The opening plenary during the Racial Equity themed second day of the 2021 Advisors Forum focused on how to support BIPOC (Black, Indigenous, and people of color) investment managers and was moderated by Larry Lawrence, Executive Director of MSCI ESG Research. Lawrence opened the session by centering discussion about how just 1.3% of money is managed by women or racially diverse managers. He then engaged panelists John Barker, Managing Director of Investments at the Kresge Foundation and Shuaib Siddiqui, Surdna Foundation Director of Impact Investing and Confluence Board member in dynamic discussion about how to hire ‘the right managers’ – those that are diverse and excel.
But, who are the “right” ones? That is an area where asset allocators and consultants don’t necessarily see eye to eye with values-aligned investors. A consultant might not always check off all the boxes when evaluating a talented manager whose qualifications are not within their traditional scope of evaluation. The “right” one might not have gone to an Ivy League school, or have a long track record of experience managing large funds, for example. Yet they might have precisely the skills, judgment and life experience that make them perfectly suited to assess the downside risk and upside potential of an investment.
It is clear we need to think beyond the traditional framework if we are to create progress in this area as investors. And it makes economic sense to do so, too. Barker pointed out that diversely owned firms perform as well if not better than their non-diverse peers. Kresge Foundation purposely built a more diverse and inclusive team internally, and is aiming to have 25% diverse-owned firms in their portfolio by 2025. There is no shortage of these managers in our own backyards. “We may travel 15 hours to China to find fund managers, when we have partners in our own backyard that are world class diverse-owned firms,” said Barker. “This isn’t ‘do the right thing,’ he added. If you are a fiduciary, looking for diverse-owned firms is part of your job.”
Siddiqui discussed how VC (venture capital) managers often come from Harvard and Stanford, and agreed strongly that it's an economic imperative to diversify that pool. In the world today, we have a more diverse set of consumers. Are we building the enterprises that will meet the needs of the new consumer class? “This is a moral imperative for our institution given our mission, but it’s an economic imperative as well: [we benefit financially from] the diversity of ideas and thinking.” $100m of Surdna’s billion dollars is currently allocated to impact investing, much of which is intentionally investing in first-time managers of color.
Lawrence asked Siddiqui how he finds and chooses these managers. Siddiqui explained that to do this work, you have to wholly reassess how you place capital. He said he asks, “How are we changing our practices to ensure that’s happening? It’s a full interrogation of how we choose to show up. Much of it comes down to getting your hands dirty and looking at problematic behaviors.” To illustrate this point, he discussed an investment in a woman of color fund manager in an early, series A VC investment. An investment advisor complained that her memos didn’t have enough scenario analysis. But how would seed funding have that analysis? If you understand early-stage investing, you’d know that. Or was the advisor holding this person to a different standard? When meeting with an investment allocator, dig in to see their biases, Siddiqui advised. Tell them clearly that, “I want you to show me what you are presenting. Then I want to know what you are rejecting and not rejecting. I need to understand as a decision maker if we are aligned philosophically.”
As Siddiqui explained, when assessing a potential manager, “we need to think about people’s life experience, for example a Black woman who was the first person to go to college in her family. What does that mean [about how] she can manage risk? That’s what you want to see in a fund manager. [She] got to college and had this life experience, and has the drive and risk management capabilities…This woman is phenomenal at risk mitigation. Look at what she has achieved in her short life. But we don’t look at that. The narrative we tell ourselves is that this [other] person went to Harvard. We have to flip the conversation and redefine success.” We would be better off if we didn’t use shortcut metrics that are false indicators.
Larry and Barker discussed how talk of diversity has gone on for decades without much real change. Legendary Yale endowment manager David Swensen recently announced a diversity initiative, amongst others. Lawrence, referencing the Black Lives Matter movement and the unprecedented impact that COVID has had on minority communities, asked “Is this time different? Are we finally moving in the direction where significant change will happen?” Barker responded, “Yes. Keep in mind, I’m a paid skeptic. When you invest you have to be a skeptic. But I mean it when I say yes.” “There are so many glimmers of hope right now,” Barker said.
As advice to investors, Siddiqui indicated that he would suggest that in order to look to increase diverse fund managers, you have to do the homework yourself. “Understand your own biases. Come to meetings to actually see how things go. Do your homework so you don’t recreate the problem or outsource it to someone who doesn’t care as deeply as you do. You have power as an allocator of capital. You need to get on the road to learn and understand, show up and ask tough questions.”
Barker agreed and added, “Survey your managers about where they are in the diversity journey. There is survey fatigue among managers, but we need to keep pressure on the industry to say we have to do better.”
The conclusion? We need to flip the conversation and redefine what a successful investment manager actually looks like and take down the walls that prevent them from success. “Expanding opportunities requires dismantling barriers," stated Barker. Also, investors need to stick by these managers. As Siddiqui said “institutions need to be sure that when the racial equity announcements are not there anymore, that we are still there...It's about consistency.”
- Sarah DeNicola, Social Equity Program Director, Confluence Philanthropy
