    [House Hearing, 116 Congress]
    [From the U.S. Government Publishing Office]

                            DIVERSE ASSET MANAGERS:
                           CHALLENGES, SOLUTIONS, AND
                          OPPORTUNITIES FOR INCLUSION
    =======================================================================

                                    HEARING

                                   BEFORE THE

                           SUBCOMMITTEE ON DIVERSITY

                                 AND INCLUSION

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 25, 2019

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 116-35

                  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   _______

                          U.S. GOVERNMENT PUBLISHING OFFICE

    39-496 PDF                 WASHINGTON : 2020

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     MAXINE WATERS, California, Chairwoman

    CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina,
    NYDIA M. VELAZQUEZ, New York             Ranking Member
    BRAD SHERMAN, California             PETER T. KING, New York
    GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
    WM. LACY CLAY, Missouri              BILL POSEY, Florida
    DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
    AL GREEN, Texas                      BILL HUIZENGA, Michigan
    EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
    ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
    JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
    BILL FOSTER, Illinois                ANDY BARR, Kentucky
    JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
    DENNY HECK, Washington               ROGER WILLIAMS, Texas
    JUAN VARGAS, California              FRENCH HILL, Arkansas
    JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
    VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
    AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
    MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
    RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
    KATIE PORTER, California             TED BUDD, North Carolina
    CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
    SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
    AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
    BEN McADAMS, Utah                    JOHN ROSE, Tennessee
    ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
    JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
    STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
    TULSI GABBARD, Hawaii
    ALMA ADAMS, North Carolina
    MADELEINE DEAN, Pennsylvania
    JESUS ``CHUY'' GARCIA, Illinois
    SYLVIA GARCIA, Texas
    DEAN PHILLIPS, Minnesota

                       Charla Ouertatani, Staff Director
                    Subcommittee on Diversity and Inclusion

                         JOYCE BEATTY, Ohio, Chairwoman

    WM. LACY CLAY, Missouri              ANN WAGNER, Missouri, Ranking
    AL GREEN, Texas                          Member
    JOSH GOTTHEIMER, New Jersey          FRANK D. LUCAS, Oklahoma
    VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
    AL LAWSON, Florida                   TED BUDD, North Carolina
    AYANNA PRESSLEY, Massachusetts       DAVID KUSTOFF, Tennessee
    TULSI GABBARD, Hawaii                TREY HOLLINGSWORTH, Indiana
    ALMA ADAMS, North Carolina           ANTHONY GONZALEZ, Ohio, Vice
    MADELEINE DEAN, Pennsylvania             Ranking Member
    SYLVIA GARCIA, Texas                 BRYAN STEIL, Wisconsin
    DEAN PHILLIPS, Minnesota             LANCE GOODEN, Texas

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        June 25, 2019................................................     1
    Appendix:
        June 25, 2019................................................    29

                                   WITNESSES
                             Tuesday, June 25, 2019

    Chia, Brenda, Founding Board Member and Co-Chair, Association of
      Asian American Investment Managers (AAAIM).....................     8
    Jones, Meredith A., Investment Researcher and Author.............    11
    Martinez, Juan, Vice President/Chief Financial Officer, and
      Treasurer, Knight Foundation...................................     5
    Miller-May, Angela, Chief Investment Officer, Chicago Teachers'
      Pension Fund (CTPF)............................................     9
    Rogers, John W., Jr., Chairman, CEO, and Chief Investment
      Officer, Ariel Investments.....................................     6

                                    APPENDIX

    Prepared statements:
        Chia, Brenda.................................................    30
        Jones, Meredith A............................................    33
        Martinez, Juan...............................................    38
        Miller-May, Angela...........................................    43
        Rogers, John W., Jr..........................................    75

                  Additional Material Submitted for the Record

    Beatty, Hon. Joyce:
        ABFE Magazine December 2015 Edition..........................    77
        Written statement of Altrius Capital Management..............    80
        Written statement of Cabrera Capital Markets, LLC............    81
        November 2015 issue of Emerging Manager Monthly..............    83
        Written statement of Garcia Hamilton & Associates............    85
        Metropolitan Transit Authority of Harris County press release
          entitled, ``METRO Pension plans Adopt `Garcia Rule' for
          Investment Managers,'' dated October 19, 2015..............    87
        Written statement of the National Association of Investment
          Companies..................................................    88
        Written statement of the National Association of Securities
          Professionals..............................................    91
        Written statement of New York City Comptroller Scott M.
          Stringer...................................................    94
        Procurement Guideline for Investment Management Services.....    98
    Steil, Hon. Bryan:
        Chicago Teachers' Pension Fund 123rd Comprehensive Annual
          Financial Report 2018......................................    99

                            DIVERSE ASSET MANAGERS:
                           CHALLENGES, SOLUTIONS, AND
                          OPPORTUNITIES FOR INCLUSION

