Investing in Diverse Asset Managers: A Performance Imperative
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.