Casting a wider net report

CASTINGAWIDERNET:
Increasing opportunities for minority and women
owned asset managers in institutional investments
2016

This report is available online at www.seiu.org/diversity

ABOUTTHEAUTHORS
The ReFund America Project
The ReFund America Project tackles the ongoing impact the financial crisis has had on
the financial health of America’s cities and states and provides a dedicated campaign
team to help local organizations restore the balance of economic power from Wall Street
to Main Street.
The Roosevelt Institute
The Roosevelt Institute reimagines America as it should be: a place where hard work
is rewarded, everyone participates, and everyone enjoys a fair share of our collective
prosperity. We believe that when rules work against this vision, it’s our responsibility to
recreate them.
We bring together thousands of thinkers and doers—from a new generation of leaders
in every state to Nobel laureate economists—working to redefine the rules that guide
our social and economic realities. We rethink and reshape everything from local policy
to federal legislation, orienting toward a new economic and political system: one built by
many for the good of all.
Service Employees International Union
SEIU is an organization of 2 million members united by the belief in the dignity and
worth of workers and the services they provide, dedicated to improving the lives of
workers and their families, and creating a more just and humane society. These members
participate in more than 50 state, county and municipal pension funds and 19 private
Taft-Hartley funds with more than $1 trillion in assets. SEIU is deeply committed to en-
suring the pension funds in which our members participate meet their fiduciary obliga-
tions to provide retirement benefits to plan participants.
The SEIU Capital Stewardship Program was created to facilitate a more active partner-
ship between SEIU and the trustees, administrators, advisers and investment managers
of our members’ pension savings in the pursuit of prudent, responsible and financially
sound investment policies.
Report Author: Talia L. Schank
Casting A Wider Net 3

4 Casting A Wider Net
EXECUTIVESUMMARY
In recent years, concern about the need for greater representation and inclusion of
racial and ethnic minorities has been growing in major institutions in the United States,
from police departments to Hollywood studios to corporate boardrooms. This concern
has now reached the capital markets, where various individuals and organizations are
highlighting the issue in terms of the bottom line: research shows diverse representation
in the boardroom leads to improved corporate performance.1
On the flip side, the lack
of diversity limits the talent pool of skilled people who can manage members’ assets and
leaves potential returns on the table. It also increases the likelihood of missing opportu-
nities in an increasingly global, diverse world, and ignores the rapidly growing diversity
of the country’s—and world’s—population.
This report focuses on the diversity conversation within the financial services indus-
try and specifically on the role that investment consultants play in advancing financial
performance through valuing diversity. The goal is to understand how investment
consultants value diversity within their organization and how they advance diversity by
recommending minority asset managers as solutions to the needs of large institutional
investors.
Most pension funds hire consultants to help manage portfolios in accordance with their
demands and needs. Pension funds ask consultants to introduce and evaluate asset man-
agers, help develop investment policy statements and asset allocations, offer independent
advice to boards, and essentially serve as an extension of the fund’s investment office.
This positions consultants as gatekeepers between pension funds and asset management
firms, including those emerging firms led by women and racial and ethnic minorities.
Emerging managers and minority-and women-owned business enterprises (MWBE) are
newer and smaller asset managers where the majority of their ownership consists of
minorities and/or women. Given this, consultants can play a critical role in promoting
diversity in the financial sector if they choose to make it a priority—or if their clients
insist that they do.
Significant Findings
To better understand how pension fund consultants are currently approaching diversity,
the SEIU Capital Stewardship Program, which trains and advises pension fund trustees
who serve on boards, surveyed investment consultants to gather data about their ap-
proach to racial diversity within their own firms and with the investment managers and
opportunities they bring to clients. Fourteen of the 21 invited firms completed the survey.
Nevertheless, this represents more than $1.3 trillion in assets under management, or 14
percent of the estimated $10 trillion assets under management that are professionally
managed. The survey shows that:

• There is a lack of diversity at major consulting firms. On average, ra-
cial and ethnic minorities—especially African Americans and Latinos—are vastly
underrepresented at consulting firms, especially at the management level. African
American and Latino managers each represent approximately 4 percent of all
management within the firms surveyed.
• Most firms do not have systems in place to track, identify and en-
dorse minority and emerging asset managers. The survey asked each
consultant about its policies and practices regarding outreach, recommendations
and successful funding of emerging manager firms. A majority of the firms chose
not to answer certain questions, gave vague and generalized responses, or re-
sponded that they did not track that information. Only five firms responding to
the survey tracked the number of emerging managers that are ultimately funded.
• Several themes emerged repeatedly when firms identified challenges
to collecting data. When asked about barriers to implementing robust emerg-
ing manager programs, many responses reflected commonly cited beliefs that con-
sistently limit effective initiatives to promote these programs. For example, some
believe that emerging managers underperform, while others put the onus on their
clients, saying public pension funds simply do not value diversity as a priority.
Neither of these beliefs is backed by current data.
We recommend several steps consultant firms can take to make an intentional, strategic com-
mitment to programs that increase diversity—both diversity within their firms, and diversity
of the asset managers they recommend. This commitment needs to come from firm leader-
ship, and must be a core component of the firms’ business model. Furthermore, it is vital that
firms establish clear policies, processes, goals and measurable outcomes to create responsibili-
ty and accountability for the development and implementation of these programs.
This report aims to better understand the issues and opportunities regarding minority
professionals working with institutional investments, either as consultants or asset man-
agers. The findings of the survey, combined with our recommendations, can serve as a
starting point for further research on diversifying the industry.
“...in communities
across the
country, changing
demographics
combined with
stagnant wage
disparities are
galvanizing a
new multinethnic
workers
movement to
demand living
wages, access
to a union and
reasonable
benefits from
their employers.”

