men earned them through their service to this country there may be ways to improve the operation of the congress should always keep in mind that it is not i mean we can suggest but the desires and personal goals of the civil servant should always be our guiding congressional research service and various investment approaches were considered and ultimately the house and senate decided on a passive investment policy asset management in the t s p is that the use of themselves describe the crucial nature of this decision i quote most importantly the three funds authorized in the legislation are passably managed fund not subject to political manipulation a great deal of concern was raised about the possibility of political manipulation of large pools of planned money this legislation was designed to clue that possibility concerns over the specter of political involvement in the plan management seem to focus on two distinct issues one the board composed of presidential appointees could be susceptible to pressure from administration to the congress might be tempted to large pool of planned money for political purposes neither case would be likely to occur given the and criminally liable and the conference report goes on to describe how the passive approach is designed insulated from political pressure allowing planned participants to benefit from the long term growth available in the broad mar regarded our own surveys and support the same findings investment legend john bogle the founder of vanguard funds has characterized it as the best single savings vehicle in america today the board members and i are privileged to office valuable benefit the men and women who serve our nation and we endorse a continuation of this passive investment philosophy which has served plan participants very well over the past twenty one years with regard to the second matter this is the second time in sixteen months that i as executive director has been asked by a member of congress to publicly discuss why the board does not specifically seek asset management services for minority or women on vendors last september congresswoman maxine waters invited me to address the same topic at the congressional black caucus foundation's financial services or i accepted that invitation even though i knew that many vendors in attendance would not be pleased with my message nevertheless i think it's important to speak openly  not seek services from the very large segment of the financial services industry that offers various active management products our goal with regards to investments is to replicate the returns of the brought in as our stature requires a second  requires the board to develop investment policies which provide for low administrative costs and all of my predecessors determine that the best way to achieve low administrative costs for the participants is to conduct a full and open competition but the asset management services we require this process of open competition has resulted in the hallmark of the plan success which is a very low administrative costs and my main goal standard for ensuring participants that this plan is being administered exclusively for their execution results are in line with best execution proper principles in managing our brokerage relationship i'll begin by discussing our investment philosophy in our structure both of which are focused on delivering highly reliable low cost investment results to institutional investors one as part of wells fargo bank attempts to scale california today we are owned by barclays p l c one of the world's leading financial services providers were headquartered in san francisco with approximately three thousand four hundred employees worldwide since our founding the gys re choose a single global investment philosophy which we call total performance management p d i manages performance through the core disciplines of risk return and cost management the success of our investing methodology results from our focus on delivering superior investment results over time on by minimizing trading and other implementation cost and rigorously controlling investment in operational rests we are on a toe serve as an investment manager for the t s p since one thousand nine hundred eighty a relationship that we have retained in regular highly competitive bidding process the m c i european australia far east index and on u s equities there is also g fund which is managed by the us treasury and of us in u s treasury securities in august two thousand and five the t s p added a series of lifecycle target horizon options that use the existing five this is also true of b p s relationship with most of our other clients and generally provide only investor management sir ases which we consider to be our core expertise the key to our success nasa management of them are ability to minimize implementation and training costs hi cost inexpensive investing detract from performance in a vessel returns lower costs increase the investment pull import more money long term into the pockets of investors let me say a few words about how we do this each year index fund is structured to match the performance of a specific index these indices such as the s and p five hundred or m s c i eva are designed by third party index providers however these indexes are really paper portfolios and on including the trading costs that real world investors experience successfully achieve the performance target that at the track the index closely as possible e g i strive to minimize the real world cost for a variety of highly efficient trading approaches to the size and diversity of our client base we're going to match or offset a significant port portion of our clients by and sellers internally thereby reducing or eliminating market transaction costs the internal matching of buy and sell as is commonly referred to as crossing and is conducted in actively monitored by the g i pursuant to the terms and conditions of an exemption issued by the department of labor all these transaction cost savings which we estimate are in the hundreds of millions of dollars annually are passed directly to the clients when we when we do train the external