Investing in Diverse Asset Managers: A Performance Imperative

On February 12, 2020, Knight Foundation released findings from a study[5] that analyzed the diversity among asset managers for the nation’s top charitable foundations. Carnegie Corporation of New York’s Kim Lew and Alisa Mall share insights below. View the full report here[6], and see the press release here[7].

Kim Lew (left) and Alisa Mall (right)

The investment team at Carnegie Corporation of New York is tasked with maximizing our endowment’s returns so that the grantmaking foundation established by Andrew Carnegie more than 100 years ago can fulfill its mission of doing “real and permanent good in this world.” However, we do not make program or mission-related investments; we do not seek out investments for social impact purposes or to “do good,” referred to as double bottom-line investments. We are performance seekers. Full stop.

So why have we decided to prioritize diversity when evaluating and selecting investment firms to help manage our endowment? Because we believe it is a performance imperative. As the U.S. population becomes increasingly diverse and international markets become more accessible to investors, firms employing individuals with varied backgrounds will have a competitive advantage in understanding the nuances of investing opportunities.

Today, outperforming the market, known as generating alpha in industry terms, in traditional asset classes and industry sectors that are overcapitalized is harder to do. We believe outperforming requires identifying new areas of opportunity, while being able to anticipate risks that might arise as global demographics shift. Investment professionals with diverse perspectives will have a competitive advantage on both these fronts.

Diversity in investing is not just about firms that satisfy women and/or minority ownership percentage thresholds. We invest with firms who cultivate a culture that seeks and welcomes diversity at all levels of their organizations, including among their portfolio companies. It is not about a firm making token hires to represent diversity. It is about a firm believing diversity matters in achieving better outcomes and actively building an organization to reflect that belief.

Hiring for diversity is the easier part of the equation. It is the inclusion piece that is more challenging: giving diverse individuals authority and valuing their input is what changes outcomes. As a team of 10 professionals from diverse racial and ethnic backgrounds, our investment team embodies this belief. The different lenses through which we view the world enrich our investment decisions.

We have wrestled with the question of why we don’t see more investments with firms led by women and minorities. We often hear there is a pipeline problem. While this issue is real, several additional factors compound the challenge:

Size: Most diverse managers tend to be emerging firms launching first-time funds, and as such, often lack the resources needed to meet the back-office requirements of institutional investors. Additionally, first-time funds bring their own set of risks that many foundations shy away from. 

Capital Constraints: Many foundations, including ours, have limited capital managed by a small staff. Since foundations make smaller commitments than other types of institutional investors, strong relationships based on loyalty to existing general partners are paramount for access. Hence, adding a new manager to a limited portfolio often requires terminating an existing manager.

Selection Bias: When it comes to identifying talented managers, we employ shortcuts to facilitate underwriting and minimize career risk, including investing with known quantities and investing alongside peers. Such shortcuts, however, make it more challenging for an emerging manager to gain traction.

Our team takes a multi-pronged approach to increasing diversity in our portfolio:

  • We ask all existing managers in our portfolio to share what initiatives they’ve taken and how they are thinking about promoting a culture that values diversity. We are not looking to punish a firm for what it lacks; rather, we are looking to incentivize managers to build a culture in which diversity matters.
  • We have dedicated a senior staff member to meeting with every manager with meaningful women or minority ownership that comes across the transom. While our capacity for new commitments is limited, we offer feedback and offer to be a resource.
  • We host a series of “speed dating”-style events in which a small pool of diverse managers across asset classes present to a larger group of colleagues at peer institutions. 
  • We actively support organizations that build the pipeline of young women and minorities entering the asset management industry.
  • We examine our own biases and actively try to mitigate them.
  • Lastly, we have amplified our public voice, speaking at industry events about prioritizing diversity and inclusion.

Andrew Carnegie intended his philanthropic work to be carried out in perpetuity, saying “even after I pass away the [wealth] that came to me to administer as a sacred trust for the good of my fellow men is to continue to benefit humanity for generations untold.” We honor our commitment to his legacy by embracing diversity and inclusion in pursuit of superior investment performance resulting from a broad range of perspectives.

Kim Lew is vice president and chief investment officer and Alisa Mall is managing director, investments at Carnegie Corporation of New York.

Photo (top) by Scott Webb[8] on Unsplash[9]. Image effects added by Knight Foundation. 


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  18. ^ Diversification can generate better returns (
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  20. ^ Aligning investments with our mission: Diversifying Investment Managers (
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