US institutional investors aim to hire more diverse asset managers over next year

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Gender and ethnic diversity of asset managers is coming into focus for major institutional investors over the next year, as foundations and endowments consider including it as an investment policy.

The Council on Foundations and Commonfund Institute surveyed 260 private and community foundations and endowments in the US, representing USD115 billion in assets.

It found that around a quarter of foundations are considering adding diverse managers to their investment policy statements within the next 12 months. 

This includes 24 per cent of private foundations and 27 per cent of community foundations, jumping from 13 per cent and 12 per cent respectively two years ago.

Awareness of inequality and diversity issues grew across many industries last year, as a result of mass protests at the killing of George Floyd by police, as well as the pandemic’s effects on minority groups. 

According to Commonfund’s survey, a greater proportion of investment committees are actively discussing hiring diverse managers now, compared with two years ago.

Almost half of community foundations, 47 per cent, and 39 per cent of private foundations, discussed diverse managers within their investment committees in 2020. 

This reflects a significant rise over the past two years, when 37 per cent and 20 per cent respectively discussed the topic.

“Diversification is the bedrock on which investors build their portfolios. Diversification of another kind is now emerging as a complementary principle,” reads the report, entitled ‘2020 Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations (CCSF)’.

“CCSF data show that foundations are beginning to reflect the growing interest in the investment industry to invest through diverse managers.”

The largest foundations are leading the charge, with 36 per cent of community foundations with assets over USD500 million seeking to invest with diverse managers last year, more than twice the 2018 rate of 17 per cent

In addition, 24 per cent of the largest private foundations sought to invest with diverse managers, up from 19 per cent two years ago.

“The inclusion of diverse managers in institutional portfolios offers access to a broader array of investment talent,” reads the report.

Nevertheless, women and ethnic minorities represent a very small segment of the asset management industry. A separate study from the Knight Foundation in 2019 found that these groups managed less than 2 per cent of global assets under management, or USD1.3 trillion out of a total USD69 trillion.
 

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Madeleine Taylor
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