In the United States, several socio-economic trends are weaving together to impact
low-income communities and the economy. First, in communities across the country,
changing demographics combined with stagnant wage disparities are galvanizing a new
multiethnic workers movement to demand living wages, access to a union and reason-
able benefits from their employers. Simultaneously, in corporate boards, the C-Suite and
among shareholders are being pressured to identify environmental, social and corporate
governance risks and opportunities that will affect long-term returns. Both goals intersect
at the need to be more inclusive in how companies consider marginalized communities
and how diverse leaders are increasingly valued at the decision-making table. We believe
when companies see diversity, equity and being inclusive as drivers of performance, both
workers’ livelihoods and their companies long-term financial performance will improve.
1. INTRODUCTION
Increasingly, the issue of greater diversity inclusion has been dominating traditionally
underrepresented industries in the United States, from Hollywood to corporate Ameri-
ca. This conversation is now alive in capital markets as various players and organizations
seek to change the status quo and create a level playing field while reaping the benefits
of addressing diversity and inclusion. A commitment to diversity is not only beneficial
in principle: research on board and staff diversity shows a positive correlation of diverse
representation in the boardroom with firm performance.2
This research corresponds to
general corporate commitments to diversity as the U.S. population grows increasingly di-
verse.3
This commitment also extends throughout multiple industries, including finance.
Diverse boards can enhance decision-making, broaden information networks, and
increase creativity and innovation.
As more investors prioritize racial, ethnic and gender diversity, questions arise regarding
the pool of emerging managers and/or asset management firms that are minority- and
women-owned business enterprises (MWBE) (see Appendix 1 for definitions of these
terms). For the purposes of this report, we use the term “emerging managers” interchange-
ably with minority and women owned enterprises or diverse managers. As an important
stakeholder in the arena of public pension funds, with more than 1 million members par-
ticipating in these funds, the Service Employees International Union (SEIU) has long been
a leader in advocating for greater diversity, equity and inclusion in the capital markets.
SEIU’s Capital Stewardship Program and its participation in the Diverse Asset Managers
Initiative (DAMI) have highlighted the critical need for greater diversity in finance. Racial
and ethnic minorities are severely underrepresented in this industry, and there is concern
this will impact the long-term retirement security of plan participants.4
This lack of inclusion not only conflicts with SEIU’s commitment to diversity and equity
as fundamental social values, but it also can have a direct impact in an immediate fidu-
“Because
investment
consultants play
a gatekeeping role
in determining
with which asset
class managers
pension funds
do business,
they are uniquely
positioned to
either promote
or obstruct
asset manager
diversity.”

ciary context. Lack of diversity leaves potential returns on the table by not capitalizing
on talent pools of skilled people who can manage members’ assets. It also increases the
likelihood of missing opportunities in an increasingly global, diverse world, and ignores
the rapidly growing diversity of the country’s—and world’s—population. In August
2015, SEIU International President Mary Kay Henry sent a letter to SEIU member
trustees outlining best practices, and specifically called on them to “more fully reap the
benefits of addressing racial justice and other forms of diversity.”5
Because investment consultants play a gatekeeping role in determining with which asset
managers pension funds do business, they are uniquely positioned to either promote or
obstruct asset manager diversity. To better understand how consultants use that discre-
tion, SEIU surveyed prominent investment consultants across the United States who
have clients that are public and private sector pension funds. The results of the survey
raise three overarching concerns:
1) There is a lack of diversity among consultant staff—specifically in management
roles;
2) Most firms do not have systems in place to track, identify and endorse minority
and emerging asset managers; and
3) Several themes emerged repeatedly when firms identified challenges to collecting
data. Many firms either avoid questions about their work in promoting emerging
manager firms, or claim to not have such data, which suggests that diversity is
not a significant priority in the industry.
To address this—at the end of this report—we put forth recommendations for con-
sultant firms to help them increase diversity among their own internal leadership and
among the asset managers they recommend.
The data make clear an intentional strategy is needed industrywide to increase recruit-
ment, retention and promotion of racial and ethnic minorities. Several firms cited oft-
used reasons, which we believe are not supported by the evidence, for not strategically
addressing the lack of diversity at their firms or promoting emerging managers. Instead
of deflecting blame toward client requests or other stakeholders in the investment world,
consultants need to take it upon themselves to be leaders in the field, and show they are
willing to hold themselves accountable for promoting emerging managers and increasing
the number of MWBEs being funded by large institutional investors.
These changes are crucial to ensure its members are not losing on potential returns and
opportunities due to outdated practices prevalent in the industry.

2. PENSIONFUNDCONSULTANTSPLAYAVITALROLE
INPROMOTINGDIVERSITY
It is a standard industry practice for institutional investors to hire pension fund con-
sultants to find and match asset managers in accordance with investors’ demands and
needs. As of 2011, 94 percent of funds employed consultants.6
This positions the leading
consultant firms as gatekeepers to asset managers, wherein they wield significant pow-
er and control in determining who manages an institution’s investments, and thus, the
number of MWBE asset managers that are recommended to clients.
Pension funds look to consultants to adapt to changes in the marketplace, provide the ap-
propriate investment strategies, and recommend asset managers to address those chang-
es. Additionally, consultants help pension funds develop investment policy statements
and asset allocations, offer independent advice to their boards, and essentially, act as
(and are often treated as) an extension of the funds’ investment offices. As such, consul-
tant recommendations are particularly crucial for emerging managers as they build their
asset bases. This means consultants can play a critical role in promoting diversity in the
financial sector—but only if they choose to make it a priority.
3. SURVEYOVERVIEW
The survey was designed to assess several aspects of diversity regarding pension fund
consultants, including: the representation of traditionally underrepresented staff at their
firms; any policies or practices in place to promote emerging manager/MWBE firms;
and challenges to implementing those policies or practices.
The survey consisted of 33 questions grouped in two sets. The first set of questions
attempted to identify the level of diversity within consulting firms. Respondents were
asked for the total number of minority employees at the firm, those in senior positions,
and the firm’s total workforce. This enables us to identify the representation of specific
minority groups in relation to the firms’ overall workforces. The survey also asked about
specific diversity policies in place and whether the firm had a chief diversity officer.
The second set of questions attempted to understand how consulting firms identify and
recommend MWBE asset managers to their institutional clients. In this part of the sur-
vey, firms were asked how they define emerging and minority- and women-owned asset
management firms, the number of meetings the firm had with MWBE asset managers
in the past five years and how many were actually recommended, and eventually funded,
by clients.

