Jesse Jackson hits public funds with no black-owned managers

Public pension funds that aren't using enough — or any — black-owned money management firms are being targeted by well-known activist Jesse Jackson, founder and president of the Rainbow/PUSH Coalition.

A recent survey by the New York-based Wall Street Project, a unit of the Rainbow/PUSH Coalition, looked at 74 public funds in 20 states with the highest populations of African-Americans.

The survey found that 49 of those plans — including funds in South Carolina, New Jersey, Mississippi, Ohio and Tennessee — weren't using any black-owned money managers. According to a report on the survey, 32% of South Carolina's population is either black or Hispanic; New Jersey, 27%; Mississippi, 38%; Ohio, 14%; and Tennessee, 19%. The Wall Street Project serves as an advocacy group for minority-owned financial services firms.

"These are states with the highest black populations, and yet the state pension plans are closing the door on black-owned firms," said Mr. Jackson in a news release issued Jan. 13 by the Wall Street Project. "This is nothing short of economic apartheid." Mr. Jackson did not return repeated calls for further comment.

New York, Texas, Florida, California, Georgia, Illinois, North Carolina, Virginia, Pennsylvania, Missouri, Indiana, Alabama, Louisiana, Michigan and Maryland all have at least one black-owned money manager.

According to the survey, the three largest public pension plans that use no African-American-owned money management firms are: the $67.5 billion Ohio Public Employees Retirement System, Columbus, with 53 external money managers; the $62 billion Ohio State Teachers Retirement System, Columbus, with 75 managers; and the $53.8 billion Pennsylvania Public School Employees' Retirement System, Harrisburg, 128 managers.

The $11.1 billion Illinois State Board of Investment, Chicago, has 11.82% of its total assets invested with African-American-owned money management firms, and the $34.9 billion Illinois Teachers' Retirement System, Springfield, 10.07%.

The Wall Street Project survey said the $10.1 billion Ohio Police & Fire Pension Fund, Columbus, uses no black-owned firms. But Dave Graham, a spokesman for the pension fund, said black-owned money manager EARNEST Partners LLC, Atlanta, manages a $330 million active domestic large-cap equity portfolio.

Mr. Graham noted, however, that from an investment perspective, the fund's sole obligation is to deliver strong returns.

"We select money managers based solely on performance. Our job is to take care of the retirees of this state and to ensure that they are secure in their retirement. A few years ago there was state Senate bill 133 that would have forced us to hire in-state brokerage firms. It's the same argument — we don't feel that it's in the best interests of our participants to hire a firm based on anything else but performance."

The $6.8 billion Missouri State Employees Retirement System, Jefferson City, also was cited as not having any black-owned managers. However, Christine Rackers, MoSERS' manager of investment policy and communications, noted that the information gathered in the study is a year old, and that the fund hired some minority managers in 2005, including Parish Capital Advisors LLC, a black-owned money manager in Durham, N.C., to manage $25 million in domestic midcap growth equities. Also, women- or minority-owned money managers handle a total of just over $500 million for the plan.

"We take steps to make sure minority and women-owned firms have access to our plan," Ms. Rackers said. "We had meetings with several women- and minority-owned firms in 2005, eight of which were African-American-owned. Our overriding hiring decisions are made and evaluated in the best interest of plan participants. We consider return expectations, risk, experience, track record and fees when we hire managers."

William Atwood, executive director of the Illinois State Board, said the fund's use of minority managers has helped performance. "The minority- and women-owned money managers that we use have exceeded our performance standards and expectations. Our mission is to achieve an 8.5% annual return, and that's not an easy task," he said.

He said the board set up a minority- and women-owned manager program because "when we do a search, the typical screening process inherently screens out emerging managers. We're inherently screening out an entire pool of talent that is otherwise inaccessible.

Thomas Murray, chief operating officer at Springfield, Va.-based Edgar Lomax Co., an African-American-owned money manager, said the situation has improved in terms of public pension funds disbursing business to minority-owned firms over the past decade.

"It certainly deserves attention — the idea that public funds should make sure that no matter what community you're from, you can have the chance to (compete) for business," he said. "I think there's certainly been an increasing awareness of selecting a diverse group of managers."