markets we utilize carefully develop and manage trading strategies and we access all possible sources of of liquidity including electronic marketplaces our trading activities is supported by a dedicated training research team whose sole job is to develop new trading strategies and techniques to minimize trading costs our prime jacket that she the highest degree of control over investment outcomes at the lowest possible cost executing broker we rigorously monitor the prices at which our trade rescued a relative to the number of market related bench to ensure that we are receiving best execution we also use our scale negotiate fairly low share commission rates b d i did not have never  soft dollars mistreating activities on behalf of our funds he did not accept a reaction from investment management clients as to his trading activities including its selection of brokers and which iterates over the cost of a long term investment lower management fees and expenses can translate into considerable order that we may provide our clients with the best and widest range of execution services and alternatives that are consistent with our producer responsibilities in keeping with our producer responsibilities b t r has an explicit policy to select the most credit worthy counter parties that firm these emerging brokers include minority business enterprises women owned business enterprises disabled veteran enterprises and other small firms offering alternatives to establish and well capitalized perpendiculars within the context of our overall training requirements speech i believe is important to allow for the positive impact of innovative ideas and differentiated service for merging brokers the diversity of thinking a potential for creative problem solving is often associated with the entrepreneurial culture of emerging brokers this is an advantage that we have long recognized in which to continue to provide for our clients as a result we've developed a separate program an approval requirements for emerging brokers firm to select on the basis of a criterion to capital business models for a track record operational capabilities trading establish the best execution framework required to do business with the g i we have found in our experience emergent purpose and most successful with us when they focus on working to match often in client order flow or handling agency orders and small mid cap securities that have irregular trading patterns the nature of the investment strategies managed by p t i means the majority of our trading will continue to be met by those firms to provide the necessary automation a high volume low cost execution that is part of the advantage that we offer to our clients however also due to be g i scale we are often within the top ten clients  emerging program the program we don't believe it's new to the brokers interest or any interest to be janice clients to be the dominant customer of any brokerage firm as it creates imposes dependencies to both sides because our commitment to innovation which we firmly believe originates in the  lower often substantially it is not uncommon to have to have active management funds in excess of one hundred basis points sometimes in excess of two hundred basis points and then when you take a look at the t s p our total cost including all service costs for web site statements record keeping investment management trading all those expenses in aggregate net are one of the half basis points to participate so it is a enormous market passive management tends to do better and that you can find plenty of papers supporting both arguments and there's a lot of people who have to have their own self interest research is created to support that self generally handlings or funds that are far more critical to those those to whom they always fiduciary responsibility they're handling entire retirement funds are infected and active management and least leave me as question why are we so much more secure than i who have so much more at stake than we because we certainly are not here talking about people's fundamental retirement plans your reference the state plans are not all but most are defined benefit plan meaning that the participant the end user  and i don't see how that answers my question you're saying to me that the state would have to pay in any case are you saying to me that the state had to make up for losses that what you are implying i can understand a defined benefit plan and what it's supposed to do and what would happen if in fact that there were losses that doesn't answer my question my question is that much more is at stake there is much more to  state funds that in fact often do involve people's entire retirement and i want to know why the states do not feel management state of new york they have a pension expert but such down and decides what to invest those monies and those are not made at the participant level they are made at the trustee level obviously  look as much as i can understand that we may wake up one day and find that we have not had a warning that there were other things we should be looking at i don't know if one of those teachers the six largest public pension plan the country plan pays out over five point five billion dollars a year and benefits it is a defined benefit plan and therefore the sole retirement of the teachers and  passively managed strategy to some active management and third i'll give the subcommittee some background on efforts under my leadership in texas teachers to increase minority participation of the fun as you seek to do here  possibly during fiscal year two thousand and six our board of trustees institute a very thorough review of the investment program i want to objectives was to increase the returns of the fund without an increase in risk a second objective was to review the funds asset allocation in order to lessen the funds exposure to dramatic swings in the stock market and to achieve a more efficient and more balanced asset allocation we determined that these objectives would help the fund first meet our future pension obligations second be more cost effective and third manage our risk in a very proactive manner and recent