Overall, SEIU invited 21 investment consultants to participate in this diversity survey, of
which 14 responded (see Appendix 2 for the list of firms which chose not to participate
in the survey). SEIU chose these firms because of their business with Taft-Hartley and
public pension funds that manage workers’ retirements. Although, the sample size is
small in relationship to the number of firms in the industry, the 14 firms that completed
the survey represent more than $1.3 trillion in assets under management (AUM) or 14
percent of the $10 trillion pension fund assets under management. While the seven firms
that chose not to complete the survey report more than $2.3 trillion AUM or close to 24
percent of the $10 trillion pension funds AUM. Combined, these 21 firms, whether they
chose to participate in this diversity survey or not, are estimated to represent 37 percent
of pension fund AUM.
4.DISCUSSION
4.1 African American and Latino/a workers are significantly
underrepresented
One critical finding of the survey is a significant lack of racial and ethnic diversity
among employees of consultant firms, particularly among African Americans and
Latino/a staff. Women are still underrepresented at the firms, but the disparity between
their percentage at firms and their percentage of the national working population is not
nearly as severe as that for African Americans and Latinos/as.
Respondents were asked to list the number of employees who identify as African Ameri-
can, Latino/a, Native American, and/or Asian American. The total number of minority
employees comprises 23.8 percent of the total workforce at all the responding compa-
nies, which is substantially below the national working population of 35 percent (see Ta-
ble 1 and Table 5). At all but one of the firms, minority workers accounted for less than
30 percent of the workforce. There was no strong correlation between the percentage of
minority staff and number of total employees.
Underrepresented groups fare even worse among the top tiers of consultant firms; racial
and ethnic minorities comprise only 14.9 percent of the total number of senior manag-
ers from all responding firms (see Table 2). Minorities made up 25 percent or less of the
senior management team at 10 of the 12 firms that provided details about senior man-
agers.
Though consultants have done a better job hiring women, the industry as a whole is still a
long way from gender parity (Table 3). Women made up 35.7 percent of the total workforce
at the firms that responded to the survey, and only 25.2 percent of the senior management
teams. Female employees show the widest ranges of all groups tracked in the survey. Women
comprised between 27.8 percent and 48.3 percent of the workforce at these firms. One of
“...the 14 firms
that completed
the survey
represent more
than $1.3 trillion
in assets under
management
(AUM) or
14 percent of the
$10 trillion pension
fund assets under
management.”

the firms did not have any women in senior management; at 8 of the other 12 firms that
answered this question, women comprised less than one-third of senior managers.
Only Asian Americans are represented at greater averages relative to their percentage of the
national working population of 6 percent; they make up 12.7 percent of total employees, and
6.7 percent of senior managers.7
African Americans and Latinos/as are both represented at
less than half their percentage of the working population, as are Native Americans.
The data are most striking regarding African American and Latino/a representation,
both among total employees and senior management. African Americans comprise 5.7
percent of total employees, though they make up 12.1 percent of the national working
population. Meanwhile, the disparity is greater among Latinos/as: they represent only
5 percent of total employees at the firms surveyed, while comprising 16.3 percent of the
working population. At the senior management level, African Americans make up only
3.9 percent of senior managers, while only 4.3 percent are Latino/a.
The representation of African Americans and Latinos/as employed at consultant firms
falls even below percentages in other occupations in the financial industry. Among select-
ed financial occupations tracked by the Bureau of Labor Statistics, African Americans
comprise 9.3 percent, and Latinos/as make up 8.8 percent.8
Results of the survey illustrate that while some individual firms have done relatively well
in hiring and promoting women, as well as racial and ethnic minorities, other firms have
a lack of racial and ethnic minorities in leadership positions.
Table 1 – Minority Representation in Consultant Workforce
Minority Representation in Consultant Workforce
Firm
African
American
Latino/a
Native
American
Asian/ Pacific
Islander
All Minority
Employees
Minority Percentage
of All Employees
1 8 6 0 37 51 27.7%
2 1 1 0 3 5 15.2%
3 13 12 0 17 42 16.8%
4 6 10 0 12 28 21.5%
5 3 0 0 3 6 18.8%
6 9 18 3 71 101 38.5%
7 6 6 0 1 13 21.7%
8 No answer No answer No answer No answer No answer Did not specify
9 18 8 0 22 48 18.8%
10 2 3 2 6 13 26.0%
11 5 9 0 4 18 26.5%
12 10 4 0 8 22 21.0%
13 5 0 0 9 14 13.6%
14 4 3 0 9 16 29.6%
TOTALS 90 80 5 202 377 23.8%

Table 2 – Minority Representation in Consultant Management
Table 3 – Representation of Women at Consultant Firms
Firm
Women’s
Percentage of All
Employees
Women in Senior
Management
Total Number of
Senior Managers
Women’s
Percentage of
Senior Managers
1 46.9% 2 5 40.0%
2 42.0% 2 4 50.0%
3 32.4% 17 87 19.5%
4 36.4% 5 12 41.7%
5 43.8% 7 23 30.4%
6 30.5% 2 9 22.2%
7 29.4% 3 17 17.6%
8 36.1% 10 32 31.3%
9 48.3% 7 Did not specify Did not specify
10 42.9% 11 18 61.1%
11 27.8% 2 23 8.7%
12 No answer No answer Did not specify Did not specify
13 33.3% 0 19 0.0%
14 29.1% 3 33 9.1%
TOTALS 35.7% 71 282 25.2%
“Underrepresented
groups fare even
worse among the top
tiers of consultant
firms; racial and
ethnic minorities
comprise only 14.9
percent of the total
number of senior
managers from all
responding firms.”
(see Table 2)