                                  ----------

                             Tuesday, June 25, 2019

                 U.S. House of Representatives,
               Subcommittee on Diversity and Inclusion,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 10:06 a.m., in
    room 2128, Rayburn House Office Building, Hon. Joyce Beatty
    [chairwoman of the subcommittee] presiding.
        Members present: Representatives Beatty, Clay, Green of
    Texas, Gottheimer, Lawson, Adams, Dean, Garcia of Texas,
    Phillips; Wagner, Budd, Kustoff, Hollingsworth, Gonzalez of
    Ohio, Steil, and Gooden.
        Ex officio present: Representatives Waters and McHenry.
        Chairwoman Beatty. The Subcommittee on Diversity and
    Inclusion will come to order. I note that a quorum is present.
    Without objection, the Chair is authorized to declare a recess
    of the subcommittee at any time. Also, without objection,
    members of the full Financial Services Committee who are not
    members of this subcommittee are authorized to participate in
    today's hearing.
        Today's hearing is entitled, ``Diverse Asset Managers:
    Challenges, Solutions, and Opportunities for Inclusion.''
        I now recognize myself for 4 minutes to give an opening
    statement.
        Thank you, everyone, for joining us for this hearing
    entitled, ``Diverse Asset Managers: Challenges, Solutions, and
    Opportunities for Inclusion.'' This hearing addresses an often
    overlooked problem in the investment sector: the stark lack of
    diversity among money managers in the vast $71 trillion asset
    management industry. While affluence continues to accumulate
    for many, access opportunity remains unattainable for an entire
    group of financial professionals who are left out of the
    system.
        In fact, according to a report by the Harvard Business
    School and the Bella Research Group, entitled, ``Diversifying
    Investment'', major diverse-owned firms represent less than 1
    percent of assets under management across four asset classes:
    mutual funds; hedge funds; private equity; and real estate.
    Yet, empirical research shows that there is no statistical
    difference in performance between diverse-owned firms and their
    peers, even when adjusted for risk and compared to public
    market returns.
        Today's hearing seeks to highlight solutions and
    opportunities for greater inclusion to increase the
    participation of minority- and women-owned firms in the asset
    management industry. This hearing also seeks to address the
    fallacy that diverse-owned firms are low-return social
    investments. We need to look closer into this
    mischaracterization, which oftentimes leaves diverse firms
    underutilized by institutional investors.
        According to an analysis by Morningstar, Inc., only 2
    percent of the assets in the ever-growing $12 trillion U.S.
    open-end mutual fund universe were managed exclusively by
    women, and just 2.5 percent of the funds had a woman as the
    sole manager.
        Women are also less likely to manage active funds and more
    likely to run funds of funds, which own other funds, rather
    than individual securities. In this case, diversity is present,
    but inclusion is still a far reality. Unfortunately, wealth is
    still concentrated in the hands of a few financial entities
    with very little opportunity for diverse-owned firms.
        If the criteria established to enter the market and succeed
    in this industry is devised arbitrarily, only a handful of
    firms will be able to participate. It is also important to
    remember that so much of the asset management is relation-
    driven. This country is serious about closing the ever-widening
    wealth gap, and I am proud to have today's hearing to help
    establish new solutions for addressing the challenges of asset
    managers.
        I reserve the balance of my time for the Chair of the full
    Financial Services Committee, Chairwoman Waters.
        The Chair now recognizes the ranking member of the
    subcommittee, Mrs. Wagner, for 4 minutes for an opening
    statement.
        Mrs. Wagner. Thank you, Madam Chairwoman, for holding this
    hearing today to address the underrepresentation of women- and
    minority-owned firms in the asset management industry.
        Asset management is one of the country's most profitable
    industries, with over $100 billion in annual profits. Despite
    massive growth in this sector, women and minorities are
    underrepresented. The underrepresentation of minority- and
    women-owned asset management firms is a trend across all major
    asset categories including mutual fund management, hedge fund
    ownership, and private equity management.
        In 2016, only 1.1 percent of the $74 trillion in U.S.
    assets was managed by minority- and women-owned firms. By 2018,
    that number had slightly increased to 1.3 percent. We can and
    should do better. We know that, on average, firms with diverse
    managers or owners have equal or better returns compared to
    their less diverse competitors.
        A 2017 GAO study found that minority- and women-owned asset
    managers face various challenges when competing for investment
    management opportunities with institutional investors,
    including retirement plans and foundations. Specifically, GAO
    found that such firms must overcome investor and consultant
    brand bias, perception of weaker performance, and a lack of
    infrastructure.
        The GAO report identified four ways to increase access to
    funds for minority- and women-owned firms: leadership
    commitment; removal of potential barriers; outreach to women-
    and minority-owned firms; and clear communication about
    priorities and expectations to increase diversity. We have seen
    large firms in the industry demonstrating their commitment to
    initiatives that focus on finding women and minority managers
    such as the Emerging Managers Program, which has proven to be
    very successful.
        Additionally, large firms have assigned assets to smaller
    women- and minority-led funds. But this issue goes beyond lack
    of access to funds. Diversifying the talent pool is also key to
    diversifying the asset management industry. The lack of female
    and minority students enrolled in STEM programs at the high
    school and university levels has led to a pipeline problem that
    creates major barriers to increasing diversity among asset
    managers. Programs to increase participation in STEM
    disciplines are critical to fostering meaningful
    diversification of the industry.
        Meredith Jones, who is testifying today, is an alternative
    investment consultant, and author of, ``Women of The Street:
    Why Female Money Managers Generate Higher Returns.'' Ms. Jones
    has written numerous articles on diverse asset managers,
    including a Rothstein Kass Institute study entitled, ``Women in
    Alternative Investments: A Marathon, Not a Sprint.''
        They include things like educating investors on the
    benefits of diverse asset managers, educating firms on how the
    diversity dividend can better directly impact their bottom
    line, and providing financial investment literacy education to
    girls and people of color at a young, young age.
        Like all firms, minority- and women-owned firms should have
    an equal opportunity to manage funds for institutional
    investors. Today's hearing should focus on discussing
    strategies that have proven successful for removing those
    barriers and leveling the playing field.
        I thank the witnesses for being here, and I look forward to
    discussing the key practices. I reserve the balance of my time.
        Chairwoman Beatty. The Chair now recognizes the ranking
    member of the full Financial Services Committee, the Honorable
    Patrick McHenry, for one minute.
        Mr. McHenry. Thank you, Chairwoman Beatty, and I thank you
    and Ranking Member Wagner for your commitment to this very
    important discussion on diversity and inclusion.
        Like all industries, when it comes to the asset management
    industry, everyone who participates deserves an equal playing
    field. But the statistics suggest that for minority- and women-
    owned firms, that is not the case.
        In 2016, only 1.1 percent of the $74 trillion in U.S.
    assets was managed by minority- and women-owned firms. By 2018,
    that number had risen slightly, to 1.3 percent--significant
    dollar figures but not significant in percentage. We need to
    identify the obstacles that are causing women and minorities to
    be underrepresented in this key industry and figure out
    strategies to address that.
        I think this hearing is an important one, and I look
    forward to hearing the testimony from our witnesses, and the
    broader discussion outside of the jurisdiction of this
    committee on how we can actually further diversity and
    inclusion in a comprehensive way.
        And I yield back.
        Chairwoman Beatty. I am very pleased to announce that we
    have a couple of special guests in the audience today. I am
    pleased to acknowledge Skip Springs III, President and CEO of
    the Executive Leadership Council, and with him, Libby Rice. I
    am also very pleased to acknowledge Ronald Reeves, the Chief
    Diversity and Inclusion Officer from AIG, who is in attendance
    in this hearing today. They are both experts in this field. Ron
    leads the extraordinary efforts of fostering the culture of
    inclusion at AIG, which has been successful in attracting and
    retaining talent.
        I would like to thank the witnesses for being here, and we
    welcome the testimony of a very diverse and distinguished panel
    of witnesses.
        First, I would like to welcome the testimony of Juan
    Martinez, vice president and chief financial officer of the
    John S. and James L. Knight Foundation. Mr. Martinez is
    responsible for the Foundation's financial management,
    reporting, and regulatory compliance, overseeing the management
    of its $2.4 billion investment portfolio, and partnering with
    the program staff in development of grants and program-related
    investment. He is an alumni of Florida International
    University, Miami Dade College, and the Wharton School of
    Business.
        Second, we welcome the testimony of John Rogers, Jr.,
    chairman, CEO, and chief investment officer of Arial
    Investments. He is a member of the board of directors of
    McDonald's, Nike, and the New York Times company, and he serves
    as Vice Chair of the Board of Trustees of the University of
    Chicago. He served as the Co-Chair for the Presidential
    Inaugural Committee in 2009, and more recently, he joined the
    Barack Obama Foundation's board of directors.
        He is also the founder of Ariel Community Academy, which
    works throughout the Chicago community to provide world-class
    educational opportunities with a focus on financial literacy,
    and I thank him for that. In 2008, John was awarded the
    Princeton University's highest honor, the Woodrow Wilson Award,
    presented each year to an alumni whose career embodies the
    commitment to national services.
        Third, we welcome the testimony of Brenda Chia, Founding
    Board Member and Co-Chair, Association of Asian American
    Investment Managers (AAAIM). From 2007 until 2012, Brenda was
    the first president of the Association of Asian American
    Investment Managers, an organization that brings together
    institutional capital and qualified Asian American investors
    across major asset classes to conduct business and build
    alliances. She holds a bachelors of science degree in computer
    science and an MBA from Harvard Business School.
        Brenda, it is nice to see you again, and thank you for
    attending our Members' Roundtable on June 4th and providing
    insight into the challenges within the industry.
        Fourth, we welcome the testimony of Angela Miller-May,
    chief investment officer of the Chicago Teachers' Pension Fund.
    Angela Miller-May directs a $10 billion pension fund that
    services a membership of over 63,000 retired Chicago public
    school teachers. She earned a BA in economics from Northwestern
    University and holds an MBA in accounting from DePaul
    University.
        And finally. we welcome the testimony of Meredith Jones, an
    alternative investment consultant and author whose research
    focuses on emerging managers. Until the acquisition of
    Rothstein Kass by KPMG, Meredith served as director of the
    Rothstein Kass Institute, an alternative investment think tank.
    At the Institute, she created the first Women in Alternative
    Investment Hedge Fund Index to measure performances of female
    hedge funds and provide equity managers.
        The witnesses are reminded their oral testimony will be
    limited to 5 minutes. And without objection, your written
    testimony will be made a part of the record.
        Thank you for indulging me. I have had swollen vocal cords
    for 5 days, and it is getting better.
        Mr. Martinez, you are now recognized for 5 minutes to give
    an oral presentation of your testimony.

       STATEMENT OF JUAN MARTINEZ, VICE PRSIDENT/CHIEF FINANCIAL
             OFFICER, AND TREASURER, THE KNIGHT FOUNDATION

        Mr. Martinez. Chairwoman Beatty, Ranking Member Wagner, and
    members of the subcommittee, thank you for the opportunity to
    testify about the Knight Foundation's experience and the
    research Knight has sponsored on the state of ownership
    diversity in the investment management industry.
        First, let me provide a little background on the Knight
    Foundation for context. The John S. and James L. Knight
    Foundation supports informed and engaged communities through
    its funding of charitable programs in 26 U.S. communities, the
    arts, and journalism. Since its inception in 1950, Knight has
    spent $2.5 billion on its important mission, an average of 6.1
    percent of assets annually. That spending is funded from our
    endowment.
        Because of our investing, Knight has also been able to grow
    our endowment from the original $660 million contributed by the
    Knights and their mother, Clara, to $2.3 billion, meaning that
    our impact will be able to continue into the future.
        So, how Knight invests is vital to us. We believed that the
    results demonstrated that we have done a good job, except when
    it came to diversity. We assumed that because diversity adds
    value, and we had done well, our investment program must
    contain it. We were wrong.
        When we were asked, in 2010, how much of our portfolio was
    invested by minority- and women-owned firms, we found that only
    $7.5 million was being managed by an African American-owned
    firm. That was, to say the least, a surprise. With the support
    of our board of trustees, we became intentional in searching
    out opportunities to invest with women- and diverse-owned
    firms.
        Today, about 34 percent, or $749 million, of our endowment
    is being managed by 14 women- or diverse-owned firms, and that
    portfolio is meeting our return expectations.
        As our investments with diverse firms grew, we heard that
    Knight was unique. As a foundation built on the values of fact-
    based journalism and its positive impacts on communities, we
    saw the need for solid research and objective facts to inform
    the discussion. We engaged Bella Private Markets, led by
    recognized industry experts Dr. Josh Lernes from Harvard
    Business School and Ann Leamon, to conduct a rigorous study on
    the state of diversity in the investment industry. To ensure
    that their work was based on the highest-quality data
    available, Bella used several leading commercial data providers
    that were already used in academic research.
        Among the study's major findings was that women- and
    diverse-owned firms managed a very small percentage, about 1.3
    percent, of assets managed by U.S.-based firms, with their
    median fund size typically smaller than non-diverse peers.
        Bella found no statistical differences in investment
    performance either, and certain investors, like public funds,
    represented a disproportionately larger percentage of the
    investments in diverse-owned funds.
        Because the question of potential differences in investment
    performance is so important, Bella examined it in two ways: by
    performing a variety of statistical analyses; and by examining
    the distribution of investment performance. They found no
    statistical evidence that women or minority ownership
    negatively impacts performance and that women- and diverse-
    owned firms were overrepresented in the top quartile investment
    performance for all funds. This contradicts the long-held
    belief that investing with women- and diverse-owned firms
    results in lower returns.
        Bella's research also found that the penalty for
    underperformance is larger for diverse-owned managers.
        Certainly, these studies provide new insights and raise new
    questions for future research. But the reports highlight the
    difficulty in obtaining data on ownership and investing
    diversity in the industry as an impediment for future research.
        Knight, and a growing number of other investors, see an
    investment opportunity here. We hope that the continuing
    research spurs others to join us and to pursue this
    conversation further.
        Thank you, Madam Chairwoman.
        [The prepared statement of Mr. Martinez can be found on
    page 38 of the appendix.]
        Chairwoman Beatty. Thank you.
        Mr. John Rogers, you are now recognized for 5 minutes to
    give an oral presentation of your testimony.