past detected to this portfolio was concentrated in the large domestic thousand and six which i'll get to in just a moment the proportions of our total investment strategy sixty five percent equities twenty six point eight percent fixed income four point three percent that was spread across the various alternative as things that led us to the study was when i first came on the board in two thousand and two i was experienced bust in the stock market our plan was at ninety five billion dollars when i came on the board and with within eighteen months the plan was down to sixty five billion dollars so there are examples where you do well with the stock market and course both times after our study we created three new major asset categories for the fun one global equity which constitutes sixty percent the portfolio that included all public and private equity twenty percent and allocation call stable value would include all fixed income credit u s treasuries hedge funds and cash the remaining twenty percent were and our real return asset category which included real estate real asset commodities and global inflation linked bonds this reallocation that we did in two thousand and six moved away from the traditional large us public pension plan model of being highly weighted in publicly traded stocks and bonds and allowed the fund to guard against the down time in the downturns in certain markets and better capitalize on the strong returns of less traditional asset classes in addition to being a better balance it offered greater diversification the opportunity for more robust returns and took advantage of the funds competitive advantages a long investment time horizon of ten years and very limited short term liquid a requirement this asset allocation or reallocation also decrease the funds downside risk lowered the volatility in the portfolio and lower the correlation among the portfolios asset classes talk a bit about active and passive and external managers a texas teacher has a very long tradition of managing the assets internally as of two thousand six hundred ninety percent of our assets were managed internally by texas teachers investment professionals we're very proud of that fact and for the most part it generated returns that were at or above those of external managers while this internal management resulted in effect a low cost system that produces consistent returns over time staff in conjunction with our external consultants determined after this study that a combination of both internal and external management would allow for a more effective portfolio design that diversifies risk i think the case has been made and you'll hear a lot today members young talented small emerging managers have outperformed their large counterparts in both up and down market they also diversify a large portfolio as they get these private equity portfolio at that time our portfolio was predominately only large buyout plans diversity of investment professionals was also important to our board and we felt it very complimentary to the risk return goals that texas teachers do their recent emergence in the investment management area minority and woman owned funds are more likely to be in the small and emerging managers and therefore diversifying a portfolio to include such strategies presents additional opportunities for pension plans to develop and increase the number of meaningful relationships that it develops with women and minority owned funds currently small minority manager programs have been implemented in texas in our private equity and our headphone portfolio and we're currently evaluating adding small emerging plans to a fund of funds and our global equities and real estate portfolio the board's goal is to get that allocation up to one point five billion dollars it's probably currently at about eight hundred million and i'm summarize mr chairman i apologize in further efforts to increase the funds relationships with minority and women own funds in two thousand and six texas teachers lost a minority and a woman on brokerage program it's a six month pilot program in which these farms are allowed to execute trades after which their execution is evaluated for a determination of whether they should be included on the systems approved list of brokers texas teachers have been very pleased with the results of this program finally we felt that minority and women owned bonds are uniquely advantage uniquely positioned to find and take advantage of attractive demographics and opportunities for targeting high growth ethnic and economic sectors consistent with recent damage grab a change is and that these are very complimentary to the risk and return goals of a plan i do share as pension plans obligations continue to increase and the global investment marketplace continues to rapidly change plans produce much search for ways to invest more efficiently and more effectively and to boost returns while reducing long term risk we are confident that the investment changes made at texas teachers will serve the interest of the members of the retirees and the pension fund and are consistent with the board's but do share a duty i hope this review of recent texas teachers activities has been up assistance to the subcommittee as it carries out its vital oversight of the federal t s p please feel free to contact me if any members of the of the subcommittee would like access to any of the information that was  thank you mr chair and members of the committee for inviting me i do want to make one correction for the record i am the former president of f i o s group happily retired last july  after thirty almost thirty five years in the investment business i've worked for a large firm small firms and across a variety of investment strategies and that gives me a fairly distinct perspective i've also served as a graduate business school professor what i hope today the committee certainly has a grasp of active and passive the definition of those two terms but i'm going to make a few calm it's about the implications of active versus passive management the whole goal obviously of active management is to outperform a series of a given benchmark the goal