US institutional investors are confronting the financial industry’s representation issues with dedicated pools of capital for managers that typically face barriers to securing investments, such as firms owned by women or minorities, newly established and locally specialised firms.

“The underlying limited partner and their constituent base are themselves diverse, and they want to commit with groups who ultimately do look like them,” Hamilton Lane’s head of emerging and diverse investing, Katie Moore, said in September 2022. For most LPs “this is typically still a merit-based investment decision”, she added, as they look for market-rate returns and “some other ancillary benefit”.

For some public pension funds, diverse or emerging manager allocations are enshrined in state law. Many programmes cover diverse, local and emerging managers. Here are 10 such programmes, in no particular order.

1 Massachusetts Pension Reserves Investment Management

MassPRIM is required to pursue “the goal… that not less than 20 percent of investment managers be minorities, females and persons with disabilities” following a state law signed in January 2021. To support this goal, the $91.9 billion pension created a $1 billion two-year bucket in 2021 for emerging-diverse managers across private and public markets. MassPRIM deployed $2.8 billion to diverse managers in 2022 and, as of January 2023, more than $9 billion of its assets are managed by diverse-owned managers.

2 Connecticut Retirement Plans and Trust Funds

CRPTF aims to invest between 5 and 10 percent of its $41.7 billion portfolio into emerging, diverse and Connecticut-based managers. This programme, called the Connecticut Inclusive Investment Initiative, includes public and private asset classes. At the end of fiscal year 2022, the programme had approximately $1.4 billion in total invested assets. CRPTF defines “diverse” firms as those majority-owned by women or racial minorities, and “emerging” as firms that have been in business for up to five years or manage less than $2 billion in assets.

3 New York State Common Retirement Fund

As of March 2022, New York State Common Retirement Fund had committed $9.5 billion to its emerging manager programme, which supports emerging managers and firms owned by minorities and women. “The Fund is committed to opening doors that were sometimes shut in the past to minority- and women-owned businesses,” according to a statement on its website. “Promoting the participation of these firms brings in new ideas, perspectives and personnel, helping the Fund continue to earn strong returns.”

4 City of Philadelphia Board of Pensions and Retirement

The City of Philadelphia has a “provision for diversity and local managers” across public and private asset classes. The pension fund has not set a minimum allocation but has capped the provision at 10 percent of the fund’s total assets, which are currently worth $7 billion. Qualifying firms must be majority-owned by women, ethnic minorities and disabled people, or have an established office in Philadelphia, according to the pension’s investment policy. Its investment policy also requires all manager searches to include at least one diverse or local firm.

5 Policemen’s Annuity & Benefit Fund of Chicago

Chicago’s PABF has set a target to entrust emerging or minority investment managers with between 18 and 23 percent of its total assets. This includes an allocation of between 4 and 5 percent to alternatives. These allocations are in accordance with the Illinois Pension Code, which defines minority managers as firms at least 51 percent owned by women, racial minorities or persons with disabilities. Emerging managers are minority managers with managed assets worth between $10 million and $10 billion, according to the code.

6 State Universities Retirement System of Illinois

Also subject to the Illinois Pension Code, SURS has set a target to allocate 35 percent of its total assets to firms owned by women, minorities or people with disabilities. SURS is exceeding this target, with 40.9 percent of its assets – $9.3 billion – managed by such businesses as of 30 June 2022. In March 2023, it launched a portal to enable managers with more than 51 percent diverse ownership to schedule meetings with its investment team and consultants, spanning strategies such as private equity, real assets and private debt.

7 Chicago Teachers’ Pension Fund

Chicago Teachers’ Pension Fund has $5.5 billion – 48 percent of its total assets – invested with firms majority-owned by women, minorities, or people with disabilities as of 30 June 2022, according to its 2022 diversity report. This includes $3.19 billion managed by women-owned firms; $1.26 billion by African-American-owned firms; $897.4 million by Latino-owned firms; $126.2 million by Asian-American-owned firms; $20.9 million by disability-owned firms; $57,000 managed by Native American firms; and $2.4 million managed by multiple minority-owned firms.

8 Los Angeles Fire and Police Pension System

The LAFPP, which has around $28.9 billion in assets under management, has not stated a numerical or percentage allocation to diverse managers, but its investment policy states: “Staff will conduct outreach to identify firms that have ownership by one or more minorities, women, persons with disabilities, US military veterans, and/or lesbian, gay, bisexual, transgender and queer (LGBTQ) individuals.” This is implemented through several “emerging” or “specialised” fund manager policies for various asset classes.

9 New Jersey Division of Investment

New Jersey’s Division of Investment, which invests on behalf of the state’s $87.5 billion public pension fund, established an emerging manager programme for private markets asset classes in 2022. The “primary objective” of this programme “is to increase the division’s allocations to smaller, emerging, diverse and off-the-radar investment managers”, according to a report accompanying NJDOI’s annual investment council meeting in January 2023. NJDOI made an initial commitment of $250 million for the private equity programme, to be deployed and managed by investment firm Barings.

10 Prudential Financial

Prudential Financial created a $200 million fund in 2021 for early-stage growth funds “with substantial ownership and/or management by women and minorities, particularly those raising capital for first or second funds”. The New York-listed insurance company considers the diversity of the GP’s portfolio management team and the impact of its investment strategy on diverse populations when making investment decisions. It prioritises GPs raising capital for their first or second funds.

This is an updated version of an article that was first published on New Private Markets in September 2022.