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What are the responsibilities of foundation officers when it comes to getting a good return on the investment of their endowments? Should they simply be trying to get more? Or are there other criteria for where money should go? This is an issue that periodically comes up with college endowment money. The push to divest from South Africa in the 1980s was probably the first significant cry for more socially responsible investing, but there have been many since, some more just than others. But what about the issue of who is doing the actual investing?

Someone forwarded me an invitation to the Foundation and Endowment Minority and Women-Owned Fund Roundup to take place at the end of January in Los Angeles. Sponsored by the California Endowment, the Annie E. Casey Foundation, and the William T. Grant Foundation, among others, this conference is a way to encourage foundation and endowment leaders to meet "minority" investors. According to the invitation:

"This inaugural event is the beginning of educational programming designed to bring together senior members of endowments, private and community foundations to explore the current investment landscape and growing importance of minority- and women-owned managers as part of their investment strategy. Join us for a candid discourse on the merits and best practices of investing with the nation's most experienced minority- and women-owned asset managers -- and meet a select group of the nation's top diverse managers actively investing in hedge, private equity, real estate, public equity and fixed income."

This is not the first time I have heard about such efforts. A few years back I believe the leadership of the Greenlining Institute invited the heads of several foundations to their offices to discuss some similar proposal for getting them to invest with a more diverse set of money managers. But I have to say I am just as puzzled as I was before. Money managers are judged by how much money they make. This may seem shallow or materialistic but I doubt you will find much disagreement on this point. If black money managers or female money managers want to get the business of a large endowment or anyone else, they'll have to be making a good return on investment for their clients. If they do, they'll get noticed.

But let's say that money management is an inexact science (something about monkeys throwing darts, right?) and there is some old white boys' network of money managers out there and you have to know someone in order to get business like that of the California Endowment. The question is this: what is the social good that comes out of giving your business to a black or hispanic money manager? These are already very wealthy folks. This is like giving the black kid who graduates from Exeter preferential admission to Harvard. It's not that there aren't a disproportionate number of minorities who are disadvantaged, but this is not the target population. There are minorities who are born on third base too. And even if they weren't born there, by the time they're asking for someone to invest hundreds of millions of dollars with them, they have pretty much made it. Do we assume that they will make better use of their riches than white people?

When liberal activists like those at the Greenlining Institute demand that philanthropists give more of their money away to minority-run nonprofits, they suggest that such nonprofits are serving a niche that white-run nonprofits are not. That the minorities are bringing a different perspective to the table. That they are better able to serve minority communities. This is not an argument I put much stock in, but at least it's conceivable. What sort of different perspective does a black money manager bring to the table that a white money manager does not? At the end of the day, they're both supposed to make their clients more money.

1 thought on “A rainbow of money managers”

  1. Drew Anderson says:

    I agree with you. In general, merit and best fit into an investment plan which has other money managers really matter to help a foundation and its trustees to best serve the charitable purpose of the foundation.

    Financial knowledge and consultants now are widespread. Good performance in a field will be noticed. A foundation with an asset allocation plan and investment objective will know how to allocate its endowment. It may need more or less international, small cap, large cap, bond or alternative investment exposure. The board will seek the best money managers that correlate and not duplicate what its other managers now do. Consultants and individual money managers are out all the time selling their services. A new third party service by Greenlining is not needed for good managers to be noticed.

    The large foundations listed above can make their own choices ( and take the risks)and must have the staff and qualified expertise to pick money managers. Larger foundations can even try out a “farm team” of new managers to see how well they do a on a trial basis. This farm tean concept would be hard for foundatiosn with a smaller assts base.The large foundations certainly are free to offer advice or ideas to others and other foundations can make up their own mind.

    In California there is a worry the state government may step in and establish mandates or quotas at some point. I attended the legislative hearing where the CA foundations agreed to work with Greenlining and stopped a legislative hearing from going forward. The chair of the committee asked to be kept informed of the progress Greenlining made.

    BTW–when I lived in the Pacific NW, the Music Director of the Oregon Symphony helped chose new musicians. I was told all musicians tried out behind a screen so only the quality of how they played the music mattered in the selection process. I think this method was and is a great idea.

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