Recent research studies have proven that there is no performance gap between diverse-owned firms and non-diverse-owned firms, yet the disparity in capital allocations between them is vast. Missing out on potentially high performing diverse-owned firms may pose a lost opportunity to drive alpha in investment portfolios. Has there been any meaningful progress to balance the scales?
That was the main topic of Confluence’s April “Measurement Matters/DEI (Diversity, Equity and Inclusion)” webinar, during which we held a rousing discussion. Together, we explored some of the challenges and opportunities to the advancement of manager diversity in the institutional asset management industry, particularly among the traditional capital allocation “gatekeepers” in the space.
Our discussion expounded on the troubling fact that of the $70 trillion in global AUM, little more than 1% is in the hands of firms owned or led by women or people of color. The good news is that major research over the past few years - such as the 2019 Knight Foundation/Harvard Business School report - has shown no sub-par performance among firms owned or led by diverse people, with growing attention in the field. Importantly, these studies specifically address the perceived conflict between performance and DEI in investment portfolios.
Justin Wilson of the Raben Group and the Diverse Asset Managers Initiative (“DAMI”), then shared progress “from the field” by discussing the background and promising results of DAMI’s 2019 Annual Investment Consultant Report, which shows significant institutional commitment on the part of survey respondents regarding advances in staff diversity and the identification and engagement of diverse fund managers.
I appreciated the opportunity to share the thoughtful work undertaken by one of our longtime clients, the Rockefeller Brothers Fund (RBF), in partnership with Agility over the last two years. We developed a gender and racial equity lens investing framework, and RBF committed to a goal of allocating 25% of its AUM to firms that are majority-owned by women and/or people of color. The gender and racial equity lens investing framework spans four key metrics, any one of which would qualify a particular manager:
- Metric #1 / Ownership (Majority or +51%)
- Metric #2 / Leadership (Voting member of the Investment Committee or Portfolio/Fund Manager for the Strategy)
- Metric #3 / Next Generation Pipeline Building
- Metric #4 / Diverse-Led Portfolio Companies (primarily private asset classes
Questions from participants ranged from ‘cracking the old boys’ network,’ ideas for how to increase the response rate for DAMI and similar surveys, and optimizing existing information clearinghouses like DAMI’s website. There was also the suggestion of looking to Confluence to help gather helpful information like sample Investor Policy Statements that address diversity as well as exploring the possibility of a centralized database that captures diverse owned and/or led firms. I spoke of my own experience of initial steps taken towards greater “co-opetition” amongst investment management gatekeepers, which was an outcome from Confluence’s January 2019 DEI workshop: the idea is to circumvent the naturally competitive nature of our field in order to source and scale firms owned and strategies led by women and people of color.
We all shared a sense of hope around the progress being made in our field. As the data from recent studies shows, there is no conflict between seeking performance alpha and greater manager diversity in investment portfolios. There is still much work to do on this issue, but increases in measurement and transparency combined with innovative approaches will hopefully accelerate progress in the near term.
- Tamara Larsen, Executive Director, Agility/PWP
