Investment Management: Key Practices Could Provide More Options for Federal Entities and Opportunities for Minority- and Women-Owned Asset Managers

From the United States Government Accountability Office (GAO). According to asset managers and industry associations with which GAO spoke, minority- and women-owned (MWO) asset managers face challenges when competing for investment management opportunities with institutional investors, such as retirement plans and foundations. For example, institutional investors and their consultants often prefer to contract with large asset managers with brand recognition and with whom they are familiar. Also, small firms, including MWO firms, are often unable to meet minimum requirements set by institutional investors, such as size (assets under management) and past experience (length of track record). State, local, and private retirement plans and foundations GAO interviewed addressed these challenges in a variety of ways, such as asking their consultants to include MWO firms in their searches. Many plans also lowered their minimum threshold requirements so that the requirements were proportional to the size of the firms while maintaining the same performance requirements for all asset managers in their selection processes.

GAO identified four key practices institutional investors can use to increase opportunities for MWO asset managers. These practices are consistent with federal interests in increasing opportunities for MWO businesses. By using the key practices, the entities GAO reviewed could widen the pool of candidates in their asset manager searches and help ensure that they find the most qualified firms. In keeping with federal interests, the practices could also help address barriers MWO firms face and increase opportunities for them.