of passive is to provide performance at very low fees in line with a given benchmark i would suggest as the committee thinks about how do they wind up at the point that they retire with the maximum amount of money against which to retire i will make four points the first is that the data shows the likelihood of taking an active manager that will outperform the benchmark and picking a manager on a random basis increases to the extent that the market that you're looking at is inefficient what do i mean by an inefficient market if you're buying treasury bonds everybody knows just about everything there is to know about each treasury bond so no one has an information advantage if you that is an efficient market and inefficient market might be small cap stocks where i might know about a company that my competitor doesn't know about where i might be able to do better research about that come me hence i have an information advantage i can choose to buy that stock or choose not to buy that stock based on something that will give me an edge so to the extent that markets are inefficient active management really probably ought to play a larger role the second point is that and remember that data are based on those data are based on random selections of managers so the second point is that a smart staff employing good consultants ought to be able to select managers more effectively than on a random basis the third point that i would make is that purveyors of passive funds argue that the fees are low and indeed that's quite true but the t s p is a huge fund it has massive buying power and having been it firms that have done both passive and active management i can tell you that the t s p has the bargaining power to squeeze active fees down in a way that it hurts active managers the fees spread given t s p's active management fees spread meaning the difference between active management fees and passive management fees would be narrowed considerably by t s p as bargaining leverage the fourth point that i would make is that the availability of software and technology now enables small firms to compete much more effectively than they could even five years ago  that it may be a mistake in the interest of being risk adverse to overlook small firms just so you could have a bahaman that somehow may have some advantages or may not i hope my comments have been helpful i would welcome any questions that you have and i would leave you with one other thought as you deliberate we talk about risk aversion and we talk about risk versus a benchmark bear in mind that there is nothing magic about the benchmarks they are not sacrosanct they in fact are passably held portfolios designed by a committee the s and p five hundred i think it's ten people sit around and say these are the stocks that are going to be in the s and p five hundred they are not sacrosanct so i hope my comments have been helpful i would welcome any further questions thank you respond several ways the first answer your question is no i don't see them as these terrible things in fact their response was let me go to commodities because that was that's really jumped out at me there was a suggestion by some commodities group that perhaps the t s p ought to look at a commodities fund i would draw the distinction between looking at real estate looking at venture capital looking at private equity looking at commodities areas that may in fact enhance the return of the fund as a good thing and to take those suggestions as potential manipulation kind of baffles me a little bit indeed they may be good suggestions and i would ask the committee may the committee might want to see the analysis upon which these manipulative suggestions were made to how they looked at it and why they rejected it i have to admit that i've been the answer is no the higher performing sectors may indeed have more overtime have more volatility they may the returns may bounce up and down a bit more but they tend to have higher volatility around a steeper performance trendline a steeper positive performance trend line it may mean that for example you limit if you have  a venture capital option or a pure real estate option that you limit the amount that the plan participants could put into that option but i'm not sure that one  back in two thousand and two as i indicated earlier remarks in that in the next eighteen months we proceeded to to lose thirty five billion dollars of the plans assets when the tech bubble burst and some of us began to ask questions about why that was happening and and whether we had the right asset mix in our port portfolio and it took several years for us to get there because of a couple reasons one at the time texas teacher we had the lowest cost lowest per member cost of any large us plant in the country and we wore that like a badge of honor as we began to do our asset allocation study you know the study impressed upon us that there was a cost for us to wear that badge and the cost was being borne by the new it and the area of decreased returned to our system the other thing is we were basically the last well in some markets and we had no opportunity to participate in those returns so the board concluded that the best long term asset allocation again this is a defined benefit plan so  mean i think at some point well taken the one thing though that you didn't talk about and mr hollingsworth has a little bit in his opening statement and this was the focus of mr long testimony and frankly the members of congress when they put together the act back in  was the making sure we do as much as we can to safeguard against political influence political manipulation so if you would and to me that's that's where that's where it comes down to because where you good things in texas to deal with this market right now i mean i look at my savings plan quarterly report last time and it wasn't what we would like to seen so i understand that but talk to me about what you would suggest  to have the safeguards in place deal with the political aspect aspect of this and then mr hines with elaborate more on what you did in texas when you said you moved to some partial active investment strategies what you did