By Carol Jeppesen, Head of US, PRI  

Diversity, equity and inclusion series

In the first interview of this series, I had the privilege of speaking with Rodrigo Garcia, Deputy State Treasurer and Chief Investment Officer for the Illinois State Treasury, a state with the 5th largest GDP in the US and the 19th largest economy in the world.

Rodrigo Garcia

From humble beginnings in Chicago’s Little Village neighborhood, through three tours of duty in Iraq and Afghanistan with the US Marines Corps and following a governor’s appointment to the Illinois Cabinet, in 2015 at 32 years old, Rodrigo Garcia became the youngest ever Chief Investment Officer (CIO) for the State of Illinois, and currently oversees an investment portfolio of more than $32 billion. He is an Adjunct Professor at Northwestern University, an Aspen Global Finance Fellow, and a TEDx speaker. Rodrigo has been at the forefront of Illinois’ push to raise the bar for investors on ESG investing and equity, diversity, and inclusion.

Carol Jeppesen (CJ): Rodrigo, thank you for being with me this morning. You’ve had a very interesting pathway to where you are today. As one of only a handful of Latino CIOs of public funds in the US, to say that you have shattered the glass ceiling is an understatement and something that many can draw inspiration from. Could you provide some perspective on challenges you’ve faced in your career trajectory and any critical lessons learned along the way?

Rodrigo Garcia (RG): Adapt and overcome. A way too familiar phrase in my days… I’ve faced many personal and professional obstacles, yet the greatest obstacle was trusting my abilities to overcome such hurdles considering the inequity, poverty, and prejudice that surrounded me. As a first-generation Mexican-American from Little Village on the South Side of Chicago, the 3rd largest city in the US, I personally observed the toil and effort of an undocumented immigrant father and mother, who were subject to constant harassment and wage theft.

My father consistently worked 14-hour days. My mother worked 8-hour days and managed a full-fledged family. As a family of six, we lived in a two-bedroom apartment where I slept on an old mattress on the floor with my older brother. My father and I would traverse the alleys of Chicago in our old 1964 red Ford pickup to collect scrap metal (e.g. boxy refrigerators, worn-out stoves, old bathtubs, rusted pipes, and other items). We were often escorted out of predominantly white neighborhoods by the local police department. We weren’t welcome. Early on, I became intimately familiar with racism and discrimination while internalizing the value of hard work, resolve and determination. Initially raised on government welfare, my parents worked vigorously to break away from it.

Upon enlisting in my beloved US Marines Corps, I was trained and deployed to foreign lands. The values of diversity, courage and espirit de corps were quickly reinforced as I personally witnessed entire communities subjected to constant terror, fear and injustice. Each of my three deployments to Iraq and Afghanistan taught me the value of sacrifice and the importance of unwitting devotion and selflessness. My military experience provided great lessons in leadership, personal responsibility and biases.

Collectively, all these “life” experiences laid the foundational traits and fostered the needed perseverance for a fruitful career to date. I’ve learned a few lessons over the years that have allowed me to succeed. And I will share just a couple of them with you today. Let’s call it an introduction to leadership.

1. Lead by example – leadership is taught by example. Don’t ask your employees to perform a task you would be unwilling to do yourself. Whether it’s compiling research data, composing an investment memo or performing an administrative task. Make it your responsibility. An organization’s employees are a reflection of its leaders. The buck stops here.

2. You won’t make everyone happy – with leadership comes great responsibility. We must oversee the well-being of an entire organization and make decisions that impact the welfare of our staff – which in its most basic sense – means that some people will be dissatisfied regardless of your decision or outcome. It’s expected and unavoidable. If you try to obtain the buy-in of everyone, you’ll avoid the tough decisions and risk losing sight of your underlying mission. You’ll either end up with bureaucracy and/or angering your best employees. Tensions will arise, and it’s your job to manage it effectively by staying focused, maintaining open lines of communication, and always keeping the big picture top of mind.

