Texas exec takes on racism in asset management for SEC
Gilbert Garcia remembers making a pitch to manage a large bond portfolio when someone on the other side of the table proclaimed that Garcia, Hamilton and Associates was just too white to count as a Hispanic asset management firm.
Garcia, the managing partner, looked around the table, where eight of his firm’s 10 top executives were Hispanic. Then he realized the problem.
“There’s an image of what they think a Hispanic should look like, and that’s what we’re reminded of every day in our natural business lives,” Garcia told a recent Securities and Exchange Commission hearing.
In some ways, though, that was an improvement.
“I’ve been told point-blank by a consultant that they would never hire us because we don’t have enough white, male partners,” he added.
Garcia still has grown his
company to manage $15 billion in assets, the largest based in Houston. The SEC has also made Garcia chair of an advisory committee examining institutional and systemic racism in the asset management industry.
Pension funds, university endowments and family trusts hire asset managers to oversee their investments, usually based on the recommendation of independent consulting firms. Minority and womenowned firms manage only 1.3 percent of the $71 trillion in assets under management, according to the Knight Foundation, a proportion that has not changed in a decade.
There are only two possible explanations for this disparity. Either minorities and women cannot manage money as well as white men, or the old-boys club on Wall Street is not giving minority and women-owned firms a chance.
Statistically, firms owned by minorities and women are consistently over-represented among the top-performing asset managers. That leaves only one possibility.
“I have never seen anything like the bias I have encountered at the most elite levels around asset management,” said Robert Raben, founder of the Washington-based Raben Group, which helps America’s top corporations promote diversity and inclusion.
In Raben’s surveys of the top funds, endowments, asset managers and investment consultants, most senior executives refuse to acknowledge demographics matter, and two-thirds refuse to disclose their ethnic and gender mix.
When the SEC recently asked for demographic information in an annual survey, only 69 or 1,367 regulated entities bothered to answer.
“Most white people do not want to have this conversation,” Raben concluded.
Until recently, the SEC also has demurred. The financial industry declares that numbers do not lie, and if minority or female traders perform well, they will be rewarded. But here’s the problem: most minorities and women never get a tryout.
The critical chokepoint is the investment consulting firm, which funds hire to help them find the best asset managers. The top 10 consulting firms have 80 percent of the market share, Garcia explained. If those consultants do not consider your firm, you don’t get work.
Consulting firms tend to equate minority or woman-owned asset managers as emerging companies, a place to put only a small amount of money, despite their track records, Raben’s research shows. When a minority firm underperforms, the assumption is that all will underperform. When a female manager outperforms, she’s considered an exception, not proof that gender does not matter.
There’s also tokenism, where a consultant recommends that non-white, non-male firms only get so much business. Consultants worry about overexposing investors to minority-owned asset managers, a concern that never comes up with a white-owned firm, Raben added.
During the SEC hearing last week, no one even hinted at establishing quota-based affirmative action. No one believes that an investor should sacrifice return on investment to hire a minority or female asset manager.
The argument was the opposite. We know that diverse and inclusive boards of directors and management teams consistently make more money than companies with white, male-only leadership. The real problem is that predominately white and male firms are underperforming for their clients.
Minority and womenowned companies are overrepresented among the top-performing firms not because minorities and women are smarter, but because diversity in thinking produces a higher return on investment. Perhaps not every time, but more often than not. Too many funds are hiring their buddies to manage assets, not the best firm for the job.
Garcia wants consultants and investors to question their assumptions that have produced today’s stark disparities. By looking at the statistics, perhaps they will recognize the financial value in diversity and inclusion rather than consider it a politicallycorrect requirement.
Whether at protests or in an SEC hearing, Americans are recognizing that race and gender diversity is not only about justice but also about profit.