      STATEMENT OF JOHN W. ROGERS, JR., CHAIRMAN, CEO, AND CHIEF
                 INVESTMENT OFFICER, ARIEL INVESTMENTS

        Mr. Rogers. Chairwoman Beatty, Ranking Member Wagner,
    Chairwoman Waters, and members of the subcommittee, thank you
    for inviting me to speak with you. I would also like to thank
    the excellent staff for their thoughtful work.
        My name is John Rogers. I am the Chairman and CEO of
    Chicago-based Ariel Investments, founded in 1983, the first
    African-American-owned asset management firm in the country. I
    am the product of two pioneering parents. My father was an
    original Tuskegee Airman and my mom was the first African-
    American woman to graduate from the University of Chicago Law
    School in 1946.
        Fast forward to today. The economic prospects of the black
    community have stalled or even gone backwards. For example, Ray
    Boshara of the St. Louis Fed reports that between 1992 and
    2016, college-educated whites saw their wealth soar 96 percent
    while college-educated blacks saw theirs fall 10 percent.
        We are here to discuss asset management, one of the largest
    sources of wealth, power, and jobs in today's economy. Of the
    wealthiest Americans on the Forbes 400 list, over 30 percent
    generated their wealth in financial services or real estate.
    The top 3 private equity firms control over 2 million jobs.
        Asset management offers a stark reminder of the obstacles
    preventing people of color from fully participating in our
    capitalist democracy. Your committee oversees the country's
    largest banks. The 4 largest banks hire hundreds of asset
    management firms to invest nearly $1 trillion across 3 distinct
    pools of assets: their own corporate pension plans; their own
    401k plans; and externally managed wealth management platforms.
    You can essentially ``round down to 0'' the assets managed by
    diverse firms across those 3 buckets.
        But there is no shortage of high-performing diverse-owned
    firms. For example, Vista Equity Partners is one of the best
    performing private equity funds in recent years, Brown Capital
    was named Morningstar Manager of the Year in 2015, and our
    Ariel Fund is the top performing fund in its category since the
    financial crisis ended. Yet, when compared to the largest asset
    management firms, we are all essentially rounding errors.
    Vista, the largest black-owned private equity firm, according
    to Black Enterprise, is less than 1 percent the size of
    BlackRock, which manages over $6.5 trillion.
        As Reverend Jackson often says, ``Baseball became a better
    sport when Jackie Robinson was allowed to play.'' The financial
    services industry is well-served by dynamic leaders such as
    Eddie Brown, Mellody Hobson, Gilbert Garcia, and Robert Smith.
    These folks are job creators, philanthropists, and vitally
    important role models in our community. Recently, of course, we
    all saw Robert commit to erase the student loan debt of the
    entire 2019 graduating class of Morehouse College.
        I offer three thoughts on why barriers persist in the asset
    management industry. First, there is a tendency to work with
    people you know, grew up with, and with whom you are
    comfortable. Second, due to implicit or unconscious bias, many
    do not think of black and brown leaders as top-performing money
    managers.
        Third, many banks, corporations, and nonprofits have
    embraced well-intentioned supplier diversity programs
    emphasizing construction, catering, janitorial services, and
    other commodity-related fields. However, this approach too
    often excludes us from the parts of the economy where the
    actual wealth, power, and jobs are created today. I would go as
    far as calling it a ``modern-day Jim Crow.''
        I would recommend directing institutions under the purview
    of this committee to implement three solutions. First, I
    support the proposed legislation creating a ``Rooney Rule'' for
    banks and other entities. Second, measure all spending by
    specific category, including asset management and professional
    services, and replace the term ``supplier diversity'' with
    ``business diversity.'' Third, CEOs and their management teams
    can be held accountable by this committee for providing
    meaningful transparency and making measurable progress year by
    year.
        In closing, tackling economic inequality through business
    opportunity is more important than ever. As Dr. King predicted,
    African Americans could only be liberated from the ``crushing
    weight of poor education, squalid housing, and economic
    strangulation'' by being ``integrated with power into every
    level of American life.''
        Thank you.
        [The prepared statement of Mr. Rogers can be found on page
    75 of the appendix.]
        Chairwoman Beatty. Thank you.
        Ms. Chia, you will now be recognized for 5 minutes for an
    oral presentation of your testimony.

     STATEMENT OF BRENDA CHIA, FOUNDING BOARD MEMBER AND CO-CHAIR,
       ASSOCIATION OF ASIAN AMERICAN INVESTMENT MANAGERS (AAAIM)

        Ms. Chia. Chairwoman Beatty, Ranking Member Wagner,
    Chairwoman Waters, and members of the subcommittee, thank you
    for the opportunity to discuss the experience of Asian
    Americans and Pacific Islanders in the investment industry.
        I am Brenda Chia, a founding board member and current Board
    Co-Chair of the Association of Asian American Investment
    Managers. That is a mouthful, so we acronym it to AAAIM. The
    organization was founded in 2006 as a national nonprofit
    dedicated to the advancement of Asian Americans and Pacific
    Islanders, also known as AAPIs, in the field of investment
    management. AAAIM provides a platform for professionals in the
    industry to meet, network, and create business opportunities.
    We deliver our work through educational events, face-to-face
    and online networking, and advocating for the AAPI community
    through opportunities such as this hearing. The current network
    comprises over 3,000 institutional investors and fund managers.
        I would like to highlight a specific challenge faced by
    AAPIs, which is the model minority stereotype. It is broadly
    defined as the perception that AAPIs are successful and do not
    need help in any field. AAPIs are 5.6 percent of this country's
    population. As you have heard, minority- and women-owned firms
    manage around 1 percent of assets in the aggregate.
        Clearly, the model minority stereotype does not hold here.
    It is not about enriching specific investment managers; it is
    about the impact on our community. Studies have shown that
    minority- and women-led firms invest in more diverse
    entrepreneurs and businesses. We look ``outside the box'' for
    opportunities. This in turn benefits our communities and
    creates more jobs, without sacrificing the returns that
    institutional investors need to meet their funding obligations.
        The investment business is one that thrives on scale. The
    start-up costs and fixed costs associated with smaller firms
    are such that they do not generate impact until they reach
    threshold sizes, which varies by asset class. For example, a
    public equity fund that manages $1 billion may generate around
    $5 million in annual fees. This may sound significant but the
    costs of running a small fund are high due to compliance,
    salaries for qualified staff, and client service. Therefore, to
    impact one's community, total fund size needs to be an order of
    magnitude larger. Without broader access to capital, minority-
    and women-led funds continue to be marginalized because their
    assets are restricted.
        Several large State pension funds have come to the
    conclusion that they need to create a farm system by which they
    can invest with smaller firms, many of which also happen to be
    ethnically and gender diverse. This creates an environment
    where the small firms today could become the next generation of
    successful firms with trillions of dollars under management.
        Taking this one step further, in order to achieve a level
    playing field, we propose that minority and women managers not
    be limited to ``set aside'' allocations where we compete
    against each other for a small slice of the pie. We would like
    to compete for the whole pie.
        AAAIM stands ready for AAPIs to have open and fair access.
    Congress can play a critical role in this. While you cannot
    legislate quotas or mandate criteria selection, Congress can
    create opportunity. The Federal Government has trillions of
    dollars of pension funds and other capital under management.
    Congress could mandate that funds under Federal management be
    subject to regular and periodic open competition.
        Congress could also recommend that Federal agencies ensure
    that qualified minority- and women-led funds are considered as
    part of the RFP evaluation process. We urge Congress to
    consider adopting a Rooney Rule for the investment industry. By
    creating opportunities, Congress can take some small steps
    towards ensuring a more diverse pool of fund managers. It would
    be a meaningful step toward opening doors and creating greater
    transparency.
        Thank you for your leadership on this issue of diversity
    and inclusion, Chairwoman Beatty, and thank you to all the
    committee members.
        [The prepared statement of Ms. Chia can be found on page 30
    of the appendix.]
        Chairwoman Beatty. Thank you.
        Ms. Miller-May, you are now recognized for 5 minutes to
    give an oral presentation of your testimony.

       STATEMENT OF ANGELA MILLER-MAY, CHIEF INVESTMENT OFFICER,
                 CHICAGO TEACHERS' PENSION FUND (CTPF)

