the time for excuses is over.

It's time for action.

I’ve been engaged on this issue for 30 years. I am one of the proud authors of Section 1116 of the Housing and Economic Recovery Act and Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Together, these provisions direct most of the federal financial services agencies to create Offices of Minority and Women Inclusion, which we refer to as “OMWIs.” The agencies include the Department of the Treasury, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Federal Reserve (the Fed), the Securities and Exchange Commission (SEC), the National Credit Union Administration (NCUA), the Consumer Financial Protection Bureau (CFPB), and the Federal Housing Finance Agency (FHFA). The OMWIs within those agencies have the important responsibility of overseeing all diversity matters in management, employment, and business activities at their agencies. The creation of these offices was a major step forward. But, the laws that promote racial, ethnic, and gender equality are only as strong as the implementation and enforcement of those laws. As of yet, these OMWIs that I created have not fulfilled their full potential to create change and progress, in part because of a lack of experience and understanding in the leaderships of the agencies.

Now that Democrats have retaken the Majority in the House and I have the gavel of the House Financial Services Committee, promoting diversity and opening doors for diverse firms are top priorities. I have, for the first time in the history of the Congress of the United States of America, created in my Committee a full Subcommittee on Diversity and Inclusion, which will be tackling issues of diversity facing the financial services industry, including workforce diversity and the issues impacting diverse asset managers that I have discussed today. The Subcommittee will be chaired by Representative Joyce Beatty (D-OH), and she is going to take a serious, methodical look at this issue. Representative Beatty is passionate, informed, and highly experienced in these issues of diversity. She has begun meeting with diverse asset managers and experts to hear their perspectives. Next week, the Subcommittee will hold its first hearing on workforce diversity in the financial services industry. Within the next few months, we will begin the process of gathering data from financial institutions on their diversity, including the diversity of externally managed assets. We will hold hearings, we will meet with stakeholders, including majority-owned firms, and we will come to an understanding of what the challenges are and what reasonable legislative remedies are needed in this space. While I welcome input from stakeholders on this issue, there are at least two legislative ideas that I am confident the Committee will consider: 1) requiring disclosure of corporate board and C-suite diversity and 2) requiring disclosure of how much investment banks, pension funds, endowments and others are spending with diverse firms.

I have the gavel and I intend to use it.

Call to Action

In the meantime, I call on companies, endowments, pension funds and government entities to consider the following:

  • Retire the term “emerging.” You may have noticed that throughout this speech, I’ve avoided using the term “emerging.” While CalPERS must use that term because of the law in California, I believe that the term “emerging” obscures the inequities facing diverse asset managers. Emerging implies a lack of size and expertise. The research I cited shows that many of the challenges faced by diverse firms are only partially related to size and tangentially related to expertise. Emerging also implies newness and unfamiliarity with the business of asset managers. These firms are not emerging. In many instances, they’ve been around for years, if not decades. Let’s not insult their experiences by calling them “emerging.” Let’s celebrate their perspective by calling them “diverse.”
  • Move away from the term “supplier diversity.” Just as with the term “emerging,” the term “supplier diversity” conjures images of procurement offices and work orders for IT services, legal services, and construction work. Make no mistake, we need supplier diversity in these fields as well. But when we’re talking about the management of billions of dollars in assets, if we conflate it with the purchase of widgets, we may be allowing companies that are good with working with diverse suppliers to allow those numbers to obscure their lack of work with diverse firms. I’m calling on all institutions to create a separate category specifically for their spending with diverse asset management firms.
  • Increase board and C-suite diversity. Many companies like Amazon and Facebook are taking steps to diversify their boards and while these are important steps, much more is needed. And while the conversation on board diversity has now entered the mainstream, diversity in the C-suite is just as important and is badly lacking. A GAO report that I and other lawmakers requested found that from 2007 to 2015, there was only a modest improvement in the overall representation of minorities in management positions in the financial services industry, and very troublingly, representation of African-Americans at the management level actually decreased - falling from 6.5 percent to 6.3 percent. Responsible companies should diversify both on their boards and in the C-suite.
  • Adopt the GAO recommendations to improve diversity in asset management. In its 2017 report, GAO recommended that the federal pension funds it studied should adopt four key practices in order to increase opportunities by diverse asset managers. The key practices were: 1) top leadership commitment to diversity 2) remove potential barriers to entry 3) conduct outreach about opportunities and 4) communicate priorities and expectations about including diverse firms to staff and consultants. I will be following up with the agencies administering these funds to check on their status in implementing these recommendations. However, I think these recommendations should also be implemented by investment banks as well.
  • Implement a Rooney Rule for the hiring of diverse asset management firms. We are all familiar with the Rooney Rule and its success in diversifying the coaching staff on NFL teams. I think Rooney rule principles can also apply here. When investment banks are interviewing firms for asset management opportunities, they must commit to interview at least one diverse firm.

    Diversity isn’t just a buzzword. It’s a reality. We must all accept the challenge of diversifying the ranks of companies across the country, and working to close the wealth gap.

    Thank you again for having me here today.


[1] Kochhar, R. and Cilluffo, A. (2019). How U.S. wealth inequality has changed since Great Recession. [online] Pew Research Center. Available at: [Accessed 20 Feb. 2019].
[2] Id.
[3] McCarthy, N. (2019). Where Financial Inequality Is Rampant [Infographic]. [online] Available at: [Accessed 20 Feb. 2019].
[4] Id.
[5] Id.

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