Engaging Black-Owned Firms in Pension Managing
ED GORDON, host:
From NPR News, this is NEWS & NOTES. I'm Ed Gordon.
If you're one of the millions of Americans who works for a company or government institution that offers a pension fund, your money is part of a $1.7 trillion market that is managed and invested by companies all over the country. African-Americans and other minorities make up a large part of the pension fund market, but very few people of color are in charge of managing this wealth. Management fees alone can account for millions of dollars in revenue. Minority-owned asset management firms see almost none of this money. Joining us today to talk about the importance of diversity in pension fund management and other issues surrounding access to capital are Mellody Hobson, president of Ariel Capital Management, the largest African-American-owned capital management company in the world, and William Lucy, founder and president of the Coalition for Black Trade Unionists.
I thank you both for joining us. Appreciate it.
Mr. Lucy, let me start with you. We should note that you are seen by many as the pre-eminent African-American when it comes to looking at, overseeing, understanding pension funds in this country. Talk to me about why so many people should be concerned about this.
Mr. WILLIAM LUCY (Founder & President, Coalition for Black Trade Unionists): Well, first of all, you know, the pension funds are really the deferred wages of workers, irrespective of private sector or public sector. It's set aside, really, to secure their future. The investment of those funds and the management of those funds is obviously key to the quality of life that individuals have post working time. And I think it's important that those funds be managed well, invested well and certainly it's rational to argue that diverse managers, you know, handle a portion of those funds.
GORDON: Mellody, we should note that Ariel Capital Management has found its way into pension fund management, and also the idea, as Bill Lucy just suggested--the understanding of managing for people, many disproportionate to African-Americans and to other minorities who see this as the largest portion of their nest egg often. Talk to us about some of the changing rules and legislation that have--Reverend Jackson talked about this briefly on our program recently--started to push out African-Americans who've found their way into managing pension funds.
Ms. MELLODY HOBSON (President, Ariel Capital Management): Well, I guess what I would say is the biggest change that is going on right now is that a lot of traditional defined benefit plans, what we'd largely and commonly think of as pensions, have really moved to basically be eliminated. And now you're seeing more and more corporations only have defined contribution plans or what we know of as 401(k) plans. And so as a result of that, that is changing the face of actually who manages the money in this country, because while we as minorities have only recently--Ariel is 23 years old, and in the whole life or investment management, that's still relatively short vs. our competitors, and we were the first minority-owned firm as well--we recently got into this business, and now the business is changing to actually mutual funds, and that's a place outside of our company where we haven't had a lot of penetration.
GORDON: Bill Lucy, talk to me, if you will, about the idea of--we see many cities up in arms and fighting about the control of pension funds that come from those workers, and often we see a disproportionate amount of those workers being African-American. In a city like Detroit, when you have large automobile industries and the peripheral industries that surround it and, of course, the city and state workers there, there is an underground and above-ground, in some respects, fight for control of this money, is there not?
Mr. LUCY: Well, there's always been a fight for control of the money, even among, you know, white managers. The issues here are the vast pool of resources that's available. And bear in mind there's a difference between the private-sector funds and their management and public-sector funds. In the public sector, the employer generally holds the fund and selects the managers and selects the consultants and etc. In the private sector, you've got by and large an employer and in many cases joint management between those employees and the organizations who represent them. And as Mellody said, it clearly has been a long time coming that minority firms are able to penetrate this market. And I think, as a matter of fact, it's been only in recent years that even organizations that represent employees have had an opportunity to participate in the decisions that affect investment activity. And it's a real challenge, and I think it's one that we've got to really look at to see what the practices are that exclude minority participants from investment management responsibilities.
GORDON: Mellody, what's at stake here for the layperson who only understands the idea and importance of pension fund being their nest egg? If they believe that these monies will be guaranteed to them, what's at stake here for them in terms of who controls it?
Ms. HOBSON: Well, you know, the number-one thing is making sure the best people get the opportunity, and the only way you can do that is to make sure that everyone has the opportunity. I think Reverend Jackson says it best when he talks and equates this with Jackie Robinson and baseball. We didn't know how good baseball could be until black people had the opportunity to play as well. Before that, the game wasn't as good as it could be. So the same is true in any area, any marketplace, but it's particularly true in money management because the really great thing about the business that I'm in is there's a score every single day. There's a number and you know how you've done. And so you want to make sure you have the best people who are able to perform over a long period of time, up at bat, having the opportunity to make money for individuals, because ultimately that means more financial prosperity for them in their retirement and beyond in terms of them being able to pass on wealth to their heirs.