Table 4 – Overall Summary of Minority Representation at Pension
Fund Consulting Firms
Table 5 - Minority Representation Among Total Employees (n=14)
Group
Total
Number of
Employees
Percentage
of Total
Workforce
(n=1586)
Total
Number of
Senior
Managers
Percentage
of All Senior
Managers
(n=282)
Percentage
of National
Working
Population*
African American 90 5.7% 11 3.9% 12.1%
Latino/a 80 5.0% 12 4.3% 16.3%
Native American 5 0.3% 0 0.0% 1.0%
Asian Pacific Islander 202 12.7% 19 6.7% 6.0%
TOTAL - Racial Ethnic
Minorities 377 23.8% 42 14.9% 35.4%**
Women 566 35.7% 71 25.2% 46.8%
*Based on Bureau of Labor Statistics, Employment status of the civilian noninstitutional population 16 years and older
by gender and race, 2014 annual averages
**Total of national population percentages for preceding groups
Median Minimum Maximum
Percentage
of National
Working
Population*
African Americans as % of
Total Firm Workforce
5.2% 3.0% 10.0% 12.1%
Latinos/as as % of Total Firm
Workforce
4.8% 0.0% 13.2% 16.3%
Native Americans as % of
Total Firm Workforce
0.0% 0.0% 4.0% 1.0%
Asians Pacific Islanders as
% of Total Firm Workforce
9.1% 1.7% 27.1% 6.0%
Totals of All Tracked Racial
Ethnic Minorities
21.6% 13.6% 38.6% 35.4%**
*Based on Bureau of Labor Statistics, Employment status of the civilian noninstitutional population 16
years and older by gender and race, 2014 annual averages
Group
Total
Number of
Employees
Percentage
of Total
Workforce
(n=1586)
Total
Number of
Senior
Managers
Percentage
of All Senior
Managers
(n=282)
Percentage
of National
Working
Population*
Latino/a 80 5.0% 12 4.3% 16.3%
Minorities 377 23.8% 42 14.9% 35.4%**
Women 566 35.7% 71 25.2% 46.8%

Table 6 - Minority Representation Among Consultant Management (n=14)
4.2 Most consultants do not have systems to identify and promote
diversity
In addition to asking each consultant about its internal racial and ethnic workforce
diversity, the survey also asked each firm’s policies and practices regarding its outreach,
recommendations and successful funding of emerging manager firms.
Questions included:
• “Over the past five years (summarized on an annual basis), please provide the
number of meetings that the research group has had with emerging/minority asset
management firms by asset class.”
• “Over the past five years … how many emerging/minority asset management
firms have been recommended by your firm broadly?”
• “Over the past five years … how many emerging/minority asset management
firms have been funded?”
Although it varied from question to question, several firms provided detailed information.
Some companies have already embraced the development of emerging manager pro-
grams. As referenced earlier, one firm recently hired its first staff member for an emerg-
ing manager program. In the survey, that firm reported that clearly identifying the value
of diversity, gaining the support of the firm’s investment and management committees
and simultaneously implementing risk mitigation plans were all fundamental compo-
Percentage
of National
Working
Population*
Total Senior Managers
1.7% 0.0% 23.5% 12.1%
Latinos/as as % of Total
Senior Managers
1.6% 0.0% 17.6% 16.3%
0.0% 0.0% 0.0% 1.0%
Asian Americans as % of
8.5% 0.0% 25.0% 6.0%
Minority Employees as % of
Total Senior Managers 15.5% 5.9% 49.5% 35.4%**
Group
Total
Number of
Employees
Percentage
of Total
Workforce
(n=1586)
Total
Number of
Senior
Managers
Percentage
of All Senior
Managers
(n=282)
Percentage
of National
Working
Population*
Latino/a 80 5.0% 12 4.3% 16.3%
Minorities 377 23.8% 42 14.9% 35.4%**
Women 566 35.7% 71 25.2% 46.8%
Percentage
of National
Working
Population*
1.7% 0.0% 23.5% 12.1%
Senior Managers
1.6% 0.0% 17.6% 16.3%
0.0% 0.0% 0.0% 1.0%
8.5% 0.0% 25.0% 6.0%
Percentage
of National
Working
Population*
1.7% 0.0% 23.5% 12.1%
Senior Managers
1.6% 0.0% 17.6% 16.3%
0.0% 0.0% 0.0% 1.0%
8.5% 0.0% 25.0% 6.0%
Percentage
of National
Working
Population*
1.7% 0.0% 23.5% 12.1%
Senior Managers
1.6% 0.0% 17.6% 16.3%
0.0% 0.0% 0.0% 1.0%
8.5% 0.0% 25.0% 6.0%
Percentage
of National
Working
Population*
1.7% 0.0% 23.5% 12.1%
Senior Managers
1.6% 0.0% 17.6% 16.3%
0.0% 0.0% 0.0% 1.0%
8.5% 0.0% 25.0% 6.0%
Percentage
of National
Working
Population*
1.7% 0.0% 23.5% 12.1%
Senior Managers
1.6% 0.0% 17.6% 16.3%
0.0% 0.0% 0.0% 1.0%
8.5% 0.0% 25.0% 6.0%

nents of its newly developed emerging manager program. Similarly, three other firms
indicate they are also actively working to expand their emerging manager or minority
asset management programs.
Yet, we also find it telling that a majority of the firms refused to answer certain ques-
tions, gave vague and generalized responses, or responded that they did not track this
information, while others only recently began tracking such information (Table 7).
Table 7 – Outreach to and Promotion of Emerging Managers
The scattershot tracking and reporting illustrated in Table 7 suggests to us that many
consultants have not been prioritizing work with emerging managers, as not tracking such
information makes it extremely difficult for a firm to report how they prioritize diversity.
Of 42 potential numeric answers to the questions in Table 7, only 28 are provided.
Especially concerning to us is that only five consultants track the number of MWBE
firms that are ultimately funded, and only five firms provide numeric answers for all
three questions listed in the table. Our suspicion about the lack of priority is reinforced
by the fact that only one firm has explicit, concrete policies to promote emerging manag-
er firms. Another firm only recently began tracking this data and hired a staff person to
Firm
# of Meetings with EM
Firms (in past 5 years)
# of Recommendations of
EM Firms # of EM Firms Funded
1 150 2 2
2 50 46 Do not track
3 541 62 62
4 65 9
Does not separate recommended
and funded
5 51 Cannot report Cannot report
7 240 260 82
9 Do not track Cannot report Do not track
11 258 2 3
12 Do not track Do not track Do not track
13 220 30 30
14 160 38 No answer
TOTALS 2794 574 179
“The scattershot
tracking and
reporting
illustrated in
Table 7 suggests
to us that many
consultants
have not been
prioritizing work
with emerging
managers, as not
tracking such
information makes
it extremely
difficult for a firm
to report how
they prioritize
diversity.”