to deal with the political question as well i'm sorry i'm at a little bit of a loss because you have a defined contribution plan it's huge but there are defined contribution plans in many political settings this is not unique and so i hear this concern about political manipulation but i'm not sure what the manipulation might be the only example that was given earlier was that some people showed up i don't know what the group was showed up and said gee look at commodity well maybe that's a bad idea maybe it's a good idea but i have yet to hear an example of political  fiduciary responsibility and ultimately selecting the vehicle that the plan participants then subsequently make their selections from as long as those individuals exercise their responsibility i'm not sure what the political manipulation is and i would i think about the plan i was involved with the deferred compensation plan to go back and look at particular that i believe it was it was designed as you just described you know i agree with that you know i think this is a situation where there are examples you hear stories where one or two incidents of situations  everybody wants to meet with you and so that's that's there but i always took took the approach where with the with our board you know we can put some things in place so that the information level is equal  board members but i've never been one to think that you can legislate ethical behavior and so you've got to hold each of your board members to their ethical and fiduciary responsibilities now having said that when we did move to more strategy the board and senior staff was more involved in meeting with manager reviewing portfolios making decisions and obligat that we did do something such as have certain ethical disclosures in place board member met with a potential manager who wanted to wanted to be part of our private equity portfolio or part of our real estate individual not by i think i cannot be objective in voting so i think there are some there are some disclosure rules and some other things that you can do if there is concern about inappropriate flow it's on the investment process none of these by the way if i might have anything to do with the effort as a plan and it's ultimately goal which i think should be the how to help the participants maximize the amount of money that they have when they retire ok there are two i think pretty obvious ways right up front the first one is who do these the providers of your investment services who are they about who are their vendors who do they execute trades with and what kind of volume that's one issue there is another issue and that is and it's a sidebar it's only partial response to your question what does that mean us to go earlier what does the status of your vendors look like because that's also about opportunity and finally over the last ten years there's been the development of something called managers of mad emerging managers these are firms that hire smaller firms  many of which not most of which are women and minority owned firms package them so that indeed large plan sponsors can hire the firm and give it a lot of money it's very difficult to give a lot of money to a firm they only manage twenty million dollars but if a minority firm or woman ellen firm comes to the table and they have a billion under management or two billion or three billion then a very large plan can do business with them should be able to do business with them and that's what the manager of  the economic function that managers of managers provide and i think you'll hear testimony from someone from one of the very excellent firms and they produce terrific returns on  of minorities and women in this space if you are investing in a small and emerging manager program be it in private equity global equity or real estate you are inherently going to be developing and increasing the number of relationships that your entity has with women and minority owned firms completely consistent with your  are small and emerging manager program does a few things first access to strategy sectors where those managers are more on the ground have more access to but we're also looking for those great investors those investors w going to be the stars of the future and we're helping the many times the small and growing into a substantial that can come back and in which we can invest directly in  in maryland we had a situation where huge percentage of our employees were minorities and they were concerned as out it was a question that was not a question whether it was fair it was unfair and it second thing that they said implicitly was that they fear that if this money were put the  jurisdiction of a minority that because many of them were new were new as compared to some of the older for that they worried about what might happen to the money it was the so we had a situation where if you took particularly the latter argument question is when do those firms get the opportunities to even grow have we need the ability to go out and take advantage of some external managers who are really good at what they did and we also talk about the fact that we're going to use fund of funds as well to help us get access to the younger guess you're mandated legally to invest passively obviously i think you'd have to go and seek some sort of legislative approval for some active management you could take advantage of some of those small firms minority firms woman own firms that they're involved in or the sec doors are precisely the sectors that would allow the plan participants the opportunity to maximize their total accumulation again i keep coming back to that point that index funds aren't the issue the issue is how do you help plan participants maximize their accumulation and their very powerful argument that women and minority owned firms are operating in those sectors active equity  ption think about you asking us about the ways to do this would be may have to have a poor option meaning you have one option for your members that  so that we can have some impact that our grandchildren to be talking about the same issues and opportunities will have passed so many people he said if i don't use you