10/29/2011 11:01 am ET | Updated Dec 29, 2011

Emerging Manager Programs: Not Just for the Emerging Anymore.

So as my career choices would belie, I am a passionate advocate for ethnically diverse-owned businesses. I believe in their ability to deliver excellence and enhanced efficiency, I believe in the importance of their success and vibrancy to the communities in which they operate and to the nation's economic health as a whole. And the statistics bear that out.

According to the Minority Business Development Agency in the U.S. Department of Commerce, people of diverse ethnicity are starting businesses at twice the national average, with women-owned businesses in that category leading the charge. This is important because those companies have also proven that they have a propensity for hiring a diverse labor base as well.

In addition to knowledge and expertise, and a heavy dose of courage and sweat equity that have caused many of these companies to be successful, certain programs have also served to open doors for these companies over the last few decades. Programs like the 8a program in federal government and the supplier diversity initiatives undertaken by many companies in corporate America have served to create real opportunities for diverse companies.

In the realm of financial services, which is in many ways one of the last bastions of parity in business, the programs aimed at giving women and people of diverse ethnicity the opportunity to prove themselves as judicious and expert fiduciaries of capital are called Emerging Manager Programs. Over the course of the last decade or so these programs have been very effective at opening the doors to an industry that has been historically monolithic.

But things are changing, Emerging Manager Programs have lost their purpose. I recently attended an emerging manager conference that was focused on real estate and private equity fund managers. While I was there, I was surprised by the tremendous shift in the demographics of the attendees in comparison to what the participant base used to look like. The demographics had shifted from being predominantly comprised of female and ethnically diverse managers to being predominantly Caucasian males. My surprise turned to dismay when I heard one of the speakers offer the following statistic:

"Of the 274 real estate investment firms that can be categorized as emerging managers, 20% are women and minority owned."

20%?!?! If only 20% of the emerging managers are women and minorities, that means that 80% of the emerging managers are white males! Are you kidding me? This is not a situation where the number used to be 10% and is now 20% which would indicate progress. Historically, women and ethnically diverse managers comprised the vast majority of emerging managers.

Unfortunately, this is a depressing trend. The public pension funds once touted these programs as a way to give what they called "disadvantaged groups" access and opportunity. In the early days of these programs you would see the room full of a beautiful rainbow of managers of varying race, ethnicity and gender. But as these programs grew and more capital was allocated to them and regulatory changes made the traditional methods of relationship building and fundraising increasingly more difficult, people started to take notice and complain, claiming these programs were discriminatory...mind you they were no more discriminatory than the 8a or supplier diversity programs mentioned earlier. But the pension funds and legislative bodies caved and changed the criteria for qualification for the emerging manager programs.

Now rather than specifically focusing on "disadvantaged groups" for the emerging manager programs, the regulations focus on far more generic, broad attributes such as the amount of capital being raised, the number of funds the firm has under management, how long the team has been together, etc. These criteria are so incredibly general that effectively an all-Caucasian male team that has recently spun out of a blue chip Wall Street firm like Goldman Sachs or Carlyle or Blackstone can qualify as an emerging manager. This is not the demographic the programs were originally created to support.

So the long and the short of it is that the legislative and institutional investor community has allowed the programs to become so diluted that they have almost completely rendered ineffective a once highly effective mechanism that created opportunity for firms that, when given that opportunity, outperformed their general market counterparts by a margin of 4% according to the study Minorities and Venture Capital: A New Wave in American Business.

As always, I am compelled to issue a call to action.

It is time for those institutions that have advocated on behalf of ethnically diverse and female money managers to become strong again and advocate powerfully and effectively, to be given the tools they need to successfully intervene on behalf of the true emerging managers and ensure that the progress that has been made over the last twenty years is not lost. This can only be accomplished by the gift of time and treasure on the parts of those for whom those associations would advocate. Our communities have all that is needed, the intellectual and economic capital, the strategic and political savvy to ensure our places at the table and our ability to generate real wealth for our communities.

But do we have the will?