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In June, a final inter-agency policy statement establishing joint standards for assessing the diversity and inclusion policies and practices of regulated financial entities was published by the SEC and five other financial regulators. The issuance of this policy statement was a requirement of the Dodd-Frank Act. In short, the policy states that financial entities may conduct a voluntary self-assessment of their diversity policies and practices. It contains no mandated requirements or reporting and will not be part of the SEC examination program. The policy will also have limited applicability to hedge funds because it was written with a focus on financial entities with over 100 employees.
The contemplated voluntary self-assessment sets forth standards in four primary areas against which each entity can measure itself. The four areas are: (i) organizational commitment to diversity and inclusion; (ii) workforce profile and employment practices; (iii) procurement and business practices; and (iv) practices to promote transparency of organizational diversity and inclusion. The policy encourages entities to disclose their diversity policies and practices, as well as information related to their assessments, to the regulating agencies and the public. Pursuant to the requirements of Dodd-Frank, all the regulating agencies now have an Office of Minority and Women Inclusion which presumably would be tasked with the review any self-assessments which were disclosed to the an agency.
While the hedge fund industry manages approximately a hefty $3 trillion in assets as of Q1 2015 (according to Barclay Hedge), the vast majority of firms are small and do not come close to the 100 employee threshold for voluntary compliance with the new policy. Diversity hiring at hedge funds has anecdotally always been low in trading, analyst and C-level positions. According to a 2013 report, only 9% of Calpers external managers were women or minorities (Calpers has since stopped making hedge fund investments altogether.)
The SEC release regarding the new policy can be found at: http://www.sec.gov/news/pressrelease/2015-114.html.
Read more articles about the hedge fund industry and related legal issues at Hedge Rows, a blog by Judith Gross.
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