who's going to use it so we prepare our young people to go forward to be the best they can be we educate them we give them opportunity  legislative remedy embodied in that but one of the things that i think is very helpful is if those that are making the decisions about who is hired are a diverse group you know i just want to point point to that and i think you'll probably hear more of this later with some the other panelists but i've always thought that the small emerging matter programs were important not everybody agrees not even our board members agree when i first became chair but i think what you'll hear about later is that i think the empirical evidence is now there to make the business case that small and emerging managers which includes a lot of women and minority owned funds are simply outperforming their counterpart thurman white and president and c e o of progress investment management company located in san francisco california for the past eighteen years our firm has had extensive experience working exclusively with a large institutional investors who are looking to one access new investment talent and second capture the above market returns at that talent can provide this pool of under researched and underutilized town is what we refer to an industry today is emerging managers typically this includes smaller entrepreneurial firms cases less than two to three billion in assets under management who are maybe new in their investment are not new investors many of these owners and portfolio managers in emerging manager firms have gotten experience at a large investment houses and have left to start their own firm so that's the the niche within within which we specialize i'd like to make three brief points and then and then conclude the first is that emerging managers do add value the second point is that diversification makes a meaningful difference and the third is that best practices among large institutional plans are inclusive and not exclusive with respect to the first point emerging managers do add value  and many times there will be some question as to why take the risk of hiring emerging firms aren't they inexperienced aren't they in fact more risky than large firms the simple answer is no again as i mentioned  the fact that they're emerging the fact that they may be a minority woman on firms does not mean that they are inexperienced investors and fact we manage seven billion in assets for twenty nine institutional clients we work with sixty firms in twenty different multi manager investment portfolios now we did a recent survey of the experience level of the portfolio managers and founders of our firms what we found that seventy percent of those who had founded in style those firms had more than twenty years of investment experience so these are not new investors more importantly because of their passion because of their commitment because of their access now to technology because of the certainly absence of bureaucracy and more important because in many cases these are employee owned firms which means there's an alignment between their economic interests their professional and financial interests these are some qualitative reasons that these firms outperform but as you've heard earlier our own investment performance on behalf of our clients the investment performance of others in the industry as well as a growing body of academic research all supports the notion that emerging minority owned firms do outperform market mench marks they do outperform in many cases their larger counterparts and particularly in the ne fission asset classes both  bull and bear markets and that's particular relevant given the kind of market volatility that we've had a most recently that in the small cap areas mid cap areas emerging managers do outperform both benchmarks as well as a large firm counterparts the second point i'd like to kind of focus on is this idea of diversification and it does make a difference in terms of institutional portfolios diversification  is a time honored and kind of proven strategy for medicating all kinds of risk diversification of the kinds of managers that a plan may work with diversification in terms of the kinds of strategies that  institutional investor may employ now the interesting thing that we have in the situation with the thrift savings plan is you've got both single manager and specific company risk quite unusual to have such a large pool of assets managed by one firm and as we see most recently with a lot of the large investment firms there are a lot of unexpected unknown certainly unintended risk that aren't resident in those firms so that having that single manager and specific kind of manager risk is a bit unusual the second thing that you have here is a single style risk and that is the risk of the market and again this is something that perhaps well in the market is doing poorly as we've had in the last few months notice do not do as well so having a single style a passive style risk again is perhaps an under risk and certainly one could question the stature and certainly similar investment objectives to the federal thrift savings plan these fifty funds probably represent a couple of trillion dollars in assets all of them have utilized and targeted investment strategies to be inclusive of emerging and minority investment firms and why have they done this not for social reasons not for political reasons but for performance reasons they want to win in the global marketplace they want to diversify the the range of managers that they work with they want to get access to new talent to innovation and new ideas as small businesses bring to investment management investment portfolios we also want to build on and create opportunities for the next generation of talent to make the industry itself more competitive and so these are the reasons that all of these pension plans have utilized and include increasingly also defined contribution plans are beginning to utilize emerging  whether it's entertainment whether it's politics variety of industries and that's real simply this one of the playing field is leveled and new participants are allowed to participate in the game isn't