GORDON: Bill Lucy, do you believe that the African-American community, in general, other people of color in this country, are starting to understand the importance of really getting in this game, diversifying where you put your money and understanding the idea of growing that nest egg in more than one place, often just your savings account? We see Bob Johnson most recently, former owner of Black Entertainment Television, the founder there, suggest he is now going to get into the asset management business, and others like him are starting to stick their toe in the water. What about the idea of passing this information on as a general rule of knowledge and information to the community as a whole?
Mr. LUCY: Well, I certainly think that a large slice of the active African-American community in investment ideas is beginning to understand this. I mean, tragically, the mass of workers who generate these funds, I do not believe are up on the importance of having a voice and a stake in the outcome of management activity or even in the process of selection of managers themselves. What generally happens, and hopefully Mellody will maybe comment on this, you've got employers, fund trustees, consultants who either recommend or select management on behalf of the two.
And so as long as this narrow process exists, it's going to be extremely difficult for the participation of minority firms in a larger sense. I think we've got to find out what the impediments are and the stumbling blocks to increase participation by minorities and really to seek legislation that opens this process up, or simply workers and work organizations are going to have to simply argue for direct selection responsibility. And this is not, you know, sort of you're willy-nilly. I mean, you're looking at managers on the basis of style, past performance, current performance and what your particular interest is for the utilization of your pension funds themselves.
GORDON: Mellody, you've been out there. How realistic is it to be believed that you can go to Capitol Hill, lobby for this kind of thing? Do you think politicians will be receptive to this? One has to believe that the efforts of others in terms, as Bill Lucy so aptly put it--the idea that this is a whole lot of money that people have been fighting for for a long time; it's not easily going to be given up.
Ms. HOBSON: Well, I am very encouraged. I think we have a long, long way to go, but I think that once people see the actual statistics and the numbers and see the lack of inclusion that it becomes so obvious that something has to be done. I would be remiss if I did not, you know, use Mr. Lucy himself as an example here, because we have the opportunity to work for his organization, which has been a wonderful opportunity, but I have to say it is enlightened people like him who say, you know, all firms--you know, not just singling out minority firms, but all firms--should have an opportunity to come and present and make their case for what they can do to make our returns better. So when you get those kinds of enlightened individuals like Mr. Lucy, it opens up the game for individuals.
And when I give statistics--I was out at a dinner last night in New York and I told the group that I was sitting with, in the history of the Ivy League, the Southern Ivy League schools where, of course, some of the, you know, most noted African-American have graduated from, there's never been a minority money management firm work for any of the seven endowments, never in the history of the Ivy League. We're good enough to graduate from the schools but we're not good enough to manage the money, and those endowments are some of the largest endowments in the world. So these are the examples. When you give people these statistics, they suddenly say, `How can that be?' And I am encouraged and certainly hopeful that once our political leaders around the country see these kind of numbers, they'll say, `This just doesn't make any sense.'
GORDON: Bill Lucy, real quick for me, if you will. How concerned should people be that pension funds as we know them will start to go away, particularly from the private sector? And if that, in fact, is the case, what does that do for the worker who saw that again as perhaps his most safe nest egg?
Mr. LUCY: Well, we ought to be terribly concerned. We only have to look at the Enrons of the world and the WorldComs and all of those companies who have really just scooped up workers' deferred wages in their own management activities. I mean, as Mellody pointed out, we've moved away from defined benefits into a defined contribution, where all of the risk is placed on the workers themselves. We really need to tighten up the whole entire regulatory process, but the key thing is to make sure that workers or worker representatives are at the table when decisions are made and not simply delegating this off to money managers or investment managers.
Ms. HOBSON: And if I could just add one thing here...
GORDON: Real quick for me, Mellody.
Ms. HOBSON: ...because I'm in the business and I am equally concerned about this. If our people, particularly minorities, are not educated about how to make the right investment decisions...
Mr. LUCY: Right.
Ms. HOBSON: ...you don't learn about investing in school in America, this is going to be a major debacle.
GORDON: Yeah. Yeah, that's something certainly if you don't feel it now, you will feel it down the road. Mellody Hobson, president...
Mr. LUCY: If you simply look at how much of workers' funds have disappeared since the...
Mr. LUCY: ...deregulatory activity of the 1980s--I mean, if that doesn't scare you, I don't know what will.
GORDON: All right. Mellody Hobson, president of Ariel Capital Management, and Bill Lucy, founder and president of the Coalition for Black Trade Unionists, I thank you both for joining us today. Appreciate it.
Ms. HOBSON: Thank you.
Mr. LUCY: My pleasure.
GORDON: This is NPR News.