3. It’s not a race – slow down as you make decisions. When making important decisions, you almost always have plenty of time to gather the pertinent information, consider your options and interests, and then make a calculated choice. It is always better to take the time to make a calculated choice than to rush a decision – or even worse, to make a rash decision and then later realize it’s unsuitable. Then, not only will you have to backtrack, but you will need to make up for lost ground. At the same time, when a mistake is made, don’t be afraid to admit it and then develop a new course of action. We need to learn from our mistakes in order to grow.

America is in a constant state of revolution, not a state of imminent crisis, but rather a revolution that is constantly happening, constantly changing, and constantly evolving. It is that which will define this generation of leaders and our future.

CJ: In 2018, the Illinois State Treasury joined the PRI as our first ever treasury signatory in the US, committing to incorporating environmental, social and governance (ESG) factors into investment decision making and stewardship activities. Could you talk about what motivated Illinois Treasury’s decision to make this commitment and how it aligns with your fiduciary duties?

RG: Investing means making choices. For the investment officers at the Office of the Illinois State Treasury, it means choosing investments that are risk-appropriate, high-performing, and meet or exceed the benchmark. By becoming the first ever treasury signatory in the US, it reflects our commitment to sustainability, inclusion, and sound corporate governance, given that these factors boost our investment returns and strengthen the economic well-being of Illinois citizens and institutions.

We know that to fulfill our fiduciary duty and maximize returns, we need to focus on more than just short-term gains and traditional indicators. Additional risk and value-added factors that may have a material and relevant financial impact on the safety and performance of our investments need to be integrated into the decision-making process. These material sustainability factors include (1) environmental; (2) social capital; (3) human capital; (4) business model and innovation; and (5) leadership and governance factors.

Studies clearly demonstrate that companies with sustainable policies are lower risk investments and frequently provide collateral benefits to investors. So not only is sustainable investing good for the community, it’s good for business. To put it another way, sustainable investing aligns with our core fiduciary responsibilities. We endeavor to take governmental investment standards to a new level, one that recognizes that sustainable environmental, social, human capital, business model, and governance practices are strongly related to safer, more innovative, better-performing companies.

As a large, long-term investor to funds and corporations around the globe, we believe we can help raise the bar for the entire industry. That’s why we promote an investment philosophy that fuses traditional investment objectives – optimal risk-adjusted returns, low expenses, and diversification – with a focus on sustainability, corporate responsibility, and risk management. By doing so, not only do we position ourselves to protect shareholder value and maximize returns, we can help foster a business culture that is more attentive to structural trends, societal impacts, and long-term growth. And that benefits all of us in Illinois and beyond.

CJ: Over the past few months, deeply-rooted social issues such as systemic racism, economic inequality and disparities in access to healthcare have been laid bare in this country – and indeed, in many parts of the world. What role do you think large institutional investors like the Illinois State Treasury can and should play in addressing these issues?

RG:  It takes a structured framework to facilitate change in such deeply-rooted social issues. Leadership (it starts at the top), philosophy (a change in mindset), policies & processes (cultural competency), ingenuity (thinking outside the box), and accountability (measurement and evaluation) are all critical dimensions needed to address the realities of today’s disparities. When investors design and apply policies, practices, or rules that appear to be neutral or innocuous, yet result in a disproportionate impact on communities of color, we are inadvertently promoting prejudiced and biased systems.

Our office believes that our government and its activities should mirror the diversity in our state. And beyond that, diversity is good for business. Research demonstrates that diverse-owned companies are often well-situated to ascertain capital inefficiencies in the market, and as such, many are primed to outperform their peers. That’s why we’re focused on providing more opportunities to qualified minority, women, veteran, and disabled-owned (MWVD) financial firms and to partners with a record of equity, diversity, and inclusion within their firms.