        Ms. Miller-May. Chairwoman Beatty, Ranking Member Wagner,
    Chairwoman Waters, and members of the subcommittee, I am
    honored to be here today, and I thank you for the opportunity
    to testify.
        My name is Angela Miller-May and I am the chief investment
    officer for the Chicago Teachers' Pension Fund (CTPF). I would
    like to recognize our board of trustee president, Mr. Jeffery
    Blackwell, remaining trustees, and our executive director, Mr.
    Charles A. Burbridge, who support and drive the diversity and
    inclusion goals and the culture of the Chicago Teachers'
    Pension Fund.
        CTPF serves a membership base of over 66,000 members. It is
    important to our members that we demonstrate diversity by
    hiring asset managers, brokers, and vendors who reflect the
    diversity of the membership. In my testimony, I will
    demonstrate how the Chicago Teachers' Pension Fund embraces
    diversity and inclusion.
        CTPF is a $10.8 billion fund and remains at the forefront
    of pension and retirement systems throughout the U.S., ensuring
    that investment firms owned by minorities, women, and persons
    with disabilities have access to the many opportunities to
    conduct business with CTPF.
        Per Illinois Pension Code, an aspirational goal of not less
    than 20 percent of investment advisors shall be minorities,
    women, and persons with disabilities. We have far exceeded that
    goal by investing 44 percent, or $4.6 billion of total assets,
    with minority-, women- and persons with disabilities-owned
    firms as of March 31, 2019.
        Of the 44 percent, 58.2 percent is invested with women-
    owned firms, 25.3 percent is invested with African-American-
    owned firms, 12 percent is invested with Latino-owned firms,
    3.3 percent is invested with Asian-American-owned firms, 0.6
    percent is invested with persons with disabilities-owned firms,
    and 0.3 percent is invested with multiple minority-owned firms.
        From an asset class standpoint, CTPF has exceeded its
    diversity policy goals in the equities, fixed income, and
    alternative spaces. Our policies are simply guidelines that
    establish minimum targets.
        It is a part of our fiduciary duty to invest the Fund's
    assets in a prudent manner, and investing with diverse asset
    managers that demonstrate outperformance and deliver strong
    returns is more than prudent. It is wise.
        Having diverse managers in your portfolio brings diverse
    thoughts, improved decision-making, and solutions in a current
    market environment that is challenged. The risk managers
    perform the same, if not better, than non-diverse managers.
    They are a key source of diversification as they complement
    large managers that seek larger assets and deals. There is room
    for all.
        As a prudent investor, it does not make sense to not take
    advantage of the unique opportunity that investing with diverse
    managers presents. As an underfunded pension fund, we simply
    cannot afford to forego investing with diverse managers.
    Diverse managers exhibit strong returns but they are
    dramatically underrepresented in every asset class. They face
    many challenges such as investor and consultant brand bias,
    perception of weaker performance, size and infrastructure, and
    industry trends.
        Key practices that CTPF has used to increase opportunities
    for diverse managers include the following:
        We have secured the commitment of our legislators,
    trustees, and senior management. We have removed barriers. We
    have implemented policies. We have tracked our performance in
    reference to our policy goals. By establishing a process of
    outreach and engaging with organizations that promote
    diversity, like NASP, NAIC, ILPA, New American Alliance, and
    Accelerate Investors, just to name a few.
        Investors have the greatest power to effect change in the
    asset management industry. In the Illinois Pension Code, it is
    declared to be a public policy of the State of Illinois to
    encourage diversity and inclusion.
        While we take baby steps, Congress can move the needle and
    create opportunities for diverse managers on a much larger
    scale. If only to listen to my testimony, I hope that I have
    played a small part in expressing the importance of diversity
    and inclusion.
        Thank you, Madam Chairwoman.
        [The prepared statement of Ms. Miller-May can be found on
    page 43 of the appendix.]
        Chairwoman Beatty. Thank you.
        Ms. Jones, you are now recognized for 5 minutes to give an
    oral presentation of your testimony.

