Diversity Not a Priority for Asset Managers

Despite increasing demands by investors for more diversity among asset managers, progress in these firms has been slow, according to a report from investment management and consulting firm Wilshire Associates.

A survey by Wilshire asked more than 500 asset managers whether they believe having diverse and inclusive teams is important and, if so, how they approach diversity in their hiring and talent retention programs. The report’s key finding was that diversity is not a priority for many asset managers.

The report cited statistics showing that fewer than 200 of 7,000 mutual funds are run by women, and that women accounted for just over 10% of investment partner or equivalent roles. Additionally, it said people of color make up 22% of the venture capital workforce, with African American employees and Hispanic or Latino employees at just 3% and 4%, respectively.

According to the survey, many managers are “beginning to wake up to the lack of diversity in their firms” as almost 60% of those polled who are running public markets strategies said their firm places a high importance on diversity. However, the results also indicate that interest and concern have not translated into action.

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The data also revealed that approximately 25% of firms running private market strategies are not prioritizing diversity, and rated its importance a 3 out of 5 or less.

“Some firms responding to our survey said they have been successful in building diverse teams organically, without prioritizing diversity,” said the report. “In other words, diversity is not an intentional outcome of their hiring practices or talent retention programs.”

And other managers said that while they felt diversity was important, it was not a priority because the firm was formed as a small team that was not expected to grow, or the team has low turnover or long-tenured employees.

“The results beg important questions: How should we view these responses? Are they just well-articulated excuses or are they genuine barriers to diversity which require careful reflection when we are engaging with managers on this topic?” said the report. “On the one hand, we view long-tenured portfolio managers as a strength … on the other hand, low investment staff turnover also limits the opportunity to improve diversity if it is missing.”

When asked to rank the benefits they hope to gain from building diverse investment teams, respondents said firms that are prioritizing diversity are doing so based on improving the quality of investment decisions.

“Achieving strong returns requires having a broad spectrum of unique company and industry insights,” said one firm in response to the survey. “Such insights can only be generated by a diverse team of analysts who not only possess strong research skills and the ability to think independently and creatively, but also bring unique perspectives to their analysis of businesses.”

Tags: Asset Managers, Diversity, Wilshire Associates

Asset owners are taking a closer look at emerging markets. A panel at the Global Private Equity Conference held by the International Finance Corporation and the Emerging Markets Private Equity Association in Washington DC last week, focused on how large public pension funds are investing in emerging markets. The key takeaway? Smaller, specialized investments in managers and opportunities is a pathway to outperformance.

“The goal for us is to be really excellent LPs and partner with specialist managers who understand what is happening on the ground,” said Stephen Moseley, Head of Alternative Investments at Alaska Permanent Fund Corporation. Moseley has been leading an effort to diversify Alaska Permanent’s exposure to emerging markets private equity, an effort which he said is part of a pivot away from GPs in North America. “We understand the need for diversification,” he said. “Our approach in emerging markets has been roughly similar to our approach in North America. We’re looking for specialists with long track records.”

Moseley adds that specialists can help identify strong investable themes and avoid some of the risks that come from broad pan-regional funds that may not be as focused on understanding all of the players within a particular theme or sector of the global economy.

Moseley’s views were echoed by Brad Thawley, Senior Director at UTIMCO. UTIMCO has a long legacy of investing with boutique specialist firms and new managers in emerging markets. “We’re not afraid to go into fund one or fund two,” he says. “And as we start to cycle-test those managers and see how they perform over those early funds, we might re-up for fund three if they’ve demonstrated outperformance and the management team remains stable. Overall, it’s worked out well for us.”

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Both men noted that smaller managers often outperform mega-funds in part because it’s more challenging to put big tickets to work in emerging market economies that haven’t achieved the scale of developed economies.

Roberta Brzezinski, Managing Principal of Strategic Partnerships at Caisse de dépôt et placement du Québec (CDPQ), who was also on the panel, noted that for investors that do need to make fewer, larger allocations there are opportunities throughout emerging markets but LPs have to have to keep an open mind about what the investment opportunities look like. “One thing that has been very helpful to us is to take an asset class agnostic approach,” she said. “We put a billion dollars to work in Colombia last year, but that included an infrastructure investment, a balance sheet loan and taking a minority stake in Colombia’s largest asset manager.”

For Brzezinski, Colombia is an attractive middle market emerging economy that is investor friendly and offered a lot of ways to deploy capital. As a result, CDPQ was able to make a significant allocation to the same place even if the money ended up being split three ways. “We’re looking at economies that have strong fiscal discipline and investor rights, as well as promising growth metrics. Once we’ve identified places that have all of those things, we start thinking through how to deploy the capital in the best way, we aren’t looking for specific fund structures,” she said.

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Tags: Alaska Permanent Fund Corporation, CEPQ, Emerging Markets, Global Private Equity Conference, UTIMCO