By Susan Barreto, Alternatives Watch
Back in October, Meketa Investment Group welcomed 136 assets managers to meet with investors representing $318 billion in assets to attend the consulting firm’s first virtual emerging and diverse manager research days.
The aim was to provide managers with further insight and guidance on how to build successful businesses within the institutional investor space. Besides growing interest in diversity, the event was also helpful in that attendees didn’t need to worry about travel arrangements either.
“Normally we have the event twice a year,” said Judy Chambers, managing principal and private markets consultant at Meketa. “We had to postpone in April and so while we still had the fall event, we combined it with the April invites.”
Usually in spring Meketa has a reception for managers to meet the Meketa staff. But for the October event, officials organized a GP/LP roundtable discussion focused on the different perspectives of investors such as Illinois State Universities Retirement System, CalSTRS and the Connecticut Retirement Plans & Trust Funds.
Chambers, who also is the co-chair of Meketa’s emerging and diverse manager committee, said the roundtable discussions were very frank and provided insights from general partners too on what lessons they learned and how they grew their businesses.
“I find that a lot of managers just starting out may not know other newer managers,” she added.
In terms of managers in the marketplace, it really is across the board in terms of private equity and private debt. Chambers said that one may find more managers in private equity just because it is a larger segment of the investment world.
“A lot of people have spun out of larger shops and have been trying to develop a name for themselves and trying to set up these platforms and businesses,” Chambers observed. “It has been a challenge in this space because there have been small buckets allocated to this space.”
Then there is the realization that many still don’t understand what a diverse manager or emerging manager actually is. And for the managers who want to be evaluated like every other manager in the marketplace, it is hard, according to Chambers.
While many firms are familiar with industry events held by Texas area investors in Austin and the New York State Common Retirement Fund’s annual conference, Meketa began hosting its own Emerging and Diverse Manager Research Days in 2017.
The consulting firm deployed over $1 billion per year in 2017 and 2018, and over $600 million in 2019 with diverse-owned asset managers.
Meketa’s internal database currently includes over 550 emerging and diverse-owned asset managers across public and private markets. Over the past three years, the firm has included MWDBEs as finalists in over 30% of the searches conducted on behalf of its clients.
For public pension funds, the demand for greater diversity not only within their investment portfolios but also on their own staff.
At Champaign-based Illinois SURS, the search for its first Chief Diversity Officer for its $20.7 billion investment program began in mid-October with the aim of helping to shape and foster the system’s internal diversity and inclusion strategy, as well as strengthening the investment manager and contractor programs.
“SURS has a long-standing commitment to diversity both within our workforce and our emerging manager investment programs,” said executive director Martin Noven at the time of the announced search. “The addition of a Chief Diversity Officer will advance our efforts to create awareness and belonging amongst staff, develop important relationships with key leaders, communities and organizations, and build upon our existing money manager diversity program.”
Earlier this month, hearings in the Illinois legislature included testimony on the importance of accountability and the need for diversity from the top down. Included were Illinois State Treasurer Michael Frerichs, the Chicago Teachers’ Pension Fund, Illinois State Board of Investments, Laborers’ Annuity and Benefit Fund of Chicago, Municipal Employees’ Annuity and Benefit Fund Chicago, and the Illinois Teachers’ Retirement System.
At the Illinois Teachers’ pension system, trustees boosted the size of the pension system’s emerging manager program from $750 million to $1 billion.
They also approved the issuance of a RFP seeking consulting services to help TRS develop a standardized measurement and evaluation tool for diversity, equity and inclusion opportunities.
In Connecticut, there is also a long-standing commitment to diversity. The effort though has been ramped up under the leadership of State Treasurer Shawn T. Wooden, who is the only elected African-American State Treasurer in the country and the sole trustee of the $38 billion Connecticut Retirement Plans & Trust Funds.
The Connecticut Inclusion Investment Initiative (Ci3) is structured to provide opportunities for minority or women-owned Connecticut-based and emerging investment management firms. In October, the pension fund tapped three firms to handle its program to source emerging and diverse investment managers for its global equity and global fixed income asset classes.
Attucks Asset Management will receive $200 million for global fixed income, while Xponance was awarded $200 million for developed international equity. Fund of hedge funds firm The Rock Creek Group was tapped for a $300 million allocation to emerging markets equity.
“Wooden has done a wonderful job in evaluating that program and expanding it,” added Chambers. The Connecticut initiative has been ongoing for roughly two decades, starting under Treasurer Denise Nappier.
“I think out of the situation from the summer, this has brought this issue to the forefront,” she said. “A lot of people recognized the issue a long time ago and they didn’t get the press for it.”
Chambers joined Meketa back in 2019 from Pension Consulting Alliance, where she was a managing director.
All investors have some sort of limitations on the size of their diverse/emerging manager portfolios. In Chambers experience, it normally can only be about 20% of a fund. And for larger multi-billion-dollar investors, it is harder to write these smaller checks and that is why you have seen some successful funds of funds in the space, she said.
Chambers advice for investors looking to increase diversity is multi-pronged. Firstly, determine what you want to see from these firms, then focus on monitoring and importantly consider how much support and dedicated resources are available to make the program successful.
“You don’t necessarily need to have a dedicated person who is doing it at the fund level,” she said. “All have to be invested. Your staff, board, consultant and third-party advisors have to be into it.”
And that is just part of the reason it seems to be an ‘all-hands on deck’ moment within the emerging and diverse investment movement. While organizations such as ILPA have created a signatory process for investors and managers, the actual work of making it works takes many hands.
At Meketa, they are still eying new managers that have recently spun out from firms and they see that investors are still interested in ne managers. Still even with the ease of Zoom meetings, the process is taking a bit longer than before the pandemic.
Chambers added that everyone is being very careful and that remote meetings will likely continue well into 2021.