       STATEMENT OF MEREDITH A. JONES, INVESTMENT RESEARCHER AND
                                 AUTHOR

        Ms. Jones. Thank you very much, Chairwoman Beatty, Ranking
    Member Wagner, and Chairwoman Waters. I appreciate the
    invitation to be here. I recognize that I submitted an
    enormously dense written testimony with a lot of facts and
    figures, so I am not even going to attempt to read that. I just
    would like to give you a few highlights.
        I have been in this industry for about 20 years. I have
    been researching diverse asset managers for almost a decade.
    During that period of time I have come to one very positive
    conclusion, and that conclusions is, without reservation, that
    every single person, from Wall Street to Main Street, is poorer
    because we don't have more diverse asset managers in the
    investment management and asset management business. And I know
    that is a bold statement but I want to say that because of
    three primary things.
        Number one, we have discussed some about the performance of
    diverse asset managers. Most studies that are available show
    that their performance is either comparable to or higher than a
    non-diverse cohort. It doesn't matter where you look. If you
    look at diverse asset manager outperformance, if you look at
    the addition of diverse asset management members to non-diverse
    firms, you see a boost in performance. And if you look at the
    representation of diverse firms in the top quartile, again you
    see an overrepresentation. Even if you look at firms that are
    managed by people who grew up poor, they outperform.
        So what does this tell me? This tells me that every
    investor out there, from the wealthiest individual to the
    firemen, policemen, and teachers who depend on well-funded
    pensions to be able to ensure their retirement, are not
    achieving the returns that they should be achieving.
        Number two, we know that minorities and women have a
    tendency to have different cognitive and behavioral
    preferences. These preferences lead to differentiated
    investment behavior, and differentiated deal flow, and that can
    actually have pretty big impacts, again, for all investors. It
    can provide liquidity when markets are melting down, because it
    has been shown, for example, that women sell into downwardly
    trending markets less than men. It can provide differentiated
    returns when it comes to private equity, which is sitting on a
    mountain of dry powder it needs to invest, and yet diverse
    private equity managers actually tend to find different deals
    with lower valuations, with better returns.
        So, we could actually mitigate market bubbles and bursts
    and we could actually provide additional diversification within
    portfolios if we had more diverse members in the industry.
        And then, finally, because we have so few diverse
    individuals within the asset management spectrum, we see
    investment not coming into certain parts of the world. If you
    look at venture capital, for example, two-thirds of venture
    capital is concentrated on the East Coast and the West Coast,
    and the vast majority of it is focused with white male
    founders. In fact, if you look at the amount of venture capital
    that goes to female founders, that is 2.2 percent over the
    course of the last 2 years. If you look at the percent of
    venture capital that went to minority founders, including
    blacks and Latinos, over history, that has been about 1
    percent.
        That is not acceptable. Why is that not acceptable? It is
    not acceptable because we are ignoring an enormously powerful
    consumer group. Women, right now, control 51.3 percent of the
    investable wealth. That is going up to 66 percent. Blacks
    actually saw an increase in income over the $200,000 mark of
    138 percent. Latinos are the fastest-growing economic
    demographic out there. So by not funding and meeting their
    needs, we are in dire trouble of not having a robust economy,
    and we are also not creating jobs in these underserved areas.
        And so if you take all of that as truth, and believe that
    you are poor, then obviously we need to fix it, because I think
    no one here wants to know that firemen, policemen, and
    teachers, and you, yourselves, may be less well off. There are
    a couple of different ways, I think, to address that. The
    primary way is education, making sure that investors know that
    they are missing out if they do not encourage diversity within
    their asset management firms. My experience is that if
    investors demand it, Wall Street will respond.
        The second thing is to educate asset managers about the
    benefits of having diverse members on their teams, and then
    also the risks that they face if they don't, not being able to
    capture the assets under management, having investors choose
    other firms.
        And then finally, we have to choose to educate women and
    people of color at a very early age. They are not getting
    access to education that shows this is a robust career
    opportunity for them, and they are also not getting the
    experience and the knowledge to be able to do that, and I think
    that we could make huge strides in that area.
        Thank you very much.
        [The prepared statement of Ms. Jones can be found on page
    33 of the appendix.]
        Chairwoman Beatty. Thank you. I now recognize myself for 5
    minutes for questions.
        Let me again just say thank you to all of you for your
    testimony. You gave us a lot to digest this morning. We have
    heard a lot about the shortage, that there is no shortage of
    high-performing, diverse firms. From Wall Street to Main
    Street, we are getting poorer if we don't make a change. That,
    in part, is why we are here.
        I will start out with you, Mr. Rogers. We have heard a lot
    of terms used today, for example, the ``Rooney Rule'', but we
    have also heard, ``emerging managers.'' We have heard
    ``business diversity'', and I want to thank you for sharing
    that with us earlier and I assure you that we are now saying,
    to all of the financial institutions, tech companies, and
    everyone who comes before us or meets with us, that our top
    priority is business diversity.
        Tell me, when you hear the term ``emerging managers'',
    which was once characterized as a term used for women- and
    minority-owned firms who were traditionally underrepresented in
    asset management, what are your thoughts? Do you think there
    are any unintended consequences as a result of that term?
        Mr. Rogers. Thank you so much for following up on these
    important issues. I really, really appreciate it.
        I think there are a couple of unintended consequences. I
    think, number one, if Melanie Hobson was here, she would tell
    you that when you go to conferences on emerging managers and
    you talk to leaders in the industry, because it was always
    focused on the size of your firm, now 80 percent of emerging
    managers are typically white male firms, people who have left
    majority firms, started their own firms, and now, all of a
    sudden, they qualify under emerging. And a lot of well-meaning,
    progressive decision-makers think they have hired minority
    firms when, in reality, they haven't. So, I think that is the
    number one concern.
        The second concern is that when I started in 1983, people
    always said, ``You need to get to size, and develop a
    performance track record so they will hire you.'' Now what has
    happened is once you got over the magical $2 billion or $3
    billion in a lot of States, people said, ``Now you are too big.
    We are looking for the next John Rogers. We don't want to hire
    you.'' And I think that has been a problem in our industry, is
    whenever we get to that $2 billion or $3 billion, people stop
    being interested, and I think it is the reason so many small
    minority firms, as they got toward that level, actually never
    get above it and then fall apart and actually close because of
    that issue.
        So I think that is very critical, and we have to make sure
    that we understand that to be successful, as we said, these big
    firms have trillions of dollars under management. We can't
    compete unless we get to $20 billion, $30 billion, $40 billion,
    where we can hire the best people, have the best compliance
    officers, the best technology officers, to really be able to be
    on the even playing field. So, that is another big unintended
    consequence of emerging.
        Chairwoman Beatty. Thank you. The next question is for you,
    Mr. Martinez, and you, Ms. Chia.
        Empirical research found that funds managed by diverse-
    owned firms were actually overrepresented in the top-performing
    quartile of mutual funds, hedge funds, and private equity, and
    yet consultants are sometimes seen as the gatekeepers for
    assets, are often biased against diverse-owned firms because
    they have all these preconceived notions.
        Tell me your thoughts. Are consultants providing equitable
    access in this field, or not?
        Mr. Martinez. Thank you, Madam Chairwoman. I think that
    there is an incredible power to incumbency. Consultants favor
    the firms they know extremely well and that they have extremely
    long relationships with, and as a result, it is incumbent on
    us, as customers, to be able to say to a consultant, ``We care
    about diversity.''
        Chairwoman Beatty. I am going to rush you only because I
    have 39 seconds, and I want her to also answer. And you can
    also answer in short answers, like yes or no.
        Ms. Chia. I agree with Mr. Martinez on the importance of
    incumbency. Most consultants, when they do a new fund, 70
    percent go to current investment managers.
        I would also like to add the personal risk of making a
    decision with an unknown manager. There is bias against voting
    against yourself or with someone you know.
        Chairwoman Beatty. Okay. Thank you. I only have 8 seconds.
        Would you all support a version of a Rooney Rule? Yes or
    no?
        Mr. Martinez?
        Mr. Martinez. Yes.
        Chairwoman Beatty. Ms. Jones?
        Ms. Jones. Yes.
        Chairwoman Beatty. Ms. Miller-May?
        Ms. Miller-May. Yes.
        Chairwoman Beatty. Ms. Chia?
        Ms. Chia. Yes.
        Chairwoman Beatty. Mr. Rogers?
        Mr. Rogers. Yes.
        Chairwoman Beatty. Thank you.
        It is now my honor to yield 1\1/2\ minutes to the honorable
    chairwoman of the full Financial Services Committee, Chairwoman
    Maxine Waters.
        Chairwoman Waters. Thank you, Congresswoman Beatty, for all
    of the work that you are doing dealing with this issue, and I
    thank all of our witnesses who are here today.
        I want you to know that I established this subcommittee of
    the Financial Services Committee because it is time for Members
    of Congress to get serious about diversity and inclusion. I
    have been working on this for 30 years now. I started in
    California with the pension funds there, and we were able to
    get started in that time with the emerging managers, as you
    have described, and I understand the limitations with that.
        But it is extremely important that we open up these avenues
    for involvement, because I saw what it was able to do with
    individuals like Victor MacFarlane, who was one of the
    beneficiaries of the emerging fund, and also Mr. Marx Cazenave,
    and all of those who came forward back in 1990-whatever, 1991,
    when we got involved. And also, I have seen when we have
    comptrollers around the country like you had in New York at one
    point, who was able to open up these opportunities.
        So, establishing this subcommittee gives focus to this
    issue. And now all that we need is a commitment from the
    Congress of the United States, the Members of Congress, to do
    the right thing. We are going to move forward, very
    aggressively, and we are not going to act in some of the ways
    that we have acted since I have been here in Congress, where we
    get turned down when we have had some meetings, by those who
    should be opening up opportunities, and we let it go. It won't
    be that way anymore.
        I thank you for being here today. We are honored. We are
    going to be aggressive, we are going to be persistent, and I
    thank all of those who have been struggling and who have been
    helping out with this issue for so many years.
        I yield back. Thank you.
        Chairwoman Beatty. Thank you very much to our Chair. Now, I
    have the distinct honor of going to the ranking member of the
    subcommittee, and my good friend, the distinguished ranking
    member, Ann Wagner, for 5 minutes for questions.
        Mrs. Wagner. Thank you, Madam Chairwoman, and thank you all
    for your testimony and presence here today.
        Like all asset managers, minority- and women-owned asset
    managers deserve an equal opportunity to manage funds for
    institutional investors. Firms should not be disadvantaged due
    to the composition of their ownership.
        Ms. Jones, from your work in this area, what are some of
    the most effective ways to remove obstacles for diverse asset
    managers and increase their access to funds? You may want to
    also finish your answer to the chairwoman's previous question.
        Ms. Jones. I think I can incorporate that into my answer.
        I look at this as being a three-pronged process. I don't
    think that--because this is a complicated issue, I don't see
    that there is a simple solution, unfortunately. So the way that
    I look at it, we really have to consider three different
    avenues of solution here, the first being education, as I
    mentioned. We have to educate investors about what they are
    missing out on. We have to educate asset managers on how do a
    better job with diversity and inclusion and what they may be
    missing out on. And then we really have to educate girls and
    people of color at an early age so that we have an effective
    pipeline.
        I am a member of the board of directors for a nonprofit
    called Rock the Street, Wall Street. We provide year-long
