Amid DEI pushback, pension funds, diversity advocates bolster inclusion of emerging managers

For the newest investment firms starting with few resources, any help they can get in making it onto asset owners’ radars makes a difference. To have some of the largest public pension funds dedicate an entire week to provide learning and networking opportunities, that just might do.

During the week of Feb. 10, six events were held to promote the awareness and inclusion of emerging and diverse managers. At least 12 allocators participated in the series of events, also billed as Emerging Managers Week.

In the backdrop of the inaugural Emerging Managers Week was pushback against diversity, equity and inclusion by the second Trump administration, which has issued several executive orders targeting DEI programs at federal agencies, endowments, foundations and publicly traded companies.

Emerging managers are no different from the largest money managers, noted Robert Greene president and CEO of the National Association of Investment Companies, which represents 194 diverse firms led by people who’ve “worked and produced returns their entire career” after learning their trade at larger shops.

“Other than their skin color, their gender, their sexual orientation or any other identifying factor, the biggest difference” between emerging investment managers and their larger, established peers is that they are entrepreneurs, Greene said at a Feb. 12 news conference held as part of the $279.7 billion New York City Retirement Systems’ annual event. “They have stepped out on faith, and stepped out on their own capacity to create a system, to create a firm that would produce significant returns.”

While these entrepreneurs may not be new to the institutional investing space, they may be new to the developmental and operational side of the business, said Raudline Etienne, founder and CEO of Daraja Capital.

Years before she started the seeding platform, which invests in diverse and emerging managers, she was the chief investment officer of the New York State Common Retirement Fund, now with $273.4 billion in assets. In fact, when the public pension fund held its first conference in 2008, Etienne was just announced as CIO.

She noted that having the weeklong event is valuable for new firms as a way to learn about the largest allocators, as well as from partners who’ve gone through similar journeys.

“The transparency is incredibly invaluable, if you’re willing to look at it from that perspective,” she said in a Feb. 19 interview. “Those who can process that and grow from it ultimately benefit, and if you have the right attitude and a long-term orientation,” she added.

Dipping her toes back into the conference scene the past two years after the COVID-19 pandemic, she’s seen growth in the space — at least at the events she attended for New York City and New York State Common.

For one, the New York pension funds have moved into bigger venues. As for the conference held jointly by the $211.6 billion Teacher Retirement System of Texas and the $40.3 billion Employee Retirement System of Texas, it has been held virtually from Austin since 2021, with no plans to go back in person.

But aside from change in location, there’s a surge in attendance. Since starting with 115 in-person attendees in 2012, the Texas conference has grown to welcome about 2,000 attendees annually, said Kirk Sims, director of Texas Teachers’ emerging manager program.

In New York City’s opening conference panel, city comptroller Brad Lander noted the event was moved from November in order to make it easier for attendees to also meet with the staff at New York State Common and the $148 billion New York State Teachers Retirement System in Albany, both of which held their conferences in February. Lander also is the custodian of the city’s five pension funds.

This year, the New York City conference welcomed about 850 attendees, up more than 125% from the previous conference in 2023, which had 375 attendees, a spokesperson for the city comptroller’s office said. The following day upstate, NYSTRS’ conference welcomed 239 attendees, up 19.5% from 200 attendees the previous year, according to a spokesperson for the pension fund.

“There’s force in numbers … it becomes a broader thematic narrative that’s not just about an individual plan,” said Etienne, noting there could be more momentum in 2026 as the weeklong event gains more awareness. “When you can concentrate on several players in a week, I think you amplify each other’s efforts,” she added.

Leveraging diverse perspectives

The definition of an emerging manager varies among organizations, with some inclusive of diversity.

Under Texas statute, the definition recognizes firms that manage no more than $2 billion in assets. While diversity is not part of the emerging manager hiring policy, allocators are required to report on methods and results of their hiring efforts, “including data disaggregated by race, ethnicity, gender, and fund size.”

In 2010, the New York State Legislature enacted a law that requires the state’s public pension plans and $20 billion New York State Insurance Fund to establish “a strategy to increase participation by emerging investment managers and other minority and women-owned business enterprises involved in providing asset management services.”

The state law defined diverse managers as those with a minimum 51% ownership by at least one woman or minority group member. The law also required allocators to periodically advertise their diverse manager strategy through various means — including public reports and annual conferences.

These kinds of conferences are good for information sharing, noted Valerie Red-Horse Mohl. New York City Retirement Systems’ opening panel revealed her as the deputy chief investment officer for responsible investing — a role that supervises the emerging and diverse strategy at the five pension funds.

“If you look at the way Wall Street has traditionally worked, there’s a lot of networking and relationships … but they usually haven’t looked diverse,” Mohl said. “What I want to see is all of us being able to share information and share our success stories so that if we invest in a manager and get through all of the necessary diligence to invest in diverse managers, let’s go tell our colleagues so they can also take a look.”

“Ultimately, it will start to eliminate and reduce the racial and gender wealth gap,” she added.

For allocators, ensuring diversity in the recruitment of staff and sourcing of external managers is important in order to reflect the beneficiaries, said Matt Pinchinat, deputy managing director of DEI at NYSTRS. A former teacher himself, Pinchinat noted that the educators that the pension fund serves “are people with real lives that look different depending on where they are, and depending on their family circumstances.”

“And that’s something that is really informative for us, even when we think about our own diversity, equity and inclusion work — it needs to reflect the diversity of the teachers we serve,” Pinchinat said at the NYSTRS conference. A prospective manager has to be transparent about its workplace demographics, its turnover rate and retention practices as well as its mission statement and vision, he added.

