Feature – Diversity
approaches is a fundamentally important growing area, said Sachin Bhatia, head of UK core institutional and consultants at Invesco. Bhatia, who is also co-chair of the race and ethnicity workstream at the Diversity Project, said: “With the asset own- ers and asset managers we talk to there is a realisation that when they structure their portfolios they are looking for diverse asset allocation, diverse managers and diverse strategies.” He added that it is intuitive from an investment perspective to look for diverse teams. This can also be seen as part of a grow- ing investment and boardroom rejection of corporate group- think, Bhatia said. “It is quite intuitive to investors now that they do not want that herd mentality, instead wanting a team and approach that embraces diversity of thought for better out- comes. It is academically proven that a diverse approach will bring out better outcomes, and hopefully, a better risk-return profile for the investors.” Guett shared her criticism of the groupthink mentality. “From our point of view, it is important to be more inclusive and broader when looking at the investment opportunities. You see a lot of crowding in public markets. There are a lot of manag- ers with the same names cropping up: where is the alpha if everyone invests in the same opportunities? So investors need to broaden out into more niche opportunities.” Guett said Cambridge Associates found managers with a diverse and inclusive investment team and strategy are usually emerging and up and coming. “They are less proven. Perhaps they do not have the natural track record. “So underwriting them as an investor is more difficult. We focus on those emerging managers, while providing feedback about what they need to change to be seen as a better institu- tional [investment] opportunity,” she added.
Changing the narrative: taking action Moving the debate onto instigating change in the investment industry, Clare Payn, senior global ESG and diversity manager at Legal and General Investment Management (LGIM), revealed the importance of campaigning, which she has been doing for more than a decade. She gave some insight into how ideas about diversity have been turned into action. “Being an index investor, we hold eve- rything [that makes up the index], so the big focus for us is engaging with companies to improve their representation and policies. We have been campaigning on this for about 11 years. “It started with the education side of things, where we put out one of our thought pieces. This explained why we felt it impor- tant to invest in companies with diverse teams. “So it was about the ‘why’. There was plenty of research coming out of McKinsey and Deloitte. It was an argument about why this is important. We wanted to put our voice out there as a large investor to say why we believe this was, and is, important.
42 | portfolio institutional | July–August 2022 | issue 115
“Diversity”, Payn added, “is difference – and that is what we are looking for. To ensure teams are making the best decisions.” LGIM, therefore, joined the 30% Club and then the 30% Club Investor Group to galvanise investors “on what we felt was, and is, a crucial topic”, Payn said. Then things started to evolve. “Then we thought: how do you move from why this is important to how do we deal with this? That has been challenging for different investors. For us, it started when we targeted the largest companies first: the FTSE100. Our home market seemed a sensible place to start.” Given this tactic and the time available, Payn added: “You can- not move a massive topic like this in one action. But we wanted to take action and not just talk about it. We set out expectations and that became important.”
And then LGIM moved on to how to create change. “Our vote is a powerful tool,” Payn said. “And we use it responsibly on various issues from climate change to diversity. We have seen over the years that our votes make an impact. We continue to escalate this voting policy.”
This has broadened out beyond the FTSE100. “We are now tar- geting Japan, the US and companies globally,” Payn said. “Our policies have nuances to react to the culture and environment we are addressing – as different geographic regions are start- ing from a different base, and we try to be sympathetic with that context.”
As a result, real progress has been made. “We have seen pro- gress on gender – it seems slow, granted, over 10 years, but has grown from 9% of females on boards to more than 33%. It could be seen as slow compared to the ethnicity push, which
This is about being more open to innovative investment opportunities.
Lydia Guett, Cambridge Associates
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