Remarks At The Association Of Asian American Investment Managers Elevate 2022 Keynote Lunch Program, SEC Commissioner Mark T. Uyeda, New York, NY, Sept. 29, 2022

Good afternoon. Thank you for the invitation to address the Association of Asian American Investment Managers (AAAIM).[1] Over the past year, I have appreciated getting to know the AAAIM team of Jim Park, Kit Canlas, and Alyssa Lee, and their efforts to carry out AAAIM’s mission. I also want to recognize Ginger Lew for her efforts, both as an AAAIM co-founder and as a dedicated public servant. And, finally, I would like to recognize Maeley Tom, another AAAIM co-founder, who – eighteen years ago – reached out to me, someone who was brand new to public service in state government in Sacramento, and whose career continues to inspire.

Today, I would like to talk about the importance of opportunity in the asset management industry for all persons, including Asian Americans.

Many Asian American families can trace their roots to immigrants in search of a better life, including freedom and economic opportunity. One hallmark of the American experience is to provide opportunities to improve one’s economic status, particularly through wealth creation.

Investing is one way to create wealth and provide capital. The availability of capital fosters job creation, innovation, and economic growth, from the smallest family businesses to the largest public corporations.

Critical to the capital markets is the asset management industry, which makes it possible for retail investors to create a diversified portfolio at a relatively low cost. The wide range of offered products and services provides choice, depending on one’s risk appetite, investment objective, and investment horizon. The asset management industry also serves institutional clients, including pension funds, insurance companies, charitable foundations and endowments, and corporate and governmental entities, whose ultimate beneficiaries are often individuals.

Given its importance, it should come as no surprise that the asset management industry has grown significantly over time, with one report estimating that global assets under management (AUM) increased from $31.5 trillion in 2003 to $103.1 trillion in 2020.[2]

In light of this growth, I appreciate AAAIM’s efforts to encourage Asian Americans and Pacific Islanders to enter into and succeed, in the asset management industry. AAAIM’s testimony before the SEC’s Asset Management Advisory Committee (AMAC) and its input on candidates for other advisory committees have been useful for the SEC to carry out its mission.

Diversity in the Asset Management Industry

Having a strong diversity of perspectives is particularly important in the allocation of capital. Avoiding groupthink, enhancing creativity, and considering differing information and viewpoints can promote more informed decision-making.

Despite these benefits, the asset management industry can struggle with diversity. Indeed, the trend in AUM shows increased flows and growth to the largest asset managers.[3] I have concerns about the increasing concentration among asset managers and the potential effects on minority-owned firms. In 2021, only 6.1% of U.S.-based asset management firms were minority owned, which oversaw only 0.7% of overall AUM.[4]

Due to their comparatively small size, minority-owned firms are often saddled with relatively high fixed costs for back office staff, compliance, and other expenses, which can leave these firms at a competitive disadvantage. The SEC’s current regulatory agenda threatens to significantly add to this burden.[5]

In the workforce, Asian Americans are often faced with what has been called “the bamboo ceiling.” AAAIM’s study shows that in a survey of 100 investment management professionals, 65% of Asian Americans and Pacific Islanders said “the bamboo ceiling has been a moderate to serious problem in their careers.”[6] Similarly, data from the Investment Company Institute shows many Asian Americans in the middle ranks but relatively few filling senior executive positions.[7]

The term “model minority” is often used to describe Asian Americans as “hard working, studious, committed to family, and so on.”[8] Such a positive stereotype means that Asian Americans may be viewed as “good workers but not great leaders.”[9] AAAIM’s survey supports this view and found that 70% of respondents do not perceive Asian Americans as good leaders, while 40% indicated that they are not perceived as good managers or strategic thinkers.[10]

These stereotypes result in Asian Americans remaining in the entry-level and middle managements ranks, regardless of ability. Yet, it remains easy to suggest that there is no discrimination against Asian Americans based on more general, aggregate employment numbers in the industry.[11]

Lack of advancement opportunities not only harms Asian Americans, but also asset management firms. When overlooked for promotion, investment professionals will go elsewhere. This is costly for firms, which must attract, train, and retain new talent. It leads to decreased productivity and efficiencies, as well as increased time used for training that is needed to integrate a new employee.[12]

