Diversity – Feature
diverse manager interventions is targeted allocation. This is where investors carve out a specific portion of their port- folio for allocation to diverse managers. Is this an effective approach?
“While focusing on a targeted allocation to diverse managers has been by far the most common way for institutional inves- tors to attack diversity within their portfolio, it has not proven truly effective,” Jones says. “Of course, small gains have been made in the number of women and minority-run funds over the years, but, unfortunately, we have yet to see seismic move- ment. As a result, we feel that institutional investors need to focus on all stages of the diverse asset manager lifecycle.” Here Jones expands on her four-step approach – purpose, pipeline, pedigree and process – in the form of portfolio allo-
cation.Starting with purpose, Jones says: “That institutional investors want to increase diversity in their portfolio will put all managers on notice that it is a critical issue for that particu- lar investor.”
Then there is the pipeline. “The institutional investor should think about what they can do from an internship, educational or charitable support perspective to expand the pipeline of women and minorities in investing,” Jones says. “At the same time, they should encourage the managers with whom they invest to do the same.” And then there’s pedigree. “It’s incredibly important for women and minority fund managers to establish a track record at a firm to be able to effectively market a new women or minority-run fund,” Jones says. “As a result, it is important
to track the amount of diversity within many non-women or minority-owned firms in the portfolio management space,” she adds.
“This is where the next generation of women and minority fund managers will, in large part, come from.” And finally, portfolio allocation. “It is important for institutional investors to either allocate a set amount of their portfolio to diverse managers or to otherwise ensure that diverse managers are included in every search.
“They should also measure the progress of diversity in their portfolio against an established baseline,” Jones says.
REASONS FOR DIVERSITY Should diversity be addressed solely for better returns that can come from such an approach or for an end in itself?
Investors must understand that until we use an inclusive and equitable investment process to consider all fund managers, we are leaving money on the table.
Ben Gunnee, Cambridge Associates
DOING YOUR HOMEWORK And the importance of data…
“Data and transparency are crucial,” Payn says. “We need, as investors doing a stewardship job, accurate data. “This is so we can build an engagement programme. To build voting policies and investment strategies, we need data – and vitally important: accurate data,” she adds.
Issue 112 | April 2022 | portfolio institutional | 41
“It is the financial case,” Payn says. “You only need to look at the numerous research papers that show this. But it is also knowing we are getting to a better economy and society. “The social piece: companies need to be socially cognizant,” she adds. “We see companies performing better, with lower risk and better decision making. And when we are looking at gender diversity, 50% of the population is being leveraged, which is only good for society. It is a secondary outcome, but important.” Cambridge Associates’ Gunnee says diversity in the decision-making process is crucial. “Our mission is to build portfolios for our clients that outperform the market and we believe that diversity is a tool for our success. “Given that our clients may also be mission-serving institu- tions, building diverse portfolios can also have the added bonus of mission alignment, but we are returns-focused,” he adds. Jones points to the importance of manager diversity. “I believe that diverse managers create value in a portfolio through potentially higher returns and an additional layer of diversification. “However, I know that social justice can be a component of a diverse asset management program as well,” she adds. “As a fiduciary, I tend to focus on the issues of enhanced returns and diversification first, but there’s no ignoring the side bene- fit of social justice improvements.”
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