    financial and investment literacy education to high school
    girls. Ninety-seven percent of them have a higher
    understanding, a better understanding of asset management and
    investment by the time they are done. Sixty-seven percent say
    that they would actually opt into an asset management major or
    minor going forward. So, that is pretty huge. And 69 percent of
    our girls are people of color. So we are trying to build the
    pipeline. That is number one.
        Number two, we have to engage, and part of that engagement
    is encouraging firms to disclose things like their diversity
    statistics. That way, consumers can make an informed decision
    about which firms offer the best chance at getting cognitive
    and behavioral alpha. So it also allows us to be able to track
    progress.
        The third thing would be, I think, mandates, and that is
    where the Rooney Rule comes in. Without those first two, we
    risk not having a great pipeline, and we also risk a fair
    amount of gamesmanship when it comes to people trying to take
    advantage of these types of mandates.
        I have seen this happen already, where people who are--
    where firms are giving ownership to diverse individuals in
    order to disqualify for these mandates, but it doesn't create
    long-term change. It doesn't help build the next generation. So
    I think we need the full enchilada in order to be successful.
        Mrs. Wagner. And in fact, I will say, Ms. Jones, we have
    had panelists and witnesses who have talked about how important
    it is, not just for the candidates who are being interviewed
    but for the interviewers and those who are making those
    decisions to also be people of color and women and a more
    diverse panel.
        Asset management is a $74 trillion industry and it
    continues to grow every year, but the diversity of asset
    managers in the industry has obviously remained low, both in
    terms of the number of diverse-owned firms and funds as well as
    the number of assets under management.
        Ms. Jones, what are some of the ways to increase the number
    of women and minorities in this industry, if you want to
    elaborate some more?
        Ms. Jones. Yes. I think that one of the important things we
    have to remember is it is not just the ownership that is the
    problem; it is the actual participants in the industry. If you
    look, for example, at private equity, only 11.7 percent of
    private equity executives are women. If you look at venture
    capital, only about 8 percent of investment professionals in
    venture capital are women. Eighty-two percent of venture
    capital firms don't have a single black investment partner with
    them.
        These are where the next generation of fund managers come
    from. This is where the next generation of people of color and
    women who are going to own a business come from. So, we
    actually have to address that problem.
        Mrs. Wagner. And I know that you have done a great deal of
    work, and in my limited time here, related to increasing the
    participation among women and minorities in the STEM program,
    and it is something that I also talk about a great deal, how
    can we increase the number of women and minorities who are
    enrolling in STEM courses and other programs that could lead to
    a career in asset management? It is not just through financial
    services.
        Ms. Jones. Right.
        Mrs. Wagner. It is across-the-board. Business courses have
    remained low in terms of their enrollment. I know you may not
    have time to answer, but--
        Ms. Jones. We have to start much earlier than we think.
    Unfortunately, right now, most of the intervention is focused
    around the college and MBA level.
        Mrs. Wagner. Right.
        Ms. Jones. We have to start earlier. People start opting
    out at age 11, so unless we can get public-private partnerships
    to intervene and provide education and inspiration for women
    and people of color at that stage, then a lot of people have
    already opted out.
        Mrs. Wagner. Thank you so much. I yield back.
        Chairwoman Beatty. Thank you. The gentlewoman from North
    Carolina, Ms. Adams, is recognized for 5 minutes.
        Ms. Adams. Thank you, Chairwoman Beatty, and thank you for
    convening this timely hearing, and to all of the witnesses,
    thank you very much for being here today to discuss the
    importance of diversifying our asset managers.
        We have said time and time again here in this committee and
    in the larger committee that making an investment in diversity
    and inclusion is not only the right thing or the moral thing to
    do, the data shows us it makes good business sense.
    Organizations make smarter decisions, they function more
    effectively, and they experience increased productivity and
    greater profitability. But yet, minorities and women continue
    to be underrepresented.
        Let me begin my questioning by indicating that investors do
    rely on the advice from investment consultant firms about which
    management firms are best qualified to manage their
    investments, but if the investment consultant firms are biased
    against diverse-owned firms because of preconceived notions
    that they are too small or risky, they may not be getting the
    same opportunities as other firms.
        Mr. Rogers and Ms. Chia, what challenges have you faced as
    a diverse asset manager being contacted by, or getting meetings
    with investment consultants about managing funds?
        Mr. Rogers. Over the 36 years, we have had varying results
    with different consultants. There are some extraordinarily open
    consultants who want to work with diverse firms, who believe in
    it. Early in our career, we would not have been able to make it
    to the next level without those types of consultants. And I
    know with the Knight Foundation, a lot of their work, they have
    worked very carefully with their consultant, Cambridge
    Associates, to be able to get the job done.
        At the same time, there are a lot of consultants who, as I
    came along, had never had an African-American professional or a
    woman in a leadership role in their organizations. They weren't
    used to interacting with people of color and diverse
    communities. So, of course, when they were being pushed by
    their clients to do it, they got resistance, because as we all
    know in this country, there is a lot of anti-Affirmative Action
    sentiment, and it shows up in lots of different ways, whether
    it is through college admissions to, again, the business world.
    And so I think that is a real challenge.
        Ms. Adams. Okay.
        Mr. Rogers. The way to overcome that is you have to have--
    the customer has to demand that the consultant live up to the
    values of the institution that has hired them.
        Ms. Adams. Okay. Great.
        Ms. Chia?
        Ms. Chia. I will second that, and we have seen some State
    pension funds be the real leaders in this area, and AAAIM would
    like to see more pension funds and more endowments and
    foundations step up. And as Mr. Rogers said, ``deliver on the
    values of not just institutional investors but the pensioners
    they serve.'' We want to reflect that in the investment
    mandates.
        Ms. Adams. Okay. Thanks very much.
        Ms. Miller-May, what more could diverse asset managers do
    to make themselves more competitive as well as to build
    relationships and confidence with fund investment officers?
        Ms. Miller-May. I tell diverse managers the RFP should not
    be the first time that I am meeting you. They need to build
    relationships way before we get to the point where we are
    searching for a manager. It is paramount that we know who we
    are investing with, we understand their track record, we
    understand how they invest, how they source deals, how they
    execute deals.
        We have what we call a First Friday where we see managers
    every first Friday of the month and we have them present to us
    so that when we do a search we know the managers who are out
    there in the universe of managers.
        Ms. Adams. Okay.
        Ms. Miller-May. We are a trustee-led firm and a staff-led
    firm, not a consultant-led firm.
        Ms. Adams. Thanks very much.
        Mr. Martinez, your research indicates that funds are
    managed by diverse-owned firms who are overrepresented in the
    top-performing quartile of mutual funds, hedge funds, and
    private equity, despite being underrepresented in asset under
    management for each asset class, so what do you conclude about
    the notion that diverse asset managers perform poorly?
        Mr. Martinez. That is certainly false. There are managers
    who perform well and there are managers who perform poorly.
    That is across all gender and racial sectors.
        Ms. Adams. Okay. Let me ask a yes-or-no question to
    everyone. Should companies be required to share their diversity
    data, including their use of diverse asset managers? Chairwoman
    Waters and Chairwoman Beatty sent requests and we didn't get
    what we thought we would get. Could you just tell me yes or no,
    should they be required to share their diversity data?
        Mr. Martinez. Yes.
        Mr. Rogers. Yes.
        Ms. Chia. Yes.
        Ms. Miller-May. Yes.
        Ms. Jones. Yes.
        Ms. Adams. All right. Thank you very much, Madam
    Chairwoman. I yield back.
        Chairwoman Beatty. The gentlelady yields back.
        The gentleman from Wisconsin, Mr. Steil, is recognized for
    5 minutes.
        Mr. Steil. Thank you very much, and thank you for holding
    today's hearing as to how we can further diversity and
    inclusion on what is a very important topic. In particular, we
    know that women- and minority-owned firms should not be
    disadvantaged.
        But where I want to look is to the discussion about what
    kind of burdens we are placing out there a little bit, and Ms.
    Miller-May, I want to ask you a question. As you know, my
    district sits on the Illinois-Wisconsin border, and as I look
    south we see some real struggling with pensions kind of across-
    the-board, and so we naturally watch what happens, very likely
    out of these 66,000 members, some of them would live north in
    my district, which is part of the Census-designated Chicago
    metro area, in some areas.
        Could you note what the actuarial accrued liability of your
    pension fund would be off of the 2018 annual report?
        Ms. Miller-May. It is 7 percent.
        Mr. Steil. I would ask unanimous consent to submit the
    Chicago Teachers' Pension Fund 2018 Comprehensive Annual Report
    to the record.
        Chairwoman Beatty. Without objection, it is so ordered.
        Mr. Steil. Because in there you will note that the
    actuarial accrued liability of the pension fund is $22.9
    billion, as of June 30, 2018, which was in increase of $1.1
    billion from the previous year.
        So of that amount, do you know how much of the accrued
    liability is underfunded?
        Ms. Miller-May. We are 49 percent funded, so we are just at
    51 percent.
        Mr. Steil. About $12 billion underfunded, with total assets
    in the fund in the neighborhood of $10.7 billion as of the last
    annual report.
        And if we look at what those rates of return are for 2018,
    the 5-year rate of return, do you know what that was?
        Ms. Miller-May. For 2018--
        Mr. Steil. Nine percent. And so, 9 percent for 2018, 8.8
    percent over the last 5 years, which is roughly in line with
    the S&P 500, depending on exactly how you calculate that out,
    and you guys are balancing things out, not purely in equities.
        But if you look at the unfunded liability that is going to
    increase, as noted in the report, it will continually increase
    through 2039, and it will never be fully amortized. It will
    never be fully amortized under the current structure, which
    means that eventually these liabilities are going to be held by
    taxpayers in Chicago and in the State of Illinois.
        Do you know what percentage of your assets are held in U.S.
    equities?
        Ms. Miller-May. Right now, 30 percent.
        Mr. Steil. Right. So, 29 percent, and if you looked at
    total equities across-the-board, including in the foreign, it
    is about 59, 60 percent.
        And so as I look at some of the proposals that we have in
    front of us, from a legislative perspective, to continue to put
    burdens on publicly traded U.S. equities, and we have seen this
    kind of across-the-board, not only from this committee but kind
    of this growing trend across the board to continually put
    burdens and reporting restrictions specifically on U.S.
    publicly traded equities, which is exactly what your pension
    beneficiary is relying on, which is currently underfunded by
    about 50 percent.
        And so out of your 66,000 members, they need to see that
    growth, and we have seen this trend in Congress to continue to
    put burdens on publicly traded companies for reporting
    requirements and other requirements, and I get concerned about
    the overall fund's investment performance and how we are going
    to have U.S. publicly traded companies performing in the United
    States against the burden that we are placing them on the SEC.
    Pension beneficiaries and retirees are reliant upon these
    returns, and their futures depend on it.
        I couldn't speak more to the importance of making sure that
    we are not allowing women- and minority-owned firms, in any
    way, shape, or form, to be disadvantaged, but as we look at the
    policy solutions to address that, I think we have to be
    cognizant of the burdens that we continually put, from a
    reporting perspective, on publicly traded companies for the SEC
    to manage, and look for my colleagues across the aisle, and on
    this side, to continually be cognizant of the fact that we
    continually place burdens or propose burdens, in this case, on
    the SEC for reporting requirements, which continually build,
    and the impact that is having on pension funds in the United
    States, on retirees' assets in the United States. I think that
    is just terribly, terribly important.
