One of the US’s most senior financial regulators has admitted the asset management industry is “not doing a good job” at making improvements in diversity and inclusion.
Jay Clayton, the outgoing chairman of the Securities and Exchange Commission, told a meeting of the SEC’s asset management advisory committee that change was required to share the economic benefits produced by the investment industry more equally across society.
“The numbers tell the story. We are not doing a good job. There is room for improvement,” he said.
Investment companies owned by women and minorities oversaw just 1.3 per cent of the $69tn US asset management industry, according to a 2019 study led by the Harvard Business School professor Josh Lerner for the Knight Foundation.
These firms have also largely been ignored by US public pension plans, which allocate virtually all their investment capital to white, male-dominated investment companies, according to Martin Cabrera, chief executive of Chicago-based broker-dealer Cabrera Capital.
“Pension funds are telling minorities that you’re good enough to put your money into the pension fund system, but you’re not good enough to manage those assets,” Mr Cabrera said.
The role of investment consultants in the exclusion of minority and women-owned asset managers has been sharply criticised by Ruby Dang, a partner at Garcia Hamilton & Associates, a $16bn Texas-based investment firm.
Ms Dang called for the SEC to pass rules requiring investment consultants to include asset management companies owned by women, minorities and people with disabilities in any competition for new mandates from public pension plans.
Consultants should also disclose if they received any economic benefit from recommending particular asset managers, and new appeal mechanisms should be established by the SEC to ensure pension fund mandates are awarded fairly, according to Garcia Hamilton.
Mr Clayton said: “Disclosure of manager selection criteria is something that is within the ambit of the SEC.”
Nasdaq, the exchange operator, this week proposed that listed companies should disclose “consistent, transparent diversity statistics” for boards of directors. Under the proposed rules, most companies listed on the Nasdaq exchange would need to have at least two diverse directors, including one woman and one from an under-represented background or the LGBTQ+ community.
Mr Cabrera said the SEC should go further and require all listed companies to provide a detailed quarterly scorecard on diversity and inclusion. This should also include a report of fees paid to investment managers and professional services providers. Investors could then judge if companies were adhering to their own pledges on diversity and ensuring that business opportunities were shared fairly, said Mr Cabrera.
The push by asset managers to improve environmental, social and governance standards across the corporate sector has been accompanied by mounting criticism of slow progress in the industry itself.
John Rogers, chairman and founder of Ariel Investments, a Chicago-based asset manager, said the financial services industry was contributing to the growing wealth disparity between white and African-American workers.
“The US has been going backwards over the last 40 years when it comes to creating wealth and economic opportunities for minority communities,” said Mr Rogers.