Since 2015, the Illinois State Treasurer increased utilization of diverse broker/dealers from 1% to 88%. In FY 2014, total assets brokered with MWVD firms was $603 million. In FY 2019, total assets brokered with MWVD firms was $45 billion. That’s 75 times more utilization. Broker/dealer firms include but are not limited to: Cabrera Capital Markets, Loop Capital Markets, Great Pacific Securities, Drexel Hamilton, MFR Securities, and Mischler Financial Group amongst others.

We’ve also increased assets managed by MWVD firms from $18 million in December 2014 to $3.9 billion in June 2020. That’s a 216-fold increase. Asset Management firms include but are not limited to: Ariel Investments, Garcia Hamilton & Associates, Ramirez Asset Management, Sit Investments, Brightwood Capital Advisors, Vista Equity, and Valor Equity amongst others.

Another area of keen interest for us is corporate board diversity. Diversity is a cornerstone of investment. Increasing returns by increasing perspectives. As the leader of the Midwest Investors Diversity Initiative, a 13-member investor coalition seeking to advance corporate board diversity at companies headquartered in the Midwest. Leveraging $870 billion in assets to deliver results. Since 2016, we’ve engaged 52 companies, 37 companies have committed to changes, and 67 diverse corporate board members were added. And as a leader of the Thirty Percent Coalition, the Illinois State Treasury and fellow investors have successfully engaged 300 companies that have now appointed a woman to their boards. Talent knows no gender, race, or ethnicity.

Another area of keen interest for us is corporate board diversity. As the leader of the Midwest Investors Diversity Initiative, we have undertaken 54 company engagements, 40 of which added diverse board members and 32 adopted a diverse search policy since MIDI launched in 2016. And as a leader of the Thirty Percent Coalition, the Illinois State Treasury and fellow investors have successfully engaged 300 companies that have now appointed a woman to their boards.

And lastly, we’ve been focusing on the lack of diversity within mutual fund boards. Our office surveys its mutual fund providers to assess levels of diversity among mutual fund board members. We surveyed 26 fund families in 2019, identifying leaders and laggards, as well as best practices and actionable recommendations for those with room for improvement.

CJ: The business case for diversity and inclusion is clear, yet there is still a glaring underrepresentation of women and people of color in the C-suite and board of directors within US companies and investment firms. How might we better examine the vetting process by which women and people of color enter the workforce and what continues to prevent these historically oppressed demographics from rising within the ranks of companies? What are you doing at Illinois State Treasury to help change this?

RG: Who owns corporations? It’s not corporate America. It is us, the American populace, to a large degree, through our pension plans, retirement savings plans, college savings plans, investment brokerage accounts, and other investment vehicles.

Take board diversity, for example, which has been and continues to be a key area of focus for our office and many other institutional investors. Despite the diversity of our populace, and research that shows the positive effects of board diversity (the inclusion of women and minorities) on financial performance, group decision making, and business ethics, the disparity is ever persistent.

But there has been a shift in the narrative as boards (slowly) become more diverse, with more and more directors seemingly wanting to move on from the conversation. The 2019 Annual Corporate Directors Survey by PWC showed that 38% of directors said having gender diversity on their boards was very important, down from 46% in 2018. It also showed a more drastic increase in the percentage of directors who say investors devote too much attention to the topic of board gender diversity: 63% this year from 35% a year ago.

So, if you peel back the layers, corporate directors aren’t actually saying they’re done with diversity. Instead, they seem to be saying they’re tired of hearing about it, and especially hearing about it from investors. But we must not relent with our advocacy. Why? Because nearly two-thirds of male directors believe board diversity efforts are being driven by political correctness, and 75 percent of male directors say that boards will naturally become more diverse over time.

But if you’re on a board that hasn’t caught up on diversity, you’re going to keep hearing the message. Coalitions of investors will continue to remind companies until they get moving on the journey toward diversity. And if you haven’t addressed and embraced board diversity, your board is probably not operating optimally — and your shareholders know it.

