Illinois investment funds pressed on management diversity
Sen. Napoleon Harris III chairs a virtual meeting of the Special Committee on Pension Investments that is probing how various public pension funds in Illinois are complying with requirements for racial and gender diversity in their selection of fund managers. (Credit: Blueroomstream.com)
Lawmaker questions whether minorities are getting fair share of investment business
By PETER HANCOCK
Capitol News Illinois
SPRINGFIELD – A legislative committee began four days of hearings on Thursday to examine whether public investment funds in Illinois are complying with state requirements for diversity goals in the hiring of investment managers.
That has been a key element of the effort by many lawmakers over several years to achieve racial and gender equity in state contracting. Sen. Napoleon Harris III, D-Harvey, a co-chair of the Special Committee on Pension Investments, noted that the asset management industry globally controls about $100 trillion worth of investments, but minority- and women-owned firms handle 1 percent or less of all the investment management business.
“As our country faces a reckoning with social injustice and racial injustice, these times have illustrated that we must redouble our efforts to dismantle the system of racial discrimination that has harmfully impacted Black and brown communities nationwide and here in Illinois,” Harris said.
The hearings with public pension officials are part of an annual process the committee goes through to get an assessment of whether diversity is increasing or decreasing among the various investment funds that the state manages.
According to Harris, this year the committee intends to focus specifically on each fund’s policies regarding the use of “emerging managers” – firms that are new in the industry, particularly those started by minorities, women and people with disabilities, and are still trying to gain a foothold in state contracting.
“We began the emerging managers program through the passage of legislation in the spirit that the legislation was to help diverse firms get started and allow managers to get a larger percentage of the fees paid by the assistance,” Harris said. “The driving goal was that these programs would ultimately allow firms to grow and compete under larger and more traditional mandates. That, however, is not happening quick enough.”
Among those who testified Thursday was State Treasurer Michael Frerichs, whose office manages roughly $30 billion of state funds, college and retirement savings plans and money held on behalf of local governments.
Frerichs said that since he assumed office in 2015, the volume of investments from his office assigned to minority-owned firms has grown from $18 million to $3.9 billion as of June 30, the end of the previous fiscal year.
But he also noted that one of the biggest stumbling blocks for emerging managers in the industry is their inability to meet traditional qualifying benchmarks, such as a track record of managing large pools of money.
“It’s sort of like we have a lot of talent sitting on the bench right now, but their numbers aren’t very good because they’ve never been asked to get into the game,” he said. “And if you never get a chance to play, it’s tough to show numbers.”
During his first four years in office, Frerichs said, the treasurer’s office not only increased diversity among its investment managers but also increased investment returns to the state. But his office has been less successful during the past year, primarily because the Federal Reserve has kept interest rates paid on Treasury notes at record low levels.
The committee also heard Thursday from the Chicago Teachers Pension Fund, which had about $10.7 billion in assets under management at the end of June, according to its most recent report.
Angela Miller-May, chief investment officer for the fund, noted that CTPF has exceeded its goal of investing at least 20 percent of its total assets through “MWBE” investment managers, which stands for minority, women or disabled business enterprises.
But the largest share of that, just under $2.9 billion, was invested through women-led firms, which Harris argued was actually of little benefit to Black and brown communities.
“But we all know that of women, white women are probably a large percentage of those numbers, so when you really get down to it, the diversity still isn’t there,” he said.
The committee is scheduled to continue its hearings on Friday, when it will hear from the state’s largest pension fund, the Teachers Retirement System. The hearings will wrap up next week when the committee hears from the state’s two new consolidated downstate municipal police and firefighter pension funds.
Capitol News Illinois is a nonprofit, nonpartisan news service covering state government and distributed to more than 400 newspapers statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.