rich we saw this in baseball after world war two and branch rickey the brooklyn dodgers wanted to do one thing he wanted to win and so there's like the thrift savings plan there was this pool of talent in the negro baseball leagues that had been overlooked and not used at all and so branch rickey of course jackie robinson brought him into major league baseball and the rest is history similarly even out in san francisco with our giants there was a scout there a man by the name of alex who also knew of another underutilized overlooked pool of talent and that was latino baseball players in the caribbean and south america so he began to scout that area signed up people like  currently we have more than one point four million investors in our mutual five as the country's first african american money management firm and perspective on the retirement challenges facing our country even today still the only minority firm with mutual funds price daily in the newspaper just to give you a little insight on our investment approach we look for leading brands and established and industries with high quality management team we analyze all financial statements to ensure that we're buying financially strong businesses as value investors we don't just buy cheap stocks we buy quality businesses at very low prices the financial industry has recognized our firms performance in a number of ways through our research process our discipline and our focus we have established a proven long term track record a record that has been widely widely recognized in the media on the specific question  active versus the path of management in the thrift savings plan i would say that over the long haul many money money management firms including ours have outperformed the market i am a firm believer in active management and want to make that clear and the greatest investor of all time warren buffett has proved this success over and over again but there's a larger issue at stake the question of who is being left behind in defined contribution retirement plans like the ones we're moving towards rather than the defined benefit system that is rapidly disappearing disappearing from many corporations and even some sectors of government the harsh fact is that minorities who have less exposure experience and comfort with the stock market we as a community are falling behind that is why in addition to our corporate mission to manage money for our clients and to give them exemplary returns we also have a social mission to remote saving and investing and while building in minority communities my personal goal is to make the stock market a subject of dinner table conversation in the black community to that end for the past ten years we've partnered with charles schwab and company on an annual survey comparing saving investment habits of black and white american  least the results each year to highlight the barriers to greater wealth building among african americans including the lack of knowledge and exposure the lack of trust in financial services industry partly due to the lack of diversity in our industry and historical preferences that keep us from the stock market because of these factors we have learned that our community typically has half as much money saved for retirement as our white counterparts at the same income level we're very hopeful that the story will be different in large corporations we were very hopeful that the story would be different in large corporations that offer a company sponsored retirement plan but in the first few companies that we checked we found alarming discrepancies between black and white savings rates sometimes by a factor of three or four many of us as a community did not even contribute enough to take advantage of the company match the free money that companies give us for participating in the plan we also have learned that african americans tend to borrow more against a plan we're less diversified in our investment choices and less likely to rollover our retirement money into an ira when we switched jobs recently we skirted a significant grant from the rockefeller foundation to construct a study with leading benefits administrator on minority participation and four one k plans and america's largest corporation that work is just beginning and we're very hopeful that we'll be able to spark a national conversation to boost minority participation in company sponsored retirement plan finally and most importantly we are introducing financial literacy programs in the chicago public schools to help educate or generations of african american children on the importance of saving and investing and ariel we have sponsored a public school called the ariel community academy for over a decade that teaches inner city children how to invest in the stock market using twenty thousand dollars per class of real money and adequate efficient is that really the case from where i sit mr chairman that access is not sufficient it's simply not there mr chairman the federal workforce is more than fifty percent historically under represented ethnic and racially diverse individuals committee member indicated earlier who better to give that advice than people who share the culture and common interest of those who are actually investing their money the dilemma is that the criteria for competing for the opportunity to manage the federal thrift savings plan and i quote is capability of managing billions of dollars and the fact of the matter is african american and other minor minority owned cannot be said on these proposals until the criteria for eligibility has been changed what i want to leave with you today not only a discussion about what has involved overtime where there is now a monopoly if you will but i want to make sure that you understand that there is an opportunity to change the current practice and create so much more good with just a few and a little more twenty first century and i know i don't have to tell you that much has changed and i must say as one who traditionally deliberate very deliberate about change much of the change we've experience with diversity has been for the greater good let's face it we all know and inclusive