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Only 29% of firms managing Penn’s endowment assets have at least one woman or person of color on the senior professional staff. Credit: Mia Kim

In July, two members of Congress penned a letter to Penn President Amy Gutmann asking her to disclose the percentage of Penn’s endowment assets that are managed by firms with over 50% minority or women ownership. The University responded but failed to answer the Congressmen's inquiry.

Finance experts say Penn’s incomplete response to the endowment inquiry raises questions over why they chose not to disclose the information.

Rep. Joseph Kennedy III (D-Mass.) and Rep. Emanuel Cleaver (D-Mo.) sent a letter to 25 colleges and universities on July 10, requesting information regarding the participation of women and minority-owned asset management firms in the administration of endowment assets. Penn Executive Vice President Craig Carnaroli responded three weeks later by providing information on the diversity of senior decision-makers at investment organizations, rather than that of the owners of the firms. 

“Of Penn’s ongoing relationships with US-based active managers, approximately 29% are firms with at least one diverse senior professional who is a key investment decision-maker with meaningful economic participation in the firm’s profits, and whose presence is a key part of our decision to partner with the firm,” Carnaroli wrote in the response provided to The Daily Pennsylvanian by 1984 Wharton graduate Robert Raben, who is the founder of Diverse Asset Management Initiative.

The Diverse Asset Management Initiative consists of financial services professionals that help increase institutional investors' number of assets under management by diverse-owned asset management firms. 

Raben, who also worked with the Congressmen to get in contact with the universities, described Penn's 29% figure as "very deceptive," inviting more questions than answers. 

“Is it women? Is it people of color? Is it all South Asian and Asian? Are there any Black and Hispanic people anywhere?” Raben said. “The problem in asset management is the gross underutilization of African American and Hispanic professionals. That is the problem that Penn doesn’t want to talk about.”

Of the 25 universities the Congressmen sent letters to, 20 — including Penn — provided an analysis or estimate of total assets under management with diverse-owned or diverse-led firms, Kennedy and Cleaver wrote in a report summarizing their findings released on Oct. 8.

Rep. Joseph Kennedy III (D-Mass.), left, and Rep. Emanuel Cleaver (D-Mo.), right.

In the Congressmen's letter, they defined diverse-owned firms as firms with over 50% minority or women ownership. When Penn responded, however, it only included data about firms with at least one diverse senior professional on the management team.

Kennedy III and Cleaver wrote in their July 10 letter to Gutmann that the underutilization of these firms is a symptom of systemic racism, especially given the generally strong performance of diverse-owned asset management firm.

"We believe that affirmative steps toward expanding opportunity for diverse-owned firms uphold this nation’s ideals of equal opportunity and will support efforts to close persistent racial and gender wealth gaps," the Congressmen wrote.

To address its non-disclosure of the percentage of diversity-owned firms overseeing endowment assets, Carnaroli wrote that Penn does not focus on the diversity of firm ownership alone, but rather the diversity of both senior decision-makers and team members. He provided the Congressmen with two reasons for this approach.

“First, ownership is often separate from investment decision-making responsibility or profit participation (as is the case, for example, with publicly traded investment management firms)," he wrote. "Second, because founders of new investment firms typically need to have decision-making experience, firms with diversity among senior team members can be important sources of talented and diverse founders of new investment organizations.”

Adjunct Full Finance professor Christopher Geczy said the Office of Investments' responsibility is primarily financial. He added that even though diverse-owned and non-diverse owned firms perform comparably, it is possible the University is not working with a high number of diverse-owned firms due to challenges of systemic racism in the United States.

“It may just take one more step of work on behalf of the endowments to find those managers because of the history of the industry,” Geczy said. “It’s not that we’re going to lower standards. It may just be a little bit harder to find those managers.”

Robert Raben is the founder of Diverse Asset Management Initiative.

Raben said Penn's refusal to disclose information about its partnership with diverse-owned firms raises red flags and warrants further investigation into the matter.

“Contrast [Penn’s discussion of the endowment] with every other aspect of the University where people are constantly talking about race,” Raben said. “You’re constantly talking about race and gender at an institution like Penn in 2020, but not when it comes to who manages the endowment.”

University spokesperson Stephen MacCarthy wrote in an email to the DP that Penn is engaged in ongoing hiring efforts to diversify its Office of Investments, which helps manage Penn's endowment. Half of the Office’s investment team consists of women and people of color, he wrote. This fall, the Office has also been hosting a virtual speaker series on diversity in investment management.

Penn’s $14.9 billion endowment is also managed by financial firms the University chooses to partner with. Penn does not publicize information about its partner firms. The majority of Penn's endowment is invested in the Associated Investments Fund, a pooled investment vehicle in which many individual endowments and trusts hold units.

A 2019 study commissioned by the Knight Foundation, a non-profit dedicated to supporting journalism, found that asset management firms owned by minorities and women manage 1.3% of assets in the $69 trillion financial services industry. The study found, however, that diverse-owned firms were overrepresented in the top-performing quartile of mutual funds, hedge funds, and private equity, indicating that they perform at a comparable or even higher level than firms lacking diverse leadership.

Civil rights leader Rev. Al Sharpton also sent a letter to Gutmann on April 29, asking her to release demographic data about the diversity of Penn’s asset managers. In his letter, Sharpton wrote that under-utilizing high performing women and people of color as asset managers diminishes the University’s ability to maximize returns on its endowment since they are not working with the best professionals in the field.

Gutmann responded to Sharpton’s letter on June 23, assuring that Penn and its Office of Investments share his view that diverse investment organizations are better investment organizations. 

The majority of the Office of Investment's hiring is currently conducted through its analyst program, which aims to attract recent graduates to the field of investment management, Gutmann wrote in response to Sharpton's letter. Eighty percent of analysts hired since the program's inception have been women or people of color, she wrote. 

Raben said he and the Congressmen will request follow-up conversations with the universities to extract more information concerning their un-answered questions.

"Ideally, Penn [shouldn't] wait around for Congress to do this and [it should be] open to much more transparent conversations with those of us who care to help them figure out what they can do to improve," he said.