Senators urge TSP to include various managers in mutual fund window


Last week, a group of Democratic senators urged the federal government’s 401 (k) style retirement savings program to ensure diversity is considered as officials choose which funds to include in an upcoming expansion of participants’ investment options.

Next year, the Thrift Savings Plan is expected to implement the long-planned mutual fund window, which will allow participants to invest in potentially thousands of mutual funds in addition to core indices and funds. lifecycle of the program. TSP officials have previously indicated that the introduction of the mutual fund window will allow federal employees and retirees to invest in environmentally friendly funds and other so-called environmental, social and governance funds that have gained popularity in recent years.

Sense. Bob Menendez, DN.J., Cory Booker, DN.J., Ben Ray Lujan, DN.M., Sherrod Brown, D-Ohio, Jeff Merkley, D-Ore., And Tim Kaine, D-Va. , sent a letter last week to David Jones, Acting Chairman of the Federal Retirement Thrift Investment Board, which administers the TSP, urging him to prioritize the inclusion of women-led and minority-led asset managers in the list of funds that will be made available through the mutual fund window.

“When it comes to their retirement investments, federal workers deserve the chance to make the strategic and values-based choice to put diversity first,” they wrote. “The mutual fund window is a particularly critical opportunity given that current TSP investment managers fail when it comes to diversity, especially at the executive level. “

TSP’s standard offerings are managed by two companies: BlackRock and State Street Global Advisors. Last year, BlackRock’s executive leadership was made up of around 20% women, 5% Black and 3% Hispanic, while State Street’s leadership team was made up of 32% women, 2 % Blacks and 3% Hispanics.

TSP officials responded to a 2017 Government Accountability Office report calling on 401 (k) providers and other financial investment firms to increase the use of minority and female-owned asset managers by saying that these reforms would be included under the mutual fund window. But senators wrote that the agency must do more to make it easier for participants to select these funds.

“We understand that the [TSP] The Board of Directors worked with Accenture Federal Services in November 2020 to develop a screening tool for plan participants to seek funds managed by women and minority-owned businesses, ”they wrote. “However, there are still significant gaps that should be addressed through increased awareness, communication of priorities and other practices identified by GAO to expand the pool of qualified asset managers.”

TSP spokesperson Kim Weaver said the advent of the mutual fund window next year will allow participants to incorporate “special investment perspectives”, such as diversity or environmental sustainability. , in their retirement portfolio, and said the agency “looks forward to responding to the Senators and providing them with information on the progress made in the implementation of the [mutual fund window]. “

Numerous studies have concluded that asset managers with a diverse leadership team can be a boon to investors. A 2020 McKinsey study found that companies in the top quartile for racial, ethnic, and gender diversity were more likely to produce above-median returns for their industries, while a recent Goldman Sachs report found that 48 % of mutual funds managed by women outperformed the market between March and August 2020, compared to just 37% of funds managed exclusively by men.

“A diverse team of asset managers are more likely to have diverse perspectives and may be better equipped to identify new investment opportunities,” the Senators wrote. “Diversity can also help companies avoid the dangerous traps of ‘group thinking’. “

Lawmakers have also argued that promoting diversely managed asset managers in the mutual fund window could drive better TSP participation rates, citing the tendency of consumers to favor investment and buying based on mutual funds. values ​​rather than mere profit.

“Today, many Americans are actively seeking opportunities to fight discrimination and reduce racial and gender inequalities,” they wrote. “Minorities and women are under-represented among asset managers hired by institutional investors, and discrimination is a serious concern. If the board offers TSP funds specifically managed by various asset managers, more federal workers can choose to participate in the TSP or increase their contributions.

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