develop an emerging manager program.
Without detailed performance data on the number of emerging managers who are fund-
ed, it is difficult to identify effective strategies by which firms can be held accountable—
either to themselves or their clients. Not tracking how many emerging managers achieve
the ultimate goal of being funded tells us that not only are these firms not employing
best practices; they do not even have sufficient information to identify what those best
practices might be.
5. CONSULTANTSDEFERTOASETOFBELIEFSTO
AVOIDADDRESSINGDIVERSITY
The survey results also reveal significant barriers that both consultant firms and emerg-
ing managers face in increasing diversity. When asked, “What challenges has your firm
faced in implementing a more robust emerging/minority asset management firm pro-
gram,” many responses reflect commonly cited beliefs that permeate arguments against
implementing effective emerging manager initiatives, including:
• “Emerging manager operating partners often have less institutional capital expe-
rience, nascent business platforms … and limited if any real time performance
track record”;
• “The key challenge … is identifying a sufficient number of qualified managers
with significant experience (that will meet the needs of our clients)”;
• “[T]hey are often unable to meet basic client requirements such as assets under
management [or] length of track record”;
• “Industry recognition of the importance of diversity is not as wide as it should
be”; and
• “Balancing our fiduciary responsibilities and our client mandates.”
These responses fall under two general arguments: 1) there are not enough qualified
emerging managers with sufficient resources, experience and performance track records;
and 2) other parties in the industry (such as clients) do not prioritize diversity. We believe
these beliefs are based on the following myths:
Myth 1: There are not enough qualified asset managers with sufficient resources, expe-
rience and performance track records.
Fact: As of 2011, smaller funds managing less than $50 million returned an aggregate
13.1 percent on an annualized basis in the 15 years ended Dec. 31, higher than the 11.6
percent of funds with more than $1 billion over the same period.9
Moreover, roughly
one-third of the $9.7 billion Chicago Teachers’ Pension Fund (CTPF), and approxi-

mately $11 billion of the New York City Retirement Systems funds are invested with
emerging managers.10
CTPF touts its emerging management firms have out-performed
their respective benchmarks for five consecutive years. Similarly, the emerging manager
portfolio for the Teacher Retirement System of Texas returned 14.5 percent in the year
ended Sept. 30 [of 2014], compared to 11.6 percent for the entire fund.11
Myth 2: The rest of the industry does not prioritize diversity, which makes it harder for
us to implement a strong emerging manager program.
Fact: This blame-shifting is particularly concerning. Placing the responsibility on other
parties in the industry enables consultants to engage in a potentially continuous cycle of
avoiding changes that could increase emerging manager/MWBE growth. These de-
flections also raise questions of what the client standards are, and how consultant firms
gauge asset management firm performance, given that several examples show it is not
uncommon for emerging managers to outperform their more established colleagues.
In April 2015, the New York City Pension Funds, collectively the fourth-largest pension
system in the country and the largest municipal pension fund, began to consider an
initiative to evaluate the diversity of investment professionals at all firms as a criterion
in investment manager selection. Scott Evans, Chief Investment Officer for the city’s
pension funds, outlined two basic points for the new plan: “Firms with diverse workforc-
es are better protected against groupthink,” and that “[d] iverse decision-making teams
make better decisions.”12
Three of the city’s pension funds have adopted and implement-
ed this policy thus far, supplementing and building upon the longstanding NYC policy to
seek strong MWBE and emerging managers across asset classes.
California State Teachers’ Retirement System (CalSTRS), California Public Employees
Retirement System (CalPERS), and the Maryland State Retirement and Pension System
(SRPS) and other funds have also implemented various emerging and MWBE programs
to value and prioritize diversity.13
The pervasiveness of these beliefs among responding firms affects not only emerging
managers, but also consultant firms and investors that are eager, or at least willing, to
pursue robust emerging/minority asset manager firm programs. These challenges are
further exacerbated by the exorbitant power that pension fund consultants leverage over
recommending asset manager firms to institutional investors.
6.RECOMMENDATIONS
Consultants do not hesitate to bring innovative investment strategies to their clients to
separate themselves from their peers yet seem not to see the clear long-term value creating
opportunity in developing equally innovative strategies to promote MWBE managers.
We therefore challenge consultants to rethink their responsibility, commitment and value
proposition when promoting emerging managers.
“Placing the
responsibility on
other parties in
the industry
enables
consultants
to engage in
a potentially
continuous
cycle of avoiding
changes that
could increase
emerging
manager/MWBE
growth.”

To effectively prioritize minority diversity and emerging manager programs, leadership
at consulting firms should make a clear commitment to increase the diversity at their
own firms, and also increase opportunities for MWBE asset managers.
Recommendations to increase consultant firm diversity
1. Senior leadership: Assign a senior executive to lead the firm’s diversity work
internally and externally to increase accountability and performance.
2. Shape culture: Partner with diversity and inclusion experts who can provide
expertise to assist in developing long-term, transformational programs that identi-
fy, recruit, train, retain and promote minority and women professionals through-
out the firm and, in particular, into the firm’s management roles.
3. Inclusive practices: Develop and promote clear and inclusive hiring and
retention policies, procedures and performance measurements that build and
celebrate staff diversity. This may include intentional approaches, such as: recruit-
ment, mentoring and volunteer training, to become aware of unconscious bias
and create an inclusive culture within the firm.
4. Set diversity staffing goals: Use the Rooney Rule (see sidebar) to shape in-
ternal staff recruitment, hiring and promotion strategies. This means ensuring all
cohorts of recruits, final candidates for hire and internal promotions to manage-
ment roles include at least one woman and/or minority candidate.
ROONEY RULE
In 2003, the National Football League implemented the Rooney Rule, requiring NFL
teams to interview at least one minority candidate for head coaching positions. The rule
was created to address the lack of minority head coaches throughout the league, and has
since been expanded to cover general manager and other front-office positions; it has
also been updated to include women in the interview mandate.15
The concept has since
been incorporated beyond the sports world; Amazon and Facebook are among those who
adopted a version of the rule for their hiring practices.16
We find merit in applying the Rooney Rule to our recommendations. The goal of this rule
is to ensure we do not allow latent biases or ongoing conditions in the investment indus-
try to unnecessarily limit the pool of MWBE candidates. As outlined in our recommenda-
tions, our application of the Rooney Rule is one component of a wide range of tactics to
strengthen organizational responsibility and accountability for increasing the number and
promotion of minority and emerging managers.