Change will not happen on its own, and it often won’t happen from within. Investors need to keep making the case and public policy needs to support it. That’s why Illinois became the first state in the nation to pass a law, the Sustainable Investing Act, establishing a framework for public fund managers to integrate sustainability factors in their investment portfolios. And that’s also why we also became the first state to require corporations headquartered in Illinois to report on the gender and race/ethnicity of their board members. The new law also requires that companies report on their policies and practices for promoting diversity, equity and inclusion among its board and executive officers.

To monitor company progress, since 2017, all financial and investment firms seeking to do business with the Illinois State Treasury must disclose how their firm promotes equity, diversity and inclusion. This includes a 360-degree evaluation of diversity among its board or owners, executive leadership, workforce, supplier network, and community activities, conducted annually through the office’s Equity, Diversity & Inclusion Assessment. This evaluation leverages data and information already disclosed to the US Equal Employment Opportunity Commission, which captures the various roles at a company (e.g. executives, managers, professionals, technicians, sales, clerical, labor, etc.) by race, ethnicity and gender.

CJ: There is a strong investment case to be made for fighting socio-economic inequality within the local communities where many of your beneficiaries live and work, improving access to housing, healthcare and education. However, many institutional investors have seemingly been opting to remain on the sidelines. What are the barriers that prevent more widespread private investment into these communities?

RG: Just like food deserts, we have banking deserts. This means that entire neighborhoods have no or minimal access to capital. They have deemed these communities as not profitable or not profitable enough. Small businesses in underserved areas are a powerful economic engine, generating jobs and wealth where resources are scarce. Entrepreneurship is a potent tool in closing long-standing wealth gaps. As COVID-19 threatens to permanently shutter small businesses, it is important to consider and adopt policies that promote alternative and flexible sources of capital from nimble institutions like credit unions, community banks, community development corporations, community development financial institutions, community land trusts, and micro lenders to name a few. This ensures that small business enterprises have access to capital, not just those with the resources and relationships.

Amid the COVID-19 pandemic and with a spotlight on inequality, expectations for private companies are rising. Today’s world poses a test of both the breadth and durability of corporate purpose, shifting the dynamics for thousands of companies as they confront new challenges and expectations. Thus, the purpose of large private enterprises to solely serve the short-term interests of certain shareholders is being questioned more than ever now.

If there is a positive consequence resulting from the pandemic, it’s the accelerated shift to stakeholder capitalism and away from companies’ singular emphasis on shareholder profits. The importance of employees, customers, suppliers and the communities in which they operate has brought the need for stakeholder capitalism into sharper focus. When companies do things like increase healthcare benefits, increase pay for workers on the frontlines, lower executive compensation to help avoid layoffs, and take additional steps to protect workers, they benefit from a more engaged and productive workforce, a more loyal customer base, and a stronger reputational brand.

On the other end of the spectrum, institutional investors also have a pivotal role. We should be constantly evaluating the diversity of our management teams and staff, leverage investment stewardship to promote racial and ethnic equity, vote proxy statements in alignment with fair and equitable corporate practices, invest with investment funds led by people of color, invest in diverse-led businesses addressing issues in communities of color, and hire firms with a proven track record of equity, diversity and inclusion.

We need to drive change toward a free, just and equitable society. The work is more important than ever. We need to work in partnership to rebuild our communities, address historical and structural inequities, and take full advantage of the opportunities afforded by diversity and inclusion, which after all, is the story of our nation.

CJ: Lack of access to financial capital continues to be an obstacle limiting the growth of minority-owned businesses. Does Illinois State Treasury have a role to play here?

RG: Yes, we have a role. Currently, we do this through two platforms: The Illinois Growth and Innovation Fund and Invest in Illinois.

