Diversity Hub – Feature
more investors recognising why diverse managers add value and developing an investment process that supports investing in diversity, says Meredith Jones, a consultant who was Aon’s former global head of ESG. “Diversity can drive
differentiated investment behaviour,”
Jones says. “Women, for example, might make investment decisions that can help diversify portfolios and differentiate returns. Experience and background can also shape decision making, increasing diversification.”
This has also led to other recognised ways of addressing the issue of diversity within investment. “We have realised that investment industry participants need to take a more holistic view of diversity and support the development of diverse asset managers at all of the major inflection points on the fund launch pipeline,” Jones adds. “In a more supportive asset man- agement ecosystem, more women- and minority-owned firms will be able to launch and scale.”
On this interpretation, this presents obvious challenges across the asset management world more broadly.
Investment process But Richards also identifies other investment process hurdles in the diversity debate that have to be unravelled. “The biggest barriers to investing with diverse managers comes from the investment process itself,” she says.
“It is certainly important to have a diverse universe of invest- ment managers to consider. However, without equitable adjustments to the process for investment-allocation decisions, investors will end up with the same result. “The root of the problem isn’t the investments we are consid- ering but the process we are using for evaluation,” Richards adds, giving simple advice for investors: “Re-think not only your investment universe but also your investment process.”
Cambridge Associates is following its own advice. “We are con- tinually seeking to increase our investment in diverse manag- ers by focusing on an equitable investment process. We are interrogating the profile of an ideal investment and the process through which we evaluate potential opportunities,” Richards says.
As an example, she says, when looking at a new opportunity, it is common to want a track record. “While well intended, understanding that less than 2% of private equity professionals are woman or people of colour, we can also see how this requirement can create structural barriers. “To intentionally create equity in our investment process, we have creatively implemented methods where we can be expan- sive and inclusive in our track record evaluation. This has led to us being able to access high conviction investment ideas ear- lier than many of our peers.”
In addition to this, asset managers can shift the dial on this issue. “Most asset managers are starting to move in the right direction,” Onuekwusi says. “If you are going to go out with a strong ESG message, then the S of ESG is clearly important and it is hard for asset managers to hold others to account when asset managers are not holding up a mirror up to themselves.”
Setting limits There is, a bit like the early days of ESG investing, often a mis- conception that focusing on diverse fund managers will limit potential returns because you are limiting your investment options.
The biggest barriers to investing with diverse managers comes from the
investment process itself. Jasmine Richards, Cambridge Associates
“This is misguided,” Richards says. “Given the statistics in the industry, it is clear to see that women and people of colour have not historically been included equally. Rather than limiting the universe, we see a focus on diverse managers as an intentional effort to ensure we are expanding our investment options as broad as possible. This supports our ability to outperform.” In fact, in terms of performance, the opposite appears to be true. A Boston Consulting Group study found that companies with more diverse management teams – including a broad range of backgrounds, ethnicities and gender – have 19% higher revenue due to innovation. At companies where more than 20% of leading managers are women, share prices rose more during the previous decade than their peers, according to study by Credit Suisse. So where is the destination and what does a good state of affairs look like on this multi-faced issue? “Good for me is for the asset management industry to look like the people it serves and the population,” Onuekwusi says. “And currently, we don’t have that.” So how long are we from getting there? “It will take at least a generation,” warns Onuekwusi.
Issue 118 | November 2022 | portfolio institutional | 49
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