A New ‘Blueprint’ for Increasing Equity in Investing—and Why It Matters

Investors have a crucial role to play in advancing equity in American society, and a new report offers concrete steps on how they can do it.

The report, known as the Investor Blueprint for Racial and Economic Equity, was prepared by three organizations: the nonprofit PolicyLink; CapEQ, an impact investing and advisory firm; and FSG, a nonprofit consultancy. Several of its authors presented their work Thursday at a panel discussion hosted by the Federal Reserve Bank of New York.

“No matter the short-term politicized climate we currently live in, advancing equity is the most pragmatic approach to securing the precursors to stable, long-term profits and economic stability: a healthy labor force, an economically secure consumer base, stable democratic systems, and a well-functioning society,” the authors wrote in the report foreword.

Those goals—as well as questions about the current culture war over environmental, social and governance investing—were a recurrent theme at the Thursday event, which also featured two investors who adhere to such principles in their own work: Liz Roberts, head of impact investing at MassMutual, and Aron Betru, chief operating officer at private equity firm Trident.

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The investor community has too often contributed to the problems of racial and economic inequality, said Michael McAfee, PolicyLink’s president and CEO. But shared equity should be the goal, he argued, not only as a means to achieving shared prosperity in the U.S., but also resilience on the world stage.

“Advancing equity is the most pragmatic approach to long-term prosperity,” McAfee said. “Capital is the key pathway toward the equitable outcomes we desire. We want to support investors to become champions of equity.”

The Blueprint contains two parts. In Part 1, the authors explain why it is so critical to center issues of equity in investment strategies—to make all investing equitable. It explores the scope of the problem: “how growing inequality constitutes a systemic risk that threatens all of society,” as the authors put it.

In Part 2, the authors put those ideals into action, laying out a framework of 10 critical equity outcomes investors should aim for, including everything from equitable governance and leadership to wealth generation and economic and social mobility.

This section of the blueprint also contains concrete action steps: Investors should increase diversity and build representative leadership; embed racial and economic equity throughout the investment lifecycle; invest in fund managers of color; engage stakeholders in designing and deploying new investments for inclusion; and more.

After the presentation, Trident’s Betru spoke about the opportunity he sees in bringing those principles to bear in his work. Trident differentiates itself by investing in small businesses, he noted, which may seem to have limited upside, but actually offer much bigger potential return on investment than large firms. Nearly all net new job growth in the U.S. since the pandemic has come from small businesses, he pointed out.

“You have to find places where other people are not going,” Betru said. Such situations usually contain “asymmetrical information,” so a diligent investor can find opportunities that others overlook.

Betru also brushed aside the idea that prioritizing diversity dilutes a “commercial-first” company objective: “To be truly commercial, you have to mobilize all resources available to you,” he said.

Roberts, of MassMutual, agreed. Putting money into the same investments as the rest of the investment community just contributes to the problem, she noted, and explained that one concrete step she tries to take is to increase diversity on her own team.

Her company’s efforts around ESG investing were catalyzed by the death of George Floyd, Roberts said, and there was an intentional effort to emphasize the “social” component of ESG, which often gets dwarfed by the environmental concerns.

Asked once more how to respond to the backlash that has emerged over ESG investing, McAfee became passionate. “If you don’t have the heart to continue to perfect this democracy, to ensure that all people can live in a just and fair society, you should go home,” he said. “This is your time to hold steady and do the work.”

Betru agreed. “Having different perspectives on the table is meant to make us better,” he said. “I can’t believe anyone believes diversity of thought is a bad thing.”

Tags: Aron Betru, CapEQ, economic equity, environmental, environmental social and governance investing, ESG, Federal Reserve Bank of New York, FSG, Liz Roberts, MassMutual, Michael McAfee, PolicyLink, racial equity, Trident

The University of Notre Dame’s endowment lost 6.9% for fiscal year 2022 ending June 30, as its asset value declined to $18.9 billion from just under $20.3 billion the previous year. While this was in sharp contrast to fiscal 2021’s outsized return of 53.2%, it easily outperformed its benchmark, which was down 13.5% for the fiscal year.

“The effect of the sharp downturn in public equity markets, especially in the final quarter, was tempered by performance in private equity and multi-strategy portfolios, which outperformed their respective benchmarks for the year,” the university’s annual report stated. “Investment returns are once again the primary driver of the change in overall net assets given the proportion of the University’s assets held in the Endowment Pool.”

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The university reported five-, 10- and 20-year annualized returns of 13.0%, 11.6% and 10.7%, respectively, compared with its benchmark’s returns of 5.2%, 5.8% and 6.0%, respectively, over the same time periods. The university report also compared the endowment’s performance against a portfolio comprised of 60% equities and 40% bonds, which lost 13.9% in 2022 and has five-, 10- and 20-year annualized returns of 4.7%, 6.0% and 6.2%, respectively.

The asset allocation for Notre Dame’s endowment pool as of the end of fiscal 2022 was 48.5% in private equity, 28.6% in multi-strategy investments and 22.9% in public equity. The biggest change in asset allocation from the previous year was in public equities, which was reduced from 31.2% in 2021.

The endowment also raised its allocation to private equity and multi-strategy investments (which includes fixed-income assets and diversifiers intended to be less correlated to equity markets) from 45.9% and 22.9%, respectively. Meanwhile, the asset allocation for the endowment pool’s benchmark is 40% private equity, 35% public equity and 25% multi-strategy investments.