        I appreciate the time, and I yield back the remainder of my
    time. Thank you.
        Chairwoman Beatty. The gentleman yields back.
        The gentlewoman from Pennsylvania, Ms. Dean, is recognized
    for 5 minutes.
        Ms. Dean. Thank you, Madam Chairwoman, and I am delighted
    that you are holding this subcommittee hearing today.
        Just recently, about a week ago, in my office, we had a
    hearing on diversity and inclusion among business leaders,
    government leaders, and people in law, and it was a very
    stunningly, striking similar conversation. From Mr. Martinez,
    where you actually decided that you thought you were doing well
    in terms of diversity, but when you looked around, you weren't.
    That was one of the recognitions among the people, the leaders
    who were in my office, who said, ``We actually looked at our
    organization, thought we were doing well with diversity, and we
    are just not.''
        The other thing that I noticed each of you said was to be
    intentional, to be deliberate, that if you recognize you have a
    problem, you have to deliberately do something about it.
        I will start with you, Mr. Rogers. I was particularly
    struck by your testimony. You very quickly ticked through three
    of the areas that are a part of the problem, that notion of
    sort of birds of a feather flock together. We seem to just
    gather with the same type of folks, and one of my questions is,
    how do we break through that? And I think one of the answers is
    going to be education, as Ms. Jones will say.
        The second one I thought was very interesting. There is an
    implicit and unconscious bias. Again, how do we break through
    that African American-owned, minority-owned, or women-owned
    money managers?
        But one that I really want you to take a look at is the
    third notion. You say that many banks, corporations, and
    nonprofits have embraced well-intentioned supplier diversity
    programs, and that maybe gives us a skewed picture of
    diversity. Could you just speak to that third aspect first, Mr.
    Rogers?
        Mr. Rogers. I will try to put both of them together. A
    quick story, when I was president of the Chicago Park District
    25 years ago, there were 9 museums on park land, so I was ex-
    officio on all of those boards. And I said to those folks that
    we wanted to be living the values of the City of Chicago and
    that the museums on park land should be using minority-owned
    firms, the same way the City of Chicago was doing it, under the
    leadership of Richard Daley. and before that, Harold
    Washington.
        And what they did is they came up with an idea of a
    symposium, and the symposium was a one-day. We brought minority
    vendors together with the decision-makers from the museums. And
    they ended up with an invitation that was a man in a hard hat
    with a shovel, and the tagline was, ``Digging Up Business.'' So
    when they thought of minority business leaders, they thought of
    us as people with a shovel, with a hard hat. Those are very
    honorable fields, those are very, very important, but they
    didn't think about us being their lawyer, their accountant,
    their money manager, their asset manager, or their investment
    banker, where again, the profit margins are so high today, and
    it is such an important part of today's economy.
        So, it ties together this implicit bias, unconscious bias,
    this idea that we have looked at supplier diversity, which
    needs to be changed because it really is 40 years out of date.
    The economy has moved to a financial services, professional
    services, and technology-based economy so we have to move with
    it if we want all of us to be included in our economy.
        Ms. Dean. Okay. Mr. Martinez, if you would go back on what
    you were talking about in terms of recognizing there was a
    problem and then you began this study, what are some of the
    other things that you learned as a result of your study?
        Mr. Martinez. One of the things to this idea of data and
    capturing data is how difficult it is to actually be able to do
    these studies and what that implies for governance. So, to be
    intentional is partly to hold people accountable, to get data
    on a regular basis and look at the portfolio and how that
    occurs.
        To the point of performance, when you combine the issue of
    sort of smaller sizes of funds, but overrepresentation of
    performance, our belief is that there is overperformance, there
    is alpha, as we would say in the investment field, being left
    on the table, because you have managers who could be
    outperforming with greater assets and generating greater
    returns, who are not getting access to that.
        Ms. Dean. Okay. And finally on the issue of education, and
    maybe I will go to you, Ms. Jones, I represent suburban
    Philadelphia, Montgomery and Berks Counties. It is a robust,
    diverse area, but the thing I try to connect my schools
    districts to are people like you. So, I love the idea that you
    are talking to young people, particularly young girls, and
    opening their eyes to other opportunities. I invite you to come
    to my district. What are some of the ways that you actually--
    can you sort of describe to us that educational program?
        Ms. Jones. The educational program that I work with is both
    formal and informal. So, we have a year-long educational
    program that goes into high schools for one year. The first
    part of the semester is based on classroom learning and the
    second part is on mentoring and having interactions.
        We start out with very basic financial concepts like
    budgeting and things like that, making sure that people
    understand money, which, because a lot of our students are
    disadvantaged and in disadvantaged areas, they may not, and
    then we move on to more advanced concepts. So, if a school
    stays in the program for a long time--let's say a girl goes
    through the program for 4 years--she could learn about things
    like how to trade options by the fourth year, which means that
    they can go into any kind of economics or finance program they
    want to, in college or in graduate school.
        But it is also important--
        Chairwoman Beatty. The gentlelady's time has expired.
        Ms. Dean. I'm sorry. My time has expired. Again, I invite
    you to come help me and my young people. Thank you.
        Chairwoman Beatty. Thank you. The gentlewoman from Texas,
    Ms. Garcia, is recognized for 5 minutes.
        Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank
    you again, as others have said, for bringing attention to this
    very critical issue. I think we won't be where we need to be
    unless we have true economic power, and it certainly comes from
    not only the dollars that we earn but the dollars that are
    invested. So, thank you for putting this together.
        And thank you to all the panelists. This has been a concern
    of mine for many years. As some of you may know, I was the
    elected city comptroller in Houston back in the 1990s, in a
    couple of prior lives before this one, and I always made it a
    point to make sure that our office included, not only in the
    bond issues that we did, but also in the investment portfolio,
    to ensure that minority- and women-owned businesses got
    included, fully included and participated.
        I think that we can't wait for more States to act like
    Illinois and others. We must do something here. And, Mr.
    Rogers, I was really struck with the example you just gave
    about your museum work and by your characterization of calling
    some of this a ``modern-day Jim Crow.''
        If you could think of the one single thing that we could
    really act on to change that, to ensure that there was no Jim
    Crow and that there were not even remnants of Jim Crow, what
    would it be? And if you would, please, because of time, could
    you just keep it simple?
        And then I want everybody else to answer the same question,
    like the one thing we need to do.
        Mr. Rogers. I know Bill Von Hoene from Exelon has testified
    here recently, and what Exelon does better than anyone is they
    keep track of all of the spending by categories. So, if you
    have transparency and you can see how much of the advertising
    dollars are going to minority firms, how much to the investment
    firms, or how much to the construction contracts, everything is
    exposed and everything is transparent, right-meaning people
    will start to give opportunities to people in all aspects of
    the spend. So, that is what is key, is that transparency,
    keeping track of every category, not the total amount, which
    sometimes obscures what is really happening underneath.
        Ms. Garcia of Texas. Okay. Ms. Chia?
        Ms. Chia. I would like Congress to lead by example, to
    mandate funds under Federal management to be subject to
    regularly provided open competition.
        Ms. Garcia of Texas. Like you said earlier, for the Rooney
    Rule. Okay.
        Ms. Miller-May? And again, thank you for the good work in
    Illinois.
        Ms. Miller-May. Thank you. I think the first thing is to
    set policies, to systematically remove barriers, and to track
    and measure your goals and how you are performing against
    those, and to improve on that.
        Ms. Garcia of Texas. So you mean that that needs to be
    transparent?
        Ms. Miller-May. Yes.
        Ms. Garcia of Texas. Ms. Jones?
        Ms. Jones. In addition to education, I think the number one
    thing we can do is if we do accept my premise that this is
    valuable information for investors to have in order to be able
    to maximize returns and diversification, that we have to make
    it where firms are transparent and they provide this non-
    financial data as another decision-making point for anyone who
    is looking to make an investment.
        Ms. Garcia of Texas. Okay. Mr. Martinez?
        Mr. Martinez. In addition to all of these great points, I
    think that from a customer's perspective, we have to encourage
    each other as customers and hold ourselves accountable to
    making sure that we are asking this question and asking the
    question specifically. So, for example, on the question of
    diversity, it is not enough to ask, if you are talking to an
    asset manager, ``What is the diversity percentage of your
    firm?'' It is, ``What is the diversity within your investment
    operations?'', to better understand how they are building their
    pipeline.
        Ms. Garcia of Texas. Right, and what can we be doing in the
    private sector? You are in a private foundation. And again, I
    applaud you and I know that my colleague has already mentioned
    you basically decided you weren't doing enough and you needed
    to take action. What can we do to get other private foundations
    and private industry to see the light as you have seen?
        Mr. Martinez. I do think that some of it is a little
    educational. I think that there is a misconception that comes
    from this idea of necessarily performance or underperformance,
    a belief that that exists, that it somehow would violate a
    trustee's fiduciary responsibility to continue to ask for
    diversity. I think to the extent that we hold ourselves
    accountable to understand and educate ourselves that there is
    overperformance to be had, and then be transparent in our own
    data with each other, that would go a long way.
        Ms. Garcia of Texas. Thank you, and, Madam Chairwoman, I
    yield back.
        Chairwoman Beatty. Thank you.
        The gentleman from Florida, Mr. Lawson, is recognized for 5
    minutes.
        Mr. Lawson. Thank you, Madam Chairwoman, and I welcome the
    witnesses to the committee.
        Minority-owned firms are often unable to meet what some of
    you all dictate as the minimum requirement to set up
    institutional investors, such as size, asset, and experience,
    length of track record. How can we level the playing field to
    ensure that minority-owned firms are able to meet the minimum
    requirement? I say that because it might have been Ms. Miller,
    it could have been Ms. Jones, who stated that a lot of these
    asset managers who maybe start up on Wall Street for a while
    and then they leave and start their own firms, they are still
    at a little bit more advantage in the marketplace than
    minorities and women who are not able to do that.
        From that standpoint, how do you level the playing field so
    that you can bring more people of diversity into this area? And
    every one of you can take a shot at it if you would like.
        Mr. Martinez?
        Mr. Martinez. Thank you very much. I think it is kind of
    two-fold. One is a long-term and the other one is a short-term
    answer. I think in the long term, it is certainly asking asset
    managers to establish large institutional asset managers to
    increase their diversity within their investment operations, to
    build that pipeline.
        But secondly, the question is from a customer perspective,
    as an asset allocator, how do we set our size guidelines? So if
    I say, for example, I can only write a $100 million check to a
    firm, then that excludes everybody beneath a certain size. The
    question would be, can I be on the ground floor or can I help a
    quality manager grow by writing a smaller check and then
    increasing that over time, as I build the relationship? So, it
    is judging our own internal criteria.
        Mr. Rogers. I would follow up on the comments I think Ms.
    Jones made, and others, that one of the key things that Maynard
    Jackson did extraordinarily well when he was Mayor of Atlanta,
    and other political leaders of that generation, they insisted
    that all the financial services firms that did business in that
    City had to look like that City. And those leaders who became
    managing directors and partners in those investment banks in
    that generation ultimately were the ones who started the next
    generation of big companies--the Loop Capitals, the Williams
    Capitals, the firms like that. It came from that kind of
    initiative.
        I think we have to get our local political leaders to make
