Federal entities are not providing enough opportunities for minority- and women-owned (MWO) asset management companies, a new report from the Government Accountability Office (GAO) said.
The GAO report — “Investment Management: Key Practices Could Provide More Options for Federal Entities and Opportunities for Minority- and Women-Owned Asset Managers” — identified key practices that institutional investors can use to increase opportunities for MWO asset managers. They include making a commitment to increasing opportunities for MWO asset managers; review investment policies and practices to remove barriers that limit the participation of smaller, newer firms; conducting outreach to inform MWO asset managers about investment opportunities and selection processes; and communicating priorities and expectations about inclusive practices to investment staff and consultants and ensure those expectations are met.
The report found that only a handful of the federal entities reviewed by the GAO used all of the above practices. Most utilize one or two, if any.
“The GAO’s report reaffirms much of what we know – minority and women-owned asset managers experience barriers to entry in the financial services industry, and those barriers are even more pronounced when it comes to financial firms contracting with the federal government,” Rep. Gregory Meeks (D-NY) said. “The federal government’s overreliance on one or two asset managers carries with it operational risks. A diversification of the firms it contracts would bring more security for federal employees, who are investing their hard-earned money.”
Meeks said he will push federal retirement plans to adopt the reforms recommended by the GAO. This will bring them more in line with what’s taking place on the local and state levels, he said.
“I applaud the federal entities that have acknowledged their shortcomings and committed to working to improve equal opportunities by incorporating these practices. However, I am deeply disappointed that the Federal Retirement Thrift Investment Board, which administers the Thrift Savings Plan (TSP), disagreed with the GAO’s recommendation,” Rep. Maxine Waters (D-CA) said. “I strongly urge the Board to rethink its resistance to addressing this important issue and to incorporate the GAO’s recommendations to help remove barriers faced by MWO asset managers and benefit investors.”
Of the $70 trillion under management by asset management firms in the U.S., less than 1 percent is managed by minority and women-owned firms, said Sen. Corey Booker (D-NJ).
“This is an unacceptable reality that we must change and the federal government should lead the way. As the GAO report demonstrates, federal pension plans must ensure that institutional investors make an intentional commitment to diversifying the firms they do business with and redouble efforts to reach minority and women-owned firms about opportunities. Studies have shown that women and minority-owned asset managers do just as well or better than their peers. It’s on us to make sure they have a seat at the table,” Booker said.