Texaco Inc.'s trouble stemming from a discrimination lawsuit underscores an issue that has been developing for more than a decade. That is the hiring of minority money management firms by public as well as corporate pension funds. The issue isn't as straightforward as the Texaco resolution to hire more such firms seems to indicate.
A few years ago, Nancy Tengler, after co-founding Spare Tengler Kaplan & Bischel (a firm she since has departed), lamented the difficulty the firm was having getting in searches for women-owned firms. Noting her co-billing as the sole female principal in a firm with three male counterparts, she remarked, "What's more important? To be a woman and have 25% of a $1 billion firm, or 100% of nothing," meaning a start-up firm?
The Illinois State Universities Retirement System is in the process of completely revising its minority manager policy to improve its success. It recently dropped the last of several minority managers it had hired over the years, in part because of performance.
With this issue of minority hiring receiving such prominence of late, it is folly for pension sponsors to ignore it. Whatever their position, either employing quotas, or just hiring the best managers in general, each sponsor should make sure its policies and practices don't discriminate and be able to articulate its case, whatever approach it pursues. That kind of discussion can only advance the objective of diversity.
Texaco, curiously, was sort of a pioneer in the use of a minority manager by a corporate pension fund. According to David L. Eager, managing director, Eager & Associates, Louisville, Ky., a money management consulting firm that maintains an extensive database pertaining to searches and other facets of client relationships, Texaco has made four money management searches since 1984. One of them was for a minority firm, the 1988 hiring of WR Lazard & Co. Lazard began with $15 million in fixed income and now manages $30 million for the $1.2 billion pension fund.
Eager's Tracker database of completed searches for money managers gives an enlightening picture of how extensive the use of minority managers has been. New hirings have trailed off, but unmistakably the trend shows a swift growth of minority firms in a business known for its dynamism. Among details, the data show that among all fund sponsors, including corporate, public funds have apparently led the way. The data show in:
*1991, there were 91 such searches, or 9.7%, out of a total of 932 searches;
*1992, 102, or 9.4%, out of a total 1,082;
*1993, 100, or 10%, out of a total of 956;
*1994, 84, or 5.6%, out of a total of 1,500;
*1995, 82, or 6.6% out of a total of 1,248; and
*1996 through Sept. 30, 58, or 5.9% out of a total of 971.
By contrast, for corporate defined benefit funds alone, Eager's Tracker database found in:
*1991, 12 such searches, or 3.8%, out of a total of 308 searches;
*1992, 14, or 3.1%, of 448;
*1993, 12, or 4.7%, of 251;
*1994, 11, or 2.4%, of 447;
*1995, 15, or 4.2%, of 353; and
*1996 through Sept. 30, 10, or 3.4%, of 291.
For corporate defined contribution funds, Eager's Tracker database shows apparently not many minority managers offer mutual funds used for 401(k)s. It found in 1991, two such placements, or 3.3%, out of a total of 60 placements; in *1992, also two such placements, or 1.8%, out of a total of 112; in 1993, no such placements out of a total of 211; in*1994, again two such placements, or 0.6%, out of a total of 350; in 1995, seven such placements, or 1.3%, out of a total of 512; and in 1996 through Sept. 30, no such placements out of a total of 253.
It will be interesting to see the Eager data a year from now to gauge the impact the Texaco case has had on hirings. But the experience of Ms. Tengler and Illinois SURS shows numbers cannot tell the whole story.