    sure that the investment firms that do business in their cities
    look like their cities, or otherwise not do business with them.
        The second thing is we have to get financial services
    companies in local communities to partner with urban public
    schools. That is what we have done with our Ariel Community
    Academy, teaching financial literacy to these young people. It
    is not only important that they are learning about the stock
    market and investing but they are starting to see role models
    who look like them, who are in the financial services industry.
    And so we need to encourage that to happen more and more in
    this country, and hopefully we will be able to inspire people
    to make a difference.
        Mr. Lawson. Okay. Ms. Chia?
        Ms. Chia. Organizations like AAAIM, NAIC, and NAA make it
    very easy for institutional investors and asset owners to come
    and meet diverse managers. That is what we are built for. And
    for any one of these asset owners seeking managers, they can
    come to us or come to our events and meet extremely well-
    qualified, highly-educated managers.
        Ms. Miller-May. In Illinois, we search for managers through
    a request for proposals. Staff has taken the ownership--or
    writing the language that is in those RFPs. So, we will write
    specifically for minority, women, and disabled managers that we
    are searching for a minority or diverse firm. We will lower the
    AUM that they need. We will shorten that track record. We will
    size that mandate specifically so that it is open for all
    diverse managers to present. And then we will ensure that any
    qualified minority manager is a finalist for that search.
        Mr. Lawson. Okay. Ms. Jones, I have about 27 seconds.
        Ms. Jones. One of the things I think is very real and that
    Juan mentioned is that there are some structural barriers for
    people investing in some of the smaller funds. An investment
    policy statement, in many cases, states that you cannot be more
    than X percent of a fund's assets under management.
        There have been a number of endeavors where people have
    tried to go out and create an aggregation system. You aggregate
    the assets of these smaller, diverse managers to make it easier
    for people to invest. Those have not yet been successful. So,
    anyone who is able to actually facilitate that will go a long
    way in helping these smaller managers reach critical mass.
        Mr. Lawson. I yield back, Madam Chairwoman.
        Chairwoman Beatty. Thank you.
        The gentleman from Missouri, Mr. Clay, who is also the
    Chair of our Subcommittee on Housing, Community Development,
    and Insurance, is now recognized for 5 minutes.
        Mr. Clay. Thank you so much, Chairwoman Beatty, and let me
    also thank the panel for your participation in this hearing
    today. And along the same lines of questioning as my friend
    from Florida, I want to ask about how investors rely on advice
    from investment consulting firms about which asset management
    firms are best qualified to manage their investments. But if
    investment consultant firms are biased against diverse-owned
    firms because they have preconceived notions that they are too
    small or riskier, they may not be getting the same opportunity
    as other firms, despite their documented high performance.
        Mr. Rogers and Ms. Chia, what challenges have you faced, as
    a diverse asset manager, in being contacted by or getting
    meetings with investment consultants about managing funds?
        Let's start with Ms. Chia.
        Ms. Chia. Thank you for that question. Our observation at
    AAAIM is that incumbency is a huge issue. When consultants do
    searches, they tend to go with the people they know. But there
    is also the factor of career risk. A consultant is probably
    safer by recommending a known manager versus someone who is
    newer and less established. So, that has been our observation
    and we have encouraged consultants to come to our events at
    AAAIM and to meet extremely diverse and well-qualified
    managers. We have over 3,000 institutional investors and
    managers in our network.
        Mr. Clay. And Mr. Rogers, how do you overcome that and
    persevere? Go right ahead and answer the question.
        Mr. Rogers. It is a challenge, but the way you--first and
    foremost is performance. We have lots of diverse firms that
    have extraordinary performance, and the data is there. That is
    one of the great things about being in this industry is people
    can see your performance, and that overcomes the biases often
    that are there. But it is a challenge.
        As I said earlier, there is still such an anti-Affirmative
    Action feeling in this country in a lot of different parts of
    our communities, and somebody whose kid didn't get into the
    school they thought they should have and they think a minority
    kid took their kid's place, or someone got a promotion that
    they thought they should have gotten and it is because they
    were diverse, that filters into the way they view us, and so it
    is a challenge.
        And the final thing is that the senior people in these
    firms often are going to be most interested in being
    supportive--the CEOs, the chairmen of these firms--but the
    decision-makers are the 30-year-olds, who are further and
    further away from the Civil Rights Movement, who didn't see the
    sacrifices of the Dr. Kings and the John Lewises and the
    others. And so they are less interested and less sympathetic to
    seeing diversity and inclusion in all aspects of our economy,
    and that is a challenge.
        Mr. Clay. And along those same lines, how do you get more
    young people of African descent interested in pursuing careers
    in investment management and private equity venture capital in
    the industry as a whole?
        Mr. Rogers. There are two things. One is that what we have
    tried to do, and we talked about his earlier, The Ariel
    Community Academy teaching kids starting in kindergarten
    through eighth grade about the stock market, and giving them
    real money to invest, and they watch that money grow over 8
    years. We take them to annual meetings to meet the CEOs and
    other leaders. Like when Don Thompson was the CEO of
    McDonald's, so they see people of color in leadership roles and
    start to think about being CEO and being in these top levels of
    the financial services industry, and that is important.
        The other thing we have done is at the University of
    Chicago, we have created a program for minority students to
    work in the investment offices of major endowments throughout
    the United States. And we think that is a great place to start,
    because if you are in an endowment office, you are going to be
    able to learn about venture capital, private equity, and hedge
    funds. We have had several kids at the Knight Foundation and I
    know it has gone very, very well.
        Mr. Clay. And you bring up Chicago. I represent St. Louis,
    Missouri. Any positive experiences from anyone on the panel in
    the area of diversity who would say the City of St. Louis, or
    the State of Missouri? And anyone can go at that.
        Mr. Rogers. The only one challenge that I have faced there
    is we think that the universities in this country can be doing
    work with minority-owned asset managers. They all have multi-
    billion-dollar endowments, and most of them have never spent a
    dollar with a minority firm in the history of their
    institutions, even if they have hired 100 or more money
    managers. It kind of looks like baseball in 1940. I remember
    going to see Wash U and finding they had no interest in working
    with diverse firms.
        Mr. Clay. That is a very good point you raise. I will
    certainly bring it to their attention.
        Thank you, and I yield back.
        Chairwoman Beatty. Thank you, Mr. Chairman.
        The gentleman from Ohio, Mr. Gonzales, is recognized for 5
    minutes.
        Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, for
    hosting this hearing today, and thank you to our witnesses for
    your participation.
        Prior to this hearing, I reviewed the 2017 GAO report that
    has been mentioned a few times throughout the hearing. I was
    struck by the finding that there was a bias within
    institutional investors and their consultants. There was a bias
    against minority- and women-owned firms to be even included in
    the asset manager searches due to bias that their portfolio's
    performance could suffer. This is, of course, not substantiated
    in any data or recent studies.
        Ms. Jones, in your view, what can be done to educate the
    industry about the incorrect biases towards the performance of
    women- or minority-owned asset managers?
        Ms. Jones. Number one, I think that we have to make sure
    that all of the information is presented in a clear and cogent
    and quick manner. Unfortunately, a lot of institutional
    investors and consultants are bombarded with information all
    the time, and so making sure that they have this information at
    their fingertips is critical.
        The other thing is that they really need to be exposed to
    these managers, have conversations with these managers. I think
    when I talk to a lot of diverse managers, they lament the fact
    that they are unable to get a meeting with some institutional
    investors and consultants, and frankly, if you can't get the
    meeting, then it is really hard to educate someone about what
    type of niche investment, what type of specialized skill, what
    type of cognitive or behavioral alpha that you may have.
        I think that those two things go quite a long way in trying
    to break down some of those barriers.
        The other thing I think we have to do is make sure that
    people understand this is kind of a corollary to no one gets
    fired for buying IBM. It seems much safer to invest with a firm
    that lots of other people are invested with. But, obviously,
    there can be lack of reward in that too, because if everyone
    invests with the same people then everyone gets the same
    undifferentiated return.
        And so I think trying to help people overcome those types
    of biases would also be helpful.
        Mr. Gonzalez of Ohio. Great. Does anybody else on the panel
    want to comment on that specific issue?
        Ms. Miller, it seems like you--
        Ms. Miller-May. I think that there should be checks and
    balances. We are hiring the consultants and, therefore, they
    work for us. We should have, and we do have, staff who
    validates or challenges the consultants on what they are
    bringing to us. We do our homework in-house to let them know
    that these are the managers that we are looking at, and we
    challenge their diversity. They report to us, on an annual
    basis, their diversity: which managers are contributing to them
    as a firm, and some of the fees that they are getting. So, it
    is about holding them accountable as well.
        Mr. Gonzalez of Ohio. Great. Anyone else? Mr. Martinez?
        Mr. Martinez. I will say, one thing that has worked, and I
    think is important for the Knight Foundation, has been asking
    ourselves what level of diversity is involved in the portfolio
    on the management side, and then being transparent about it to
    the field. So, if you were to go on our website, for example,
    we have, in aggregate, the dollars that we have under
    management by diverse-owned firms. Encouraging that level of
    transparency, even if it is not at the individual manager,
    which we do as well, but at a minimum on the aggregate, I think
    creates an atmosphere where it is more acceptable.
        Mr. Gonzalez of Ohio. Thank you. And I don't mean to kind
    of typify, but when I think of the hedge fund world and the
    average hedge fund manager, it is sort of a specific pipeline,
    more or less. It is Ivy League or equivalent, a couple of years
    in investment banking, an MBA from a top-tier school, and then
    going into the hedge fund world. I think that probably is, I
    don't know, 60 percent, 70 percent.
        How do we, as a committee or as a country, encourage more
    folks from diverse backgrounds to enter into the pipeline at
    the earliest stages and then make sure that we are fostering an
    environment that allows them to progress through that kind of
    system, if you will, throughout their careers?
        Mr. Martinez. A wise man named John Rogers once told me
    that if a young person does not see someone that they can
    identify with in those spaces, then to them, even though the
    statistics may bear out that that is an achievable goal, it
    becomes an impenetrable barrier. And so the question is, as
    customers, do we ask and demand our asset managers to show
    diversity within the investment operations, and I think that is
    vital.
        Mr. Gonzalez of Ohio. Great. Mr. Rogers, do you have
    anything?
        Mr. Rogers. The only thing I would add quickly is at the
    end of the day I think universities could start to do a better
    job of tracking how their graduates are doing at these big
    financial services firms, how many are becoming managing
    directors and partners.
        Mr. Gonzalez of Ohio. Thank you, and I yield back.
        Chairwoman Beatty. Thank you.
        I would like to thank all of our witnesses for their
    testimony, and I would especially like to thank Ms. Jones and
    Mr. Rogers for repeatedly talking about education. And it is my
    honor, speaking of education, to recognize in the audience Mr.
    Steven Miller with the United Negro College Fund, and he is the
    Area Director of Development, I am proud to say, from my great
    district in the great State of Ohio. Thank you, and hopefully
    you can feed into that pipeline.
        The Chair notes that some Members may have additional
    questions for this panel, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.
        This hearing is adjourned.
        [Whereupon, at 11:36 a.m. the hearing was adjourned.]

                                A P P E N D I X

                                 June 25, 2019

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