For supporters of diverse managers like Jumaane Williams, the pushback on DEI is “about the erasure of people,” he said at New York City’s conference. Working as the city’s public advocate, he is also a trustee of the $87.8 billion New York City Employees’ Retirement System.

To Williams, DEI is taking measures to make sure those “who are qualified and can do the job” are in the spaces and applicant pools to be chosen for those jobs — as opposed to hiring “one particular person.”

“We have already adjudicated in the courts and in the hearts and minds of most people that diversity of thought, diversity of strategy (and) diversity of people is actually helpful for a society as a whole, particularly for one that is (as) diverse as ours,” Williams added.

According to a 2024 NAIC study, between 2012 and 2022, more than 95% of pension fund investments were allocated to nondiverse managers.

For emerging managers that are diverse and are hired by these allocators, “let’s keep in mind these are not people who are selected for any exogenous factor,” Greene said. Instead, these managers are selected based on their staff, their track record and their investment strategy.

“So when we talk about DEI, we have to be very, very clear — we’re talking about people who have assembled extraordinary, talented teams of people … that have over their entire career produced a track record that merits the opportunity that they are given,” Greene added.

As for emerging managers in their early days or cycles of fundraising, they’re also critical to the portfolios of the biggest allocators, so “an open-door policy” is needed for them, noted Taffi Ayodele. At the office of the city comptroller’s Bureau of Asset Management, she is the director of the DEI and emerging manager strategy.

“We all know we’re in a country that really runs on small business, and I don’t see why it would be any different within the asset management space,” Ayodele told attendees at the New York City conference. “If we’re trying to get outsized returns, we have to find the people who are going into the markets that are completely underserved (and) that are bringing us new and innovative ideas — and the returns speak for themselves.”

But as much opportunity that Ayodele wants to provide for emerging managers, she noted that the biggest challenge she has seen is matching meetings with her staff’s capacity.

“We have a very small investment team compared to the size of the assets, so how do we best manage the use of our talent?” said Ayodele, who noted that she’s probably met with a thousand managers. Additionally, she said she wonders what’s the best way to evaluate the risk associated with bringing aboard a newly formed investment firm.

“These aren’t new investors. These are new businesses,” she added. “These are startups in a sense, so we have to balance our time effectively. We have to find the right partners,” such as external managers who can provide capital to emerging firms on the pension fund’s behalf.

For Maggie Arvedlund, she wasn’t a new investor when she co-founded private equity firm Turning Rock Partners in 2016. She was previously managing director at alternatives manager Fortress Investment Group for eight years.

Also CEO and managing partner of the New York-based manager, Arvedlund attended NYSTRS’ 2024 conference and was able to meet with the pension fund’s private equity team. Later in October, NYSTRS committed $120 million to the opportunistic private credit-focused Turning Rock Fund III.

“You have to have a high degree of conviction,” Arvedlund gave as founders’ advice at this year’s conference, where she had a fireside chat with NYSTRS Executive Director and CIO Thomas K. Lee. “You have to be able to put everything that you own on the line because if you don’t, you shouldn’t be doing it, right? The passive ‘I want to start a business’ just doesn’t work.”

Turning Rock manages more than $1.2 billion in assets. The CEO is the sister of Erin Arvedlund, Pensions & Investments’ managing editor.

Establishing pathways

As for conference panel content, much is aimed at explaining what the allocators and their partnered capital providers seek in potential hires.

For instance, among the insights shared at the Texas conference, being transparent about practices, past mistakes and unknowns is one piece of advice that was shared by Stable Asset Management CEO Erik Serrano Berntsen. A New York-headquartered private equity manager, his firm has $5 billion in AUM, and $20 billion in AUM through partnerships, including with emerging managers.

“We want to make sure that we’re finding partners who know what they don’t know, and that actually welcome someone like Stable,” Serrano Berntsen told a panel. “We’ve done this a hundred times. We’ve made every mistake in the book. Hopefully, we can help you avoid it. We can commit a sizable investment.”

Behind each new firm is at least one entrepreneurial leader. Being transparent with how one works with others and relates with people is also important since it builds good will, said Cathy Marcus, co-CEO and global COO of PGIM Real Estate.

“Being vulnerable as a leader is hard, and you have to find the right balance, right? You can’t be Chicken Little,” she told NYSTRS’ Lee in a fireside chat. “You have to have some level of fortitude and bravery for the entire organization, even when you don’t feel it.”

And just as the conferences have provided, continuous learning is important for emerging firm leaders, Marcus added. She recalled the feedback she received from a colleague following a meeting with a pension fund. Earlier in her 26 years at PGIM, Marcus was a portfolio manager of the firm’s flagship core equity fund.

She said that the colleague told her that he enjoys traveling with her and her warm, funny personality. He suggested that she show that side of herself to clients, adding by being “only business,” it’s hard for peers to relate, Marcus noted.

Joining the real estate industry in the mid-1980s, she said there weren’t a lot of other women, although her first boss was “shockingly at the time” a woman. Marcus described her own attire as “always very buttoned up,” and paired with a bow tie and glasses that she didn’t need but wore to “look older and more serious.”

“I kept that persona, and I had like a shield around me,” Marcus added. “I would have never been able to get promoted as I did if that colleague hadn’t been so generous as to share that feedback with me because he had made a huge difference in my career — and I think that’s something for everyone in this room to remember.”

PGIM Real Estate managed $212 billion in assets and administration as of Sept. 30, including $137.5 billion in net assets.