Wall Street companies have said they would promote greater racial equality inside and outside their organizations.
Photo: Mark Lennihan/Associated PressRegulators should find ways to make the asset-management industry more inclusive of minority- and women-owned firms, a diverse group of investors told the Securities and Exchange Commission on Thursday.
Asset managers have lagged behind other industries in hiring a more diverse workforce and providing opportunities for minority-owned firms to manage client money, panelists told the SEC at a public meeting of an industry advisory committee. Firms owned by minorities and women manage just 1.1% of the $71 trillion in assets under management, according to research by the Knight Foundation published in 2017.
Investors recommended pushing for more disclosure of diversity policies and practices and investigating signs of discrimination and bias that affect opportunities for minority-owned firms.
A range of U.S. corporations have become more outspoken about racism and bias since the killing of George Floyd inspired nationwide protests and focused Americans’ attention on the problem. Wall Street companies from BlackRock Inc. to Goldman Sachs Group Inc. have said they would promote greater racial equality inside and outside of their organizations.
The SEC hasn’t historically used its regulatory muscle to promote diversity and inclusion on Wall Street. SEC Chairman Jay Clayton indicated Thursday that may change, as the agency is considering how to improve diversity and inclusion in the asset-management workforce and how individual minority investors are provided advice.
“We should continue to ask ourselves how we want participation and representation in our markets to evolve, at all levels,” Mr. Clayton said at the meeting.
“There’s also evidence that diversity of thought and backgrounds leads to better creativity and decision making,” Dalia Blass, the SEC’s director of investment management, added.
Advocates told the agency on Thursday that regulators should be more involved because the asset-management industry has resisted making progress on its own.
“And here’s why,” said Robert Raben, president and founder of public-affairs firm the Raben Group and who runs an initiative focused on diversifying the industry. “Absolute, abject, pervasive, unrelenting bias. And until we talk about it, we can’t fix it.”
The asset-management industry includes mutual funds, hedge funds, private equity, pension funds and endowments. A spokesman for the Investment Company Institute, the trade association of mutual funds, said the group “heard the comments today and take them seriously.”
“ICI fully supports efforts to enhance diversity in the regulated fund industry and are actively engaged with our members to help identify and advance initiatives to reach this important goal,” a spokesman said.
The SEC has received low engagement from Wall Street when the regulator sought data about diversity and inclusion. Just 69 of 1,367 entities surveyed in 2018 completed an assessment of their diversity policies and practices, according to the agency.
Institutions such as the SEC can provide leadership to Wall Street by making diversity a value that comes through in how business is done, panelists said. Hiring more women and people of color in top roles who are visible to firms would help, Mr. Raben said in an interview. The SEC could also get tougher with the industry, he added, by declining to meet with firms that ignore its diversity surveys.
Thursday’s meeting was a “good sign that [SEC] leadership is interested in doing more,” Mr. Raben said. “Doing more would be engaging with those who you regulate who seem to be disinterested—calling them in privately and calling on them publicly.”
Several investors and diversity advocates said a network of consultants who help institutions such as pension funds and foundations pick outside managers often leave out minority-owned firms. The 10 largest consultants help direct $30 trillion in assets, said Gilbert Garcia, managing partner of fixed-income manager Garcia Hamilton & Associates LP.
If those gatekeepers don’t prod their clients to consider a more diverse group of money managers, “it is a self-perpetuating cycle of silence,” said Juan Martinez, chief financial officer and treasurer of the Knight Foundation.
The SEC should issue formal guidance to asset owners and asset managers about the importance of diversity in their workforces and outside managers, said Robert L. Greene, president and chief executive of the National Association of Investment Companies, which represents diverse-owned private equity and hedge-fund firms.
“Diversity does not just happen,” said Mr. Greene, a former board chairman of the Virginia Retirement System. “The status quo is hard to defeat.”
Write to Dave Michaels at dave.michaels@wsj.com
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