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U.S. representative Emanuel Cleaver II

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Colleges and universities could be required to report how much of their endowment is managed by women- or minority-owned firms under a new bill from U.S. representative Emanuel Cleaver II.

The Missouri Democrat’s Endowment Transparency Act of 2022 is aimed at boosting diversity and inclusion in the asset management industry by mandating transparency and standardizing data collection. College and university endowment assets collectively total more than $821 billion, but determining how much of those assets are managed by diverse-owned firms has proven difficult. A majority of the 50 wealthiest U.S. colleges and universities declined to share data with the Knight Foundation for a report this year on the diversity of asset management firms managing the endowments.

Data shared by the participating institutions show an overall lack of diversity. The Knight Foundation has previously found that in the overall asset management industry, firms owned by white men controlled nearly 99 percent of the assets managed in the United States.

“In our research, we have looked at whether or not there are any differences in performance between diverse-owned and non-diverse-owned firms, and we’ve proved three times that there are no statistically significant differences in performance between diverse and non-diverse-owned firms,” said Ashley Zohn, vice president of learning and impact programs at the Knight Foundation. “Given that fact, it doesn’t make sense to us that so few assets would be managed by diverse-owned firms, given the representation of the population.”

In 2020, Cleaver surveyed 25 colleges and universities with the largest endowments about the issue and found gaps in how institutions tracked data regarding their asset management firms. Most colleges and universities provided at least some data in response to Cleaver’s request, according to a news release.

“The institutions went out of their way to avoid saying what we all know, which is they’re only working with a handful of black or Hispanic managers in the United States,” said Robert Raben, executive director of Diverse Asset Managers Initiative. “If you’re not willing to just sort of say that and then we can have an adult conversation about why, we have to go back to Congress to require the data, and that’s what the legislation is about.”

Raben said only Duke University, Georgetown University and the University of California system provided meaningful data. The UC system sets the standard, he said, releasing annual reports that provide demographic data broken down by race, gender and ethnicity for their own staff and outside managers.

He said other universities opted to share an aggregate figure with Cleaver’s office regarding the diversity of their asset managers.

“They give you one big number—‘28 percent of our money is managed by diverse firms’—but you don’t know whether that’s people in Hong Kong, whether it’s white women, whether it’s veterans, LGBTQ,” he said. “Everybody defines diversity differently … They just don’t want to tell you that of their 50 billion dollars, 0.03 percent is managed by African Americans. They just don’t want to say it, even though we know it.”

At Harvard University, which provided self-reported data to Knight, 26 percent of the U.S.-based managers were diverse-owned firms, managing 19 percent of the university’s $51.9 billion endowment.

University officials wrote in an annual report about the endowment that they have worked to address the lack of gender and racial diversity in the financial industry for many years.

“While we are pleased with our efforts to date, there is certainly more work to be done,” the report states. “[The Harvard Management Company] continues to actively seek out opportunities to invest with diverse managers and to maintain a staff that reflects those same principles.”

To Raben, the lack of diverse firms managing university endowments is not because of a lack of talent or supply.

“But we have a lot of white people in these endowments who don’t really believe that the talent around them among women and people of color is genuine,” he said. “You have to crack that, and the only way to crack that is to expose what’s going on. And what’s going on is we have a ton of talent—Black, Hispanic, Asian American, white women—and they’re not being utilized by the most elite and large endowments even though they perform well, and we don’t know why.”

Raben said that he hopes the bill pushes colleges and universities to act and diversify their asset managers—even if it doesn’t get adopted.

“These are universities who have crossed over on diversity in every other aspect of the institution—the board, the leadership, the student body—but when it comes to the money, it’s ‘I’m not sure we trust Black people,’” he said. “That’s the problem.”

New Reporting Requirements

Ronald C. Parker, president and CEO of the National Association of Securities Professionals, said in a statement that the legislation would help address the lack of business diversity in higher education.

“For years, the NASP organization has championed the reporting of the total assets of higher ed institutions by investment advisers in order to quantify the work that is being performed by minority and women-owned firms,” Parker said.

The bill would amend the Higher Education Act of 1965 to require colleges and universities to annually report information about investments with women- and minority-owned firms and require the Minority Business Development Agency to publish a report every two years with recommendations and best practices for increasing the use of diverse-owned firms in higher education, and it would establish a conference to be held every five years for colleges and universities to meet with investment advisers, firms and consultants in order to develop professional networks, according to the news release.

“Equal opportunity information should be public and not relegated to a team in a back office with no reporting requirements,” a fact sheet about the bill states. “Universities recognize the effects of historical discrimination and can more fully recognize their role as a solution. Transparency is a first step in the right direction.”

Cleaver said in a statement that it’s “unacceptable” that most of the $82 trillion asset management industry is controlled by white men.

“As colleges and universities tout their efforts to diversify at every level, from the student body to the faculty and staff, I believe they are a perfect place to encourage greater opportunity in this intractable industry,” Cleaver said.

A number of other organizations praised the bill in statements shared by Cleaver’s office.

“Black and Brown companies need both capital and customers to thrive,” Ariel Investments said in a statement. “This legislation will help demonstrate through clear annual reporting whether Black and Brown companies are getting the opportunities they deserve. We hope it gains bipartisan support and Congress passes it before year end.”

Gilbert Garcia, chair of a diversity and inclusion subcommittee for the Securities and Exchange Commission, said in a statement that it would be appropriate to mandate that colleges and universities hire diverse firms to manage their endowments, because the institutions receive taxpayer subsidies and research dollars.

“Most importantly, it ensures they are truly picking some of the best managers, many that are currently ineligible for hire because of meaningless artificial barriers of entry,” Garcia said.

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