Assembly Bill 2041 - UC Office of the Chief Investment Officer
Providing access to economic opportunities for all residents of California is one of my top priorities. As a result, I am authoring Assembly Bill (AB) 2041, which urges the Regents of the University of California to require the UC’s Office of the Chief Investment Officer (UC Investments) to launch an emerging manager program and embrace internal diversity and inclusion hiring policies.
UC Investments manages over $118 billion as of April 2018, making it a significant “fund of funds” in venture capital and private equity investing.
Diversity is important for investment performance, both for better financial outcomes and for ameliorating risks. The trend amongst institutional investors is to encourage more diverse governance bodies, in investment managers or corporate boards, from early stage startups to public company boards.
Strong performance in venture capital is tied to access to the best companies, many of which are now founded by a diverse range of entrepreneurs: young, racially diverse and not all male.
Limited Partners (LPs), such as UC Investments, are increasingly concerned with the downside risks present in non-diverse investment firms, where old-fashioned monocultures may foster illegal or undesirable behavior. Astute LPs are asking their General Partners to document their diversity statistics—inside the firms and among their portfolio companies—and to document their policies that foster a diverse and inclusive workplace, such as policies on sexual harassment, fraternization, maternity leave, and more.
My bill, AB 2041, will urge the Regents to require that the University of California’s venture capital, pension, endowment, and other managed funds will become more accessible to emerging managers, which are often founded by female and minority investment managers.
By signing a letter of support, I hope you’ll join me and the growing list of individuals supporting AB 2041.
Anna M. Caballero
Assemblymember, 30th District
Letter of Support:
Assembly Bill (AB) 2041, urges the Regents of the University of California (UC) to require that the UC’s Office of the Chief Investment Officer (OCIO) embraces diversity and inclusion programs. The UC’s sister funds at CalPERS and CalSTRS each have robust internal diversity programs, so that staff hiring captures the values of diverse team perspectives, and so that emerging managers are identified early and supported by institutional investors. Importantly, those funds have been able to pursue diversity, internally, and with investment partners, while enhancing fund performance.
The cost to the UC OCIO should be negligible to track the data suggested in the bill. The UC system already captures demographics (including gender and race) for its employee population reports. Collecting similar data for its investment partners to report to the California Legislature will be simple and inexpensive.
AB 2041 provides a common sense solution to address the lack of diversity that hinders our vibrant innovation ecosystem in California. Stewarding institutional capital, as venture capital investors do, has tremendous positive benefits on our country, state and local economies. VC-backed companies represent over 20% of the total market capitalization of public companies in the US, and drive over 40% of the research and development spending among public companies.
However, institutional allocations to venture capital are concentrated among a small group of largely homogenous investors, and UC’s venture capital investments are even more concentrated than the market as a whole. UC’s employee population is diverse, as is its student and alumni population. The UC OCIO can and should do better in selecting investment partners that represent its constituents, and who will deliver stronger investment performance. Women- and minority-owned VC firms are flourishing, and UC should take advantage of these investment opportunities.
A lack of diversity also correlates with poor governance. In 2017, the rapid growth of the global #metoo movement and the numerous incidents of misconduct in the startup ecosystem demonstrated the need for change and greater equality in all domains. In the innovation ecosystem, it has become clear that organizations without diversity, good governance, and safe workplaces put everything at risk. UC OCIO has smartly sided with diversity on public company Boards of Directors, and should do the same in private companies, where VC investors serve on most of the board seats.
Now is the time to address structural challenges that hinder our collective success by recognizing the opportunity cost of ignoring women and minority-led venture capital funds. The UC system sits within the most robust venture capital ecosystem in the world
AB 2041 fosters a more transparent, equitable and competitive venture capital industry that will benefit the constituents of the UC system. The legislation provides a strong framework for the UC system and fund managers to partner to adopt best practices published by industry leaders. In addition, the bill requires greater transparency and reporting of diversity statistics, which we firmly believe encourages momentum.
AB 2041 enables the OCIO to lead and send a positive signal to the equity markets. It in turn encourages other limited partner funds to support emerging fund managers, because more capital flows to those funds. It also sets an example for institutional funds across the United States to capture more value for their investors and pensioners by becoming more diverse.