Established in 2016, the Illinois Growth and Innovation Fund (ILGIF), an evergreen impact investment fund, invests to attract, assist and retain quality technology-enabled businesses in Illinois. We do this by making targeted investments with venture capital (VC), growth equity and private venture debt firms with a nexus in the State of Illinois. To date, of the $377 million committed to venture capital firms, $155 million has been committed to MWVD venture firms. That represents over 40% of committed capital. This has enabled more than 85 diverse-owned portfolio companies to receive funding support. Further, we are actively seeding and anchoring new minority venture capital funds in order to help grow the number of minority GPs investing in Illinois.

Moving forward, we will continue to push toward increasing economic equity to broad swathes of Chicago, not just those parts of the City known for their entrepreneurial bonafides. Decades of disinvestment and undercapitalization have left entire communities vulnerable and marginalized. Entrepreneurship is a potent tool in closing long-standing wealth gaps. That is why we have an initiative in the pipeline to invest in marginalized and underrepresented communities in Chicago that we hope to reveal soon. Stay tuned.

Invest in Illinois is a collection of programs offered by the Illinois State Treasury – (1) Ag Invest, (2) Business Invest, and (3) Community Invest – that provide impact investment deposits to lending institutions to provide consumer loans, assist with farm-related expenses, finance business expansion and fund other important economic and community development activities. By providing access to $500 million in state investment capital at a lower rate, Invest in Illinois incentivizes financial institutions to lend to minority groups marginalized by limited loans or high-interest rates at a lower cost to borrowers.

Lastly, we’ve also established the Advancing Equity in Banking Commission (AEBC). In partnership with the Chicago City Treasurer, we’ve convened financial institution CEOs across the state to discuss, and subsequently join the AEBC, the design and implementation of solutions to that address the systemic and structural racism within the banking industry.

CJ: Taking a look within…what does equity, diversity and inclusion look like at the Office of the Illinois State Treasurer?

RG: Since we began in 2015, we’ve increased the number of senior executive staff from three diverse team members to 15. This focus directly aligns with our core values of fairness, inclusion, opportunity and community development. We strongly believe – and research backs this up – that diversity is good for business.

The Illinois State Treasury is also an active member of the Financial Services Pipeline Initiative, which seeks to increase the representation of Latinos and African-Americans, at all levels, within the Chicago area financial services industry by focusing on the talent pipeline, recruitment/hiring, and development/retention.

CJ: Investment is about looking towards the future. So, looking beyond the current social, economic and political uncertainties, what makes you optimistic? Do you expect that the pandemic and other recent events will compel institutional investors in the US to become more socially responsible in their approaches?

RG: What we do now will dictate the future. Similar to the period following the Great Recession, the current economic recovery is serving the well-to-do and the wealthy. Although the US has enacted $3 trillion in government stimulus and $3 trillion in monetary stimulus, the resulting economic recovery to date has benefitted those with capital. The glaring disconnect between the real economy, of working people with jobs and bills to pay, and the investor economy, of investors with stocks and bonds, is one of the starkest disparities of modern times.

We must be the action that we seek. We must use this crisis to think bigger. We must recapitalize underserved enterprises with low-cost, flexible capital, reinforce our local economies by building structures to support them, and employ strategies that promote sustainable economic activity. We must foster innovative strategies such as worker-owned cooperatives, complementary currencies, and stakeholder capitalism to create the necessary foundation to expand the economic recovery to broader swathes of society.

If not now, then when? If not us, then who? If not here, then where?

Thank you for the invitation to share a few words as we look to continue the journey to equity, diversity, and inclusion and we look forward to working with you to build a more vibrant and equitable society and a stronger, more robust investment ecosystem for tomorrow.



Special thanks to Shaska Chirinos, US Relationship Manager, PRI, and Elena Espinoza, Head of Social Issues, PRI, for their input into this Q&A



This Q&A was conducted by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories.

Please note that although you can expect to find some posts here that broadly accord with the PRI’s official views, the Q&A participants write in their individual capacity and there is no “house view”. Nor do the views and opinions expressed in this Q&A constitute financial or other professional advice.