Today, Congresswoman Maxine Waters (D-CA), Ranking Member of the House Committee on Financial Services, Senator Cory Booker (D-NJ), and Congressman Gregory Meeks (D-NY) released a statement on a new Government Accountability Office (GAO) report titled, “Investment Management: Key Practices Could Provide More Options for Federal Entities and Opportunities for Minority- and Women-Owned Asset Managers” (GAO-17-726), which was requested by the lawmakers.

The GAO identified four modest practices in the report that could be used as part of Federal entities’ asset manager selection processes to help increase opportunities for highly-qualified diverse-owned firms that do not require targets or allocations for minority and women- owned (MWO) asset management firms or changes in performance standards. These include: (1) demonstrating a commitment from top leadership at Federal entities to increase opportunities; (2) reviewing investment policies and practices to remove barriers that may unfairly limit the participation of smaller, newer firms; (3) conducting outreach to inform MWO asset firms about opportunities and Federal selection processes; and (4) explicitly communicating priorities and expectations about inclusive practices to investment staff and consultants and ensuring that those expectations are met.

“This report confirms that minority- and women-owned (MWO) asset managers disproportionately manage only 1 percent of the $70 trillion managed by asset management firms in the United States,” Ranking Member Waters said. “This tiny percentage reflects an alarming opportunity gap within the highly concentrated asset management industry, particularly in light of the growing body of research demonstrating that diverse-owned asset managers perform as well, if not better, than their majority-owned peers. Although state, local, and private pension plans and other institutional investors have started to use more diverse asset firms, the federal government has largely failed to address and remedy the barriers faced by MWO asset firms to promote greater participation. 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 recommendations. The TSP includes over $250 billion in externally managed assets, far more than all other entities included in the GAO’s report combined. Despite acknowledging that the TSP could provide opportunities for MWO asset management firms, the Federal Retirement Thrift Investment Board does not currently utilize diverse-owned asset managers and, even more troubling, indicated that it did not intend to adopt the GAO’s recommendations. This is perplexing given the GAO’s finding that TSP participants could enjoy expanded investment options if the Board implemented a more inclusive asset manager selection process. 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, as a first step towards leveling the uneven playing field in the asset management industry.”

"This is a matter of access and opportunity, and one of many factors leading to the deep socio-economic inequities that exist between women and people of color and their white and male counterparts,” Senator Booker said. “Of the $70 trillion under management by asset management firms in the U.S., less than one-percent is managed by minority and women-owned firms. 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.”

“The GAO’s report reaffirms much of what we know – there are 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,” Congressman Meeks said. “Moving forward, I will push the federal retirement plans to adopt the reforms recommended by the GAO which will bring them more in line with what’s taking place on the local and state levels.”

To view the full report, click here.

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