Recommendations to increase MWBE asset manager opportunities
1. Set MWBE asset manager goals: Utilize the Rooney Rule to ensure minori-
ty and women asset managers are recommended to institutional investors. This
means that consultants must be intentional and proactively increase the amount
of MWBE managers that are recommended to their clients.
2. Increase capital commitments to MWBE asset managers: This may be
accomplished through a variety of strategies, such as direct allocations to MWBE
asset managers, depending on the specific needs of a particular plan. It is import-
ant, however, to avoid undersized allocations that appear to show diversification,
but in reality do not help MWBE managers build meaningful portfolios or put
them on an equal footing with other managers. Undersized allocations serve to
create a headwind to raising capital and being competitive, while requiring an
MWBE manager to attract more investors to get the same size portfolio. This sit-
uation creates longer startup times and increased costs for MWBE managers and
decreases the likelihood of success.
3. Co-Innovate new practices with clients that increase MWBE: Develop
innovative practices that help eliminate barriers to diverse asset managers. Possi-
ble examples include: proposing changes to institutional investor fund policies and
requests for proposals that block access to diverse asset managers, such as mini-
mum assets under management thresholds, as essential criteria for consideration.
4. Partner with diversity and inclusion experts: Seek financial industry
experts, such as universities, associations, labor unions and nonprofits for ideas
on how to: a) Increase the absolute number of, and assets under management by,
minority- and women-owned asset management firms for institutional investors;
and b) address the need to strengthen the pipeline of diverse professional talent
entering the financial industry.
5. Develop relationships with MWBE asset managers: Cultivate and
strengthen a cadre of diverse managers, across asset classes, with proven track
records. Some suggestions for how to accomplish this include:
A) Proactively communicate and update MWBE asset managers on how best
to access opportunities to engage with investment consulting firms and fund
staff/trustees;
B) Build relationships with diverse asset manager trade associations, such as the
National Association of Securities Professionals, the National Association of
Investment Companies, New America Alliance, and The Association of Asian
American Investment Managers. This includes frequently engaging MWBE
asset managers at industry conferences.

6. Update databases and produce performance reports: Increasing MWBE
asset managers, across minority groups and asset classes, requires a firm wide
mandate to be inclusive in every search to increase MWBE asset managers in final
presentations to clients. This requires developing a database of top tier diverse
asset managers for funds to consider and includes updating the database to ensure
searches yield MWBE asset managers for consideration by segmenting Latino/a,
African American, Asian American, Native American, women and other minority
managers. The goal is for consultants to be able to track the number of MWBE
asset managers that are contacted, recommended and who receive allocations.
7. Hold firms accountable: Ultimately, institutional investor staff and trustees
will need to hold their investment consultants accountable for their diversity goals.
This can be achieved by ensuring that performance evaluations take into ac-
count how consultants performed/or failed to perform in identifying MWBE and
emerging managers. Additionally, tying consultants’ compensation and bonuses to
the number of diverse firms where they allocate funds will also increase the num-
ber of MWBE asset managers awarded contracts. EE
We believe the implementation of these internal practices is crucial to effectively in-
crease diversity of consultant firm staff and the asset management firms the consultants
recommend. In fact, a 2016 Harvard University report analyzed the diversity initiatives
of 829 midsize and large U.S. firms. The report found that boosting engagement among
different groups through a combination of diversity managers, task forces, voluntary
trainings, mentoring, college recruitment targeting women and minorities can contribute
to improving the number of minority and women professionals.14

ROLE OF TRUSTEES
Pension fund trustees will also need to hold investment consultants accountable to achiev-
ing their diversity goals. This can be done by trustees engaging investment consultants in
dialogues on ways to achieve diversity and performance. Here are some sample questions to
ask one’s investment consultants:
1. Does your firm have a diversity and inclusion executive responsible for developing and
promoting diversity policies and goals?
2. How do you measure your firm’s performance on diversity? How is your firm’s
progress this year compared to last?
3. What percentage of your executive leadership is comprised of minorities and women?
4. What percentage of your database is comprised of MWBE asset managers? What
do you want this percentage to be in a year? What plans do you have to improve this
percentage?
5. What percentage of your set of annual asset management recommendations is comprised
of MWBE asset managers? Are some asset classes better than others? If so, why?
6. If your consultancy is selected, how do you plan to work with us to increase MWBE
asset managers?

7. CONCLUSION
The survey results clearly indicate the internal practices of consultants are a barrier to greater
manager diversity at pension funds. This will ultimately hurt the long-term sustainability of
union members’ retirements. While consultants are eager to develop innovative strategies and
identify new asset classes and preferred asset managers, they are largely unresponsive to pen-
sion fund mandates that prioritize promoting emerging managers. The findings demonstrate
a significant lack of diversity among staff at these firms; very few have meaningful policies in
place for increasing diversity; and many of these companies are operating under the myths
of shortages of minority asset managers and subpar performance.
We need our consultant firms to do better. Not only must they be more responsive to pension
funds that prioritize diversity, they must also be proactive in promoting the value of emerg-
ing managers to all funds; so this value is instilled throughout all fiduciary conversations. To
increase the diversity of the internal staff of consultant firms, as well as firms’ asset manager
selection, we recommend firms institute a series of internal policies that incorporate concrete
qualitative and quantitative goals to measure their progress. Concurrently, we further recom-
mend they expand their external partnerships to better promote emerging managers to their
clients, and find innovative ways to measure and leverage the value of diversity for achieving
the long-term value creation requested by institutional investors.