environment can enhance the status of much of what we do in our daily life we've all read the study heard the presentations by experts in the feel like our roosevelt thomas has published several books on diversity and has a consulting firm or founder of the kaleidoscope group years ago who  is a leader in the whole area of diversity and more than likely we pretty much experience a positive outcome on a daily basis so i don't pretend to be telling you anything that you don't know if we can just take what we've learned from other arenas and apply it here i believe we would agree that diversity participation at the management level of the federal probe savings program and the investment companies produced can offer opportunities for inclusion as well as serve as a catalyst for improved decision making increase productivity competitive and make it competitive advantage you very large and successful contractors of the federal program have a very poor record of diversity in their own workforce i would welcome the committee's aggressive demand upon all of the contractors to the federal and the thrift savings plan itself to set and meet goals of internal minority employment hiring and promotion they should be able to name individuals a minority group that had major divisions of their they should report back to the committee their hiring practices and recruiting practices they should show that they are doing everything to meet the goals of the industry as a whole point or woman appointed to the board why not diversity at the top mr chairman the executive director of the federal board should be challenge and directed to begin the diversity movement within his own office and staff and then in the various departments and division this should be a part of every vendor's report the number of minorities that are employed and if there are no of that size with exclusively investment as well as a single manager are probably in the minority among any similar size plans within this than what currently exists with the sole provider being barclays i also think that again when you look at benchmarking of other plans i'm not sure that there's any many plans around the world that are of this size so it's hard to go apples to apples in terms of the pure scale of this plan but when you do look at very large defined contribution plans around the country many of whom we work for the biggest in the war in the country the united states when you look at those plans you do see more options more opportunities and you tend not to see a wholly in debt option or set of options for the plan participants so you can look at again major major corporations and see that there is a more diversified lineup of operating the d s p from what i understand will use the cost argument as their major defense that's what i would assume and say we get to do this at the lowest possible price we would come back and argue that you may be giving in in exchange for that one and a half basis point which i'm not sure that all inclusive in terms of the cost but we would say that considers the provider for the plan in many situations an aerial very frequently response to requests for proposals from city and state pension funds around the country as well as defined contribution plans and those open it up allow different types of investments to be included in the plan what we have now is a very narrow unmanageable but it certainly would be open once it is then open then obviously there will be opportunities for different types of managers for different types of things so obviously a particular manager might be good at or another particular manager might be good for one thing or another i think there will be great resistance to this because it would be but there inherently political about either as was mentioned in the earlier panel the key ought to be how do we maximize returns for participants that ought to be the driving force and certainly in addition to considerations about cost being written into the legislation the flexibility to include active management also considerations about risk and return ought to be ought to be included within the legislation those away's  manages assets i think finally this idea of having processes like competitive bid r f p the use of external consultants the three plan mentioned that they had used which is a consultant for many of the large plans that we work for and others again these are all mechanisms to help maintain the integrity of the decision making about who gets to manage assets and so these are things that can be built into the legislation to help ensure the integrity of the process so but is there's nothing inherently political or less political about a passive strategy versus an active strategy one might just as i change i would not sit here and tell you that it's a bad plan i'm just saying it could be slightly better if there were more participation and more inclusion i would not ever advocate twenty mutual funds i would not ever advocate a fine for every flavor and topic but because i think people don't become overwhelmed with the choices that they get but i do think on the margin again not anything revolutionary but more evolutionary there's an opportunity here to make a find slightly better  slightly better the one way to deemphasize any of the political conversation that you are alluding to is that at the end of the day in our business the really great thing is we have a score we know who did well and who did it you can look at the numbers on the page every single day in our business every single day you can open up the newspaper and see how your area will find dead and we know if we won or lost that day versus the indices that are in this plan and so the good news is that deemphasize is any kind of political conversation because the numbers speak for themselves and at the end of the day as i said before people will go where their performance which is also not political at all it's in their own best interest last but not least when you look at any of the other plans that are out there don't see that and if you take it a step further and look at other federal plans like the national railroad retirement trust as an example it