Op-Ed: An Allocator’s Role in Fighting Discrimination

Hartford HealthCare’s CIO David Holmgren illustrates how he is fighting against social injustices, in response to a CIO column written by Tony Waskiewicz that called for examples of allocators in action.

Tony Waskiewicz’s Op-Ed is brilliant. It reminds me of the Chinese proverb about the wise man who doesn’t seek the answer, but he does seek the correct question.

As requested, I will share one “call to action,” as Tony is correct that silence—or complacency—taken by those of us inside the power structure is perpetuating abuses of power. Afterwards, though, please allow me to also justify my action from an investment rationale as well—meaning, aside from our moral duty, it’s also in our stakeholders’ best interests.

As we’re in Pride Month, I’ll share an LGBTQ case study from early last year. A particular sultanate announced the death penalty for homosexuality—a dramatic example of a power structure enforcing discrimination, don’t you think?

I contacted 48 of our asset managers, asking them to disclose any business ties to the sultanate. Although we do punch above our weight, we didn’t expect anyone to actually bend to us and disclose their client list! Our intent was simply to shake the tree to see their reaction when we questioned their ethos.

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The results were shocking. Whereas we guessed that if anyone was perpetuating the status quo, it would have been our hedge fund managers (ironic that I’m tackling discrimination and yet here I stereotyped hedge fund managers, ugh), my preconceived biases would have led me to very incorrect conclusions. Responses here were forceful and direct. These folks who are headliners on Bloomberg or at Davos wanted me to know that, at their level of success, they choose the investor just as much as the other way around. Also that their in-house talent (who obviously all had strong opinions on this issue) was worth far more than client revenue. So a rather decisive “no f’ing way” within our hedge fund lineup. Good intel, too, as it reminds us of the benefit of working with private partnerships (versus asset managers that have shareholders to appease–meaning, always be mindful if your partner’s motivation is performance OR profits).

Conversely, we experienced a different situation within traditional assets where we had two firms that were “waffling” (I’m being polite here) on their responses. Ironically, these two massive shops also have retail distribution and were running ad campaigns (did I mention they’re massive?) about their global corporate citizenship efforts! After a full week of nonsense, I told them that I would be publicly announcing that they were being terminated for “social and governance issues.” To avoid that humiliation, they (surprise, surprise) then sent to me their firms’ policies regarding discrimination in the various markets they operate (the ink was still wet, but whatever).

I share this case study as I agree with Tony that, as the stewards of the capital base, we are in a position to question our role in structural discrimination. The sultanate did reverse course and I’d like to think our efforts helped—although George Clooney having a louder voice did far more.

Why is this relevant? I share this because my conviction here was not simply moral duty to humanity, but also within my fiduciary mandate. For example, I represent Hartford HealthCare, a nonprofit with no tolerance for discrimination, so part of my job must be to ensure cultural alignment. Secondly, our intensive due diligence process involves personal assessments of an asset manager’s character, so I’m routinely looking at qualitative ways of filtering out potential bad actors, which, remember, is also headline risk exposure. Therefore, passively accepting legacy power structures is actually contrary to an asset owner’s job description.

By questioning our actions, we can create better outcomes.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.

Op-Ed: We’re Still Chasing Boardroom Equality

Mellody Hobson: Incentivizing Better Racial Relationships

Tags: awareness, death penalty, discrimination, gay pride, Hedge Fund, homosexuality, investor, LGBT, LGBT rights by country or territory

The world’s wealth, whether owned by gazillionaires or the average person’s 401(k), is going to take a dive this year, with the pandemic to blame, according to a Boston Consulting Group (BCG) study.

The coronavirus-fueled recession and wobbly markets could evaporate as much as $16 trillion from global wealth in 2020, which is a 7% shrinkage—and hobble growth for five years going forward, BCG estimates. By contrast, in 2008, the year of the financial crisis, wealth shrank $10 trillion, or 7.9% of the total.

A punk 2020 and anemic increases afterward would ruin the good run investors have enjoyed. “Over the past 20 years, personal financial wealth globally has nearly tripled, rising from $80 trillion in 1999 to $226 trillion at the end of 2019,” the report concluded.

The consulting firm charted how dependably world wealth has climbed this century. From 1999 to the financial crisis, despite the dot-com bust trauma of the early aughts, wealth rose by an annual 4.5%. After the crisis, it picked up speed, expanding by 6.2% yearly. In the entire two-decade span, there was just one down year, 2008.

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The most recent spurt has a lot to do with the long bull stampede in global stock markets. And, of course, the rich became richer during that time. Billionaires and mere millionaires worldwide increased their assets at twice the pace of the middle class and the poor.

From 2019 through 2024, global wealth accumulation could downshift to a yearly growth rate of 1.4%, under BCG’s worst-case scenario. On the other hand, if the economy bounces back more quickly, the rate could speed up to 4.5%, not as robust as the recent expansion, but on par with the time before that.

The BCG study also gave a picture of who has what and where they are. Where do the rich live? Mostly in the US and Canada, which have two-thirds of that august population. The nose count of millionaires has enlarged threefold over the past two decades, to 24 million. The BCG study said they possess more than half of the world’s wealth.

Some $9.6 trillion of global wealth resided offshore last year, up 6.4% from 2018. Asia, outside of Japan, has the largest representation among that cohort.

If you want to place money outside of your homeland, where do you choose? Switzerland, fabled for its banking secrecy (somewhat eroded in recent years but still around). Still, Hong Kong and Singapore are gaining ground on the Swiss.

One seeming paradox: Even with more well-off clients and a bigger asset pool, wealth management providers have roughly the same amount of profits as they did in 2007, right before the financial crisis: $135 billion last year versus $130 billion back then. So the wealth managers have meh returns on assets and higher costs.

How come? These financial advisers have gotten competition. As the BCG study couched the matter, “rapid digitization, a more knowledgeable and empowered client base, and far greater choice” have cut into their action. At least they aren’t getting richer.

If the Rich Think a Recession Is Coming …

Advisors Increasingly Turn to External Asset Managers

Tags: billionaires, Boston Consulting Group, Coronavirus, COVID-19, dot-com bubble, financial adviser, Financial Crisis, Pandemic, Stock Market, wealth