Recommendations of the SEC Asset Management Advisory Committee

In 2019, the SEC formed AMAC to provide perspectives on asset management and related advice and recommendations.[13] AMAC’s Subcommittee on Diversity and Inclusion focused on: (1) a study of the current state of diversity and inclusion in the industry, as well as the impact of the lack of diversity and inclusion; (2) gaining informed perspective on investor interest in diversity matters, as it pertains to investor and/or investment consultant selection of asset management firms and investment products; (3) considering investor need for transparency regarding matters of diversity and the ease or challenge associated with access to reliable disclosure; and, ultimately, (4)considering whether Commission action in this area would benefit the investing public, the industry at large, and the public markets.[14]

AMAC expressed concerns about the underrepresentation of minorities and women in the asset management industry. To remediate these disparities, AMAC made various recommendations around disclosure, asset manager selection, and the pay-to-play rules.[15]

One specific AMAC recommendation that deserves attention is that when fiduciaries select asset managers, their selection criteria should not exclude managers simply based on a minimum level of AUM or minimum length of performance record. Such selection criteria tend to result in the elimination of women and minority-owned firms from further consideration. Rather, fiduciaries should consider using relevant factors that do not involve the automatic exclusion of managers that are newer to the industry or have a pre-specified minimum level of assets.

AMAC also recommends that the SEC study the pay-to-play rule.[16] The concern behind the rule – that government entities, such as state and municipal pension plans, were choosing investment advisers based on their political contributions – is a real concern.[17] The rule, however, is very broad in its reach, covering contributions that are as low as $150 per election. The consequences of making a disallowed contribution are so severe – prohibiting the provision of “investment advisory services for compensation” for two years after a disallowed contribution – that for many firms, it is easier to simply prohibit any employee from making any type of political contribution. This result can effectively disenfranchise civic-minded minorities in the asset management industry from participating in the political process.

SEC’s Office of Minority and Women Inclusion

With respect to the SEC, Section 342 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010[18] established the Office of Minority and Women Inclusion (OMWI) to address matters related to diversity in management, employment and business activities at the SEC.[19] Thus, outreach to these communities is part of the SEC’s statutory duties.

The Commission was founded in 1934 and, today, I am speaking to you as its first Asian Pacific American Commissioner. That it took 88 years to appoint an Asian American as a Commissioner shows that issues of diversity are not limited to the private sector.

I am, however, optimistic that the SEC can serve to provide opportunities for financial professionals knowledgeable in the markets and asset management industry. I am pleased to serve alongside Gurbir Grewal, an Asian American who is the director of the Division of Enforcement – the largest division at the SEC – as well as Haoxiang Zhu, who is the first Asian American director of the Division of Trading and Markets. The division directors are key leaders at the SEC.

In its Annual Report to Congress, OMWI found that minorities represented 35.3% of the SEC’s workforce while women represented 46.2%.[20] More specifically, Asian Americans represented approximately 13.1% of the SEC’s workforce, as compared to 6.5% of the overall federal workforce.[21]

OMWI has also published a Diversity and Inclusion Strategic Plan.[22] The plan was developed with input from SEC employees as well as dialogue with entrepreneurs, investors, and minority-owned and women-owned businesses.[23] The plan sets forth five goals in support of diversity and inclusion. One goal consists of building a diverse talent pipeline for the SEC workforce that draws from “all segments of American society.”[24] Some recommendations to further this goal include strategic outreach and recruitment using sources like diverse professional organizations, such as AAAIM, establishing partnerships with minority, women, and other diverse professional organizations, and establishing a goal for enhancing diversity among our senior executive ranks.[25]

Norman Mineta, the Consummate Public Servant

Finally, I would like to express my appreciation for Secretary Norman Mineta, who will receive a tribute in a few minutes from AAAIM and Ginger Lew. During the latter part of his life, I was fortunate to know Norm through the U.S.-Japan Council. Norm was always generous and giving with his time. In 2014, Norm graciously attended a dinner that I organized for the Asian Pacific American Bar Association of Washington, D.C., where he imparted his wisdom and encouragement to many Asian American attorneys. I first met Norm in 1987, as a high school student attending a summer program on government in Washington, D.C. Several years later, as an intern in the House of Representatives, I periodically saw him there. I am also particularly pleased to see his son David today; in 2004, David and I spent about 10 days together in Japan as part of the Japanese American Leadership Delegation. As the consummate public servant, Norm will forever stand as a role model for all of us.

Thank you, AAAIM, for giving me the opportunity to address you today. AAAIM has been a highly valued professional organization partner with the SEC for several years. Thank you for always making yourself available to dialogue and providing candid and insightful input about priority issues being considered by the SEC.