Asset managers handling funds for Yale University’s endowment were told by investment chief David Swensen to start hiring more women and minorities to their investment teams.
Investment firms, as well as the Yale Investments Office, will be tracked in their progress hiring, training, mentoring, and retaining a diverse staff, according to a memo published late Friday. It was first reported early Friday morning by the Wall Street Journal.
“Over the years, my colleagues and I have had opportunities to discuss diversity and inclusion with you,” Swensen wrote in the Oct. 2 memo. “I write now to enlist your cooperation in taking a more systematic approach to the problem of the lack of women and minorities in the asset management industry.”
The Yale endowment, which has $31.2 billion in assets, is joining a greater push among institutional investors to integrate diversity into their investment practices after the deaths of George Floyd, Breonna Taylor, and others sparked protests this year across the globe.
The decision from the famed Yale investor to hold asset managers accountable for progress would have a “seismic” shift in the industry, peers said. In the past, skeptics have criticized prior pledges to diversity from institutions as hollow commitments.
“He joins the chorus of many of us who challenge the narrative that diversity and performance are competing objectives when, in fact, they’re complementary,” Joyce Foundation CIO and Treasurer Nickol R. Hackett wrote in an email.
“Diversity is no longer a ‘nice to have,’ but an imperative,” she wrote. “It would behoove firms to not wait for the demand to be made of them and recognize that their commitment to diversity and equity should be broad, deep, and self-sustaining.”
Swensen, whose alternatives-focused investment process defined the endowment model, has many admirers among allocators—even as others question whether the Yale Model that has frequently underperformed a simple benchmark portfolio of US stocks and bonds is broken.
In its most recent fiscal year ending June 30, the endowment returned 6.8%. That beat the performance of the University of Pennsylvania and Cornell University, which returned 3.4% and 1.9%, respectively. It underperformed Harvard, which returned 7.3%, and Brown University, which poached a 12.1% return over the same time period.
Over the 10-year period, the university averaged a 10.9% return each year as of June, which underperformed the broader benchmark for domestic stocks, which returned 13.7% each year for the same measure. As of September, that beat the average 10-year return of a 60-40 portfolio as tracked by Vanguard, which returned 9.6%.
Swensen, who asked asset managers to complete a survey by the end of the month, made several recommendations to increase diverse ranks. Hiring investment professionals directly from college campuses, as opposed to investment banks, or establishing apprenticeships would help improve the diversity of the overall industry, he said.
“Many students have little knowledge of career options outside of investment banking and consulting,” Swensen said. “You would be doing a great service by introducing them to the fascinating profession of investment management.”
Over the summer, a number of allocators wrote call-to-action opinion pieces in this publication breaking down steps investors could take to form inclusive teams. In July, Cleveland Clinic Managing Director Kelli Washington recommended investors ask managers and service providers to implement the Rooney Rule, a National Football League (NFL) policy to interview minority candidates for senior leadership positions that has inspired similar policies in other sectors. (One significant caveat of the Rooney Rule is that it mandates interviews for diverse candidates but does not establish a quota for hires).
Other businesses in recent months have also pledged their intention to address racial economic disparities. Last month, a diversity coalition of 14 firms that included Bank of America and BlackRock and is headed by the Connecticut treasurer and the Ford Foundation said they would develop measurable commitments to track progress within their institutions and greater communities. A group of Canadian institutional investors made a similar pledge earlier this month.
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Tags: David F. Swensen, Diversity, Financial Endowment, Investment, Management, money, University, university endowment, Yale University