[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.]

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