Acknowledgements
Refund America Project Team:
Talia L. Schank
Saqib Bhatti
SEIU Project Team:
Renaye Manley
Justin Rico Oyola
Edgar Hernandez
Keiana Greene-Page
The author and project team would like to acknowledge the valuable input provided by the
following:
Diverse Asset Manager Initiative
National Association of Investment Companies
National Association of Securities Professionals
New America Alliance
Harvard Trustee Leadership Forum
Finally, we thank the firms who participated in the survey and made this report possible.
Disclaimer: This report is provided for information purposes. It does not constitute
investment advice nor is it a solicitation for any particular type of investment.
7. BIBLIOGRAPHY
Joseph De Avila, “NYC Seeks Diversity Among Its Asset Managers,” Wall Street Journal, May
1, 2015, sec. US. http://www.wsj.com/articles/nyc-seeks-diversity-among-its-asset-manag-
ers-1430445602.
Mary Brown, “The Gatekeepers: Consultants Hold The Key,” Investopedia, September 9,
2007, http://www.investopedia.com/articles/financialcareers/08/gatekeepers.asp.
James Comtois, “Emerging Managers Finding More Opportunities Coming from Institu-
tions,” Pensions Investments, February 23, 2015, http://www.pionline.com/article/20150223/
PRINT/302239993/emerging-managers-finding-more-opportunities-coming-from-institu-
tions.
Randy Diamond, “Public Pension Funds’ Definition of Emerging Manager Still a Work
in Progress,” Pensions Investments, March 21, 2012, http://www.pionline.com/arti-
cle/20120321/ONLINE/120329976/public-pension-funds-definition-of-emerging-manager-
still-a-work-in-progress.
Niclas L. Erhardt, James D. Werbel, and Charles B. Shrade, “Board of Director Diversity and
Firm Financial Performance,” SSRN Scholarly Paper, Rochester, NY: Social Science Re-
search Network, June 23, 2003, http://papers.ssrn.com/abstract=416337.

Eric Fox, “Introduction To Institutional Investing,” Investopedia, March 7, 2011, http://www.
investopedia.com/articles/financial-theory/11/introduction-institutional-investing.asp.
Mary Kay Henry, Letter to Trustees, August 19, 2015.
Tim Jenkinson, Howard Jones, and Jose Vicente Martinez, “Picking Winners? Investment
Consultants’ Recommendations of Fund Managers,” SSRN Scholarly Paper, Rochester,
NY: Social Science Research Network, September 26, 2014, http://papers.ssrn.com/ab-
stract=2327042.
Alexandra Kalev, Erin Kelly, and Frank Dobbin, “Best Practices or Best Guesses? Assessing
the Efficacy of Corporate Affirmative Action and Diversity Policies,” American Sociological
Review, 2006.
Elizabeth MacBride, “A Diversity Problem,” Accessed June 16, 2016, http://www.investment-
news.com/article/20151214/FEATURE/151209979/a-diversity-problem.
Toyah Miller, and María del Carmen Triana, “Demographic Diversity in the Boardroom:
Mediators of the Board Diversity - Firm Performance Relationship,” SSRN Scholarly Paper,
Rochester, NY: Social Science Research Network, May 27, 2009. http://papers.ssrn.com/ab-
stract=1410337.
Jason Reid, “Rethinking the Rooney Rule,” The Undefeated, May 20, 2016, https://theunde-
feated.com/features/rethinking-the-rooney-rule/.
Deborah Rhode and Amanda K. Packel, “Diversity on Corporate Boards: How Much Differ-
ence Does Difference Make?” SSRN Scholarly Paper, Rochester, NY: Social Science Re-
search Network, 2014, http://papers.ssrn.com/abstract=1685615.
Gail Robinson and Kathleen Dechant, “Building a Business Case for Diversity,” Academy of
Management Executive 11, no. 3 (August 1997): 21–31, doi:10.5465/AME.1997.9709231661.
Mike Sando, “‘Staggering’ Numbers Show Minority Coaching Hires Have Stalled,” ESPN.
com, July 19, 2016, http://www.espn.com/nfl/story/_/id/17101097.
Andrew Ross Sorkin, “Pension Funds Are Wasting Your Money on This: Study,” CNBC, Oc-
tober 1, 2013, http://www.cnbc.com/2013/10/01/study-pension-funds-are-wasting-money-
on-consultants.html.
Christine Williamson, “Small Hedge Funds Gaining Bigger Slice of Institutional Mon-
ey,” Pensions Investments, May 2, 2011, http://www.pionline.com/article/20110502/
PRINT/305029910/small-hedge-funds-gaining-bigger-slice-of-institutional-money.
Bureau of Labor Statistics, Labor Force Characteristics by Race and Ethnicity, 2014, Nov. 2015.

8. APPENDICES
9.1 Appendix 1—Investment Overview And Glossary
Asset managers manage investments such as pension funds on behalf of the institutions.
Emerging managers: Many financial companies are adjusting their definition of emerging
managers to include minority- and women-owned businesses, and this is the definition
we use in referring to emerging managers in this report. In its strictest definition, emerging
managers are newer firms with a small asset base (the tangible assets that firm holds). This
is due partly to the considerable overlap between the two types of firms, as many MWBE
management firms were founded in the 1990s.17
The definition has also evolved as greater
numbers of MWBE firms identify as emerging manager firms.
Emerging manager programs are projects that large established (nonemerging) firms such
as JPMorgan Chase and Prudential have implemented to identify, develop, and in some
cases, outsource investments to emerging managers; both firms include racial, ethnic and
gender diversity in their definitions of emerging managers.18
Institutional investors: Groups such as private and public pension funds, insurance com-
panies, banks and foundations. They pool funds on behalf of groups of individual investors,
such as employees or customers, and invest them in a variety of assets to maximize the
return on those investments.19
Compared to individual investors, they are considered to
be “more proficient at investing due to the assumed professional nature of operations and
greater access to companies … because of size.”20
Of the various institutional investors, pen-
sion funds are one of the largest such groups, and as of 2014, controlled roughly 40 percent
of professionally managed assets—more than $10 trillion. This gives them considerable pow-
er over markets as well as corporate governance.21
Minority-and women-owned business enterprises (MWBE): Firms where the majority of
ownership consists of minorities and/or women.
Pension funds are one of the largest institutional investors, and as of 2014, controlled
roughly 40 percent of professionally managed assets—more than $10 trillion. This gives
them considerable power over markets as well as corporate governance.22
Pension fund consultants are often employed by institutional investors to match asset
managers in accordance with the investors’ demands and needs.23
The consultants employ
extensive screening methods of a large number of asset management firms. This also estab-
lishes pension fund consultants as gatekeepers of asset managers. Consultant recommenda-
tions are particularly crucial for emerging and MWBE managers, as these management firms
are still building their asset bases.

