The SEC is asking money managers to provide more information about diversity within their firms. That is a good thing.
If institutional asset owners want this information, it's best they get it in a standard format from a regulator that can collect it from industry participants.
That said, the SEC is merely requesting the data in a new version of a survey that in 2018 — the first time it was sent to regulated firms — got a response rate of only 5%. As with last time, with neither a carrot nor a stick to compel responses, we worry the SEC will again collect an incomplete dataset.
Research going back at least a decade shows that diversity on corporate boards and in investment firms improves both economic value and stock market performance. Asset owners including CalSTRS and the New York City Retirement Systems have been using diversity as a criteria for money manager selection for years.
In fact, in 2015, Pensions & Investments in these pages called for companies and investment managers to get ahead of the pressure to diversify, noting the evidence of improved performance.
It is good that the SEC, as regulator, is diving deeper to understand the racial and gender diversity of managers. But it is incumbent for managers to participate to foster transparency and produce a full dataset that can be used as a benchmark for measuring the industry's efforts as a whole. If low response rates continue, it might be necessary for the SEC to make this disclosure mandatory.
Since the data would be presented without firm names, there should be no excuse for not assisting.
Management guru Peter Drucker is known to have said that "you can't manage what you can't measure." Under this maxim, as a regulator, the SEC needs data that institutional investors can use when questioning their own managers on how they stack up against the industry as a whole.