9.2 Appendix 2—List Of Firms
The following firms were invited to participate and chose not to respond:
● Cambridge Associates, LLC
● Mercer, LLC
● Portfolio Advisors, LLC
● RV Kuhns Associates, Inc.
● StepStone
● Towers Watson Co.
● Verus
Endnotes
1 Toyah Miller, and María del Carmen Triana, “Demographic Diversity in the Boardroom: Mediators
of the Board Diversity - Firm Performance Relationship,” SSRN Scholarly Paper, Rochester, NY: Social
Science Research Network, May 27, 2009. http://papers.ssrn.com/abstract=1410337.
Gail Robinson and Kathleen Dechant, “Building a Business Case for Diversity,” Academy of Manage-
ment Executive 11, no. 3 (August 1997): 21–31, doi:10.5465/AME.1997.9709231661.
2 Niclas L. Erhardt, James D. Werbel, and Charles B. Shrade, “Board of Director Diversity and Firm Fi-
nancial Performance,” SSRN Scholarly Paper, Rochester, NY: Social Science Research Network, June
23, 2003, http://papers.ssrn.com/abstract=416337.
Toyah Miller, and María del Carmen Triana, “Demographic Diversity in the Boardroom: Mediators of
the Board Diversity - Firm Performance Relationship,” SSRN Scholarly Paper, Rochester, NY: Social
Science Research Network, May 27, 2009. http://papers.ssrn.com/abstract=1410337.
Gail Robinson and Kathleen Dechant, “Building a Business Case for Diversity,” Academy of Manage-
ment Executive 11, no. 3 (August 1997): 21–31, doi:10.5465/AME.1997.9709231661.
3 Deborah Rhode and Amanda K. Packel, “Diversity on Corporate Boards: How Much Difference
Does Difference Make?” SSRN Scholarly Paper, Rochester, NY: Social Science Research Network,
2014, http://papers.ssrn.com/abstract=1685615.
4 Elizabeth MacBride, “A Diversity Problem,” Accessed June 16, 2016, http://www.investmentnews.
com/article/20151214/FEATURE/151209979/a-diversity-problem.
5 Mary Kay Henry, Letter to Trustees, August 19, 2015
6 Andrew Ross Sorkin, “Pension Funds Are Wasting Your Money on This: Study,” CNBC, October 1,
2013, http://www.cnbc.com/2013/10/01/study-pension-funds-are-wasting-money-on-consultants.
html.
7 This should not be viewed as positive given the various disparities within Asian American sub-
groups who were not surveyed.
8 Bureau of Labor Statistics, Labor Force Characteristics by Race and Ethnicity, 2014, Nov. 2015.
Data is from Table 8 of the report, “Employed people by detailed occupation, race, and Hispanic or
Latino ethnicity, 2014 annual averages,” and consists of the following occupations: financial analysts;
personal financial advisors; insurance underwriters; credit counselors and loan officers, and; financial
specialists, all other.

9 Christine Williamson, “Small Hedge Funds Gaining Bigger Slice of Institutional Money,” Pensions
Investments, May 2, 2011, http://www.pionline.com/article/20110502/PRINT/305029910/small-
hedge-funds-gaining-bigger-slice-of-institutional-money.
10 James Comtois, “Emerging Managers Finding More Opportunities Coming from Institutions,” Pen-
sions Investments, February 23, 2015, http://www.pionline.com/article/20150223/PRINT/302239993/
emerging-managers-finding-more-opportunities-coming-from-institutions.
11 James Comtois, “Emerging Managers Finding More Opportunities Coming from Institutions,” Pen-
sions Investments, February 23, 2015, http://www.pionline.com/article/20150223/PRINT/302239993/
emerging-managers-finding-more-opportunities-coming-from-institutions.
12 Joseph De Avila, “NYC Seeks Diversity Among Its Asset Managers,” Wall Street Journal, May
1, 2015, sec. US. http://www.wsj.com/articles/nyc-seeks-diversity-among-its-asset-manag-
ers-1430445602.
13 Randy Diamond, “Public Pension Funds’ Definition of Emerging Manager Still a Work in Prog-
ress,” Pensions Investments, March 21, 2012, http://www.pionline.com/article/20120321/ON-
LINE/120329976/public-pension-funds-definition-of-emerging-manager-still-a-work-in-progress.
14 Frank Dobbin, Alexandra Kalev, Why Diversity Programs Fail, Harvard Business Review, July – Au-
gust 2016,
https://hbr.org/2016/07/why-diversity-programs-fail
15 Jason Reid, “Rethinking the Rooney Rule,” The Undefeated, May 20, 2016, https://theundefeated.
com/features/rethinking-the-rooney-rule/.
16 Ibid.
17 Diamond, Randy. “Public Pension Funds’ Definition of Emerging Manager Still a Work in Prog-
ress.” Pensions Investments, March 21, 2012. http://www.pionline.com/article/20120321/ON-
LINE/120329976/public-pension-funds-definition-of-emerging-manager-still-a-work-in-progress.
18 am.jpmorgan.com/us/institutional/emerging-managers
prusirg.prudential.com/aspx/EmergingManagersInvestmentProgram.aspx?PT=67PDM=5
19 Fox, Eric. “Introduction To Institutional Investing.” Investopedia, March 7, 2011. http://www.in-
vestopedia.com/articles/financial-theory/11/introduction-institutional-investing.asp.
20 Ibid.
21 Ibid.
22 Ibid.
23 Mary Brown, “The Gatekeepers: Consultants Hold The Key,” Investopedia, September 9, 2007,
http://www.investopedia.com/articles/financialcareers/08/gatekeepers.asp.

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