The majority of asset owners do not consider diversity, equity and inclusion (DEI) when selecting investment managers despite claiming that gender and ethnic heterogeneity is instrumental in decision making, research finds.
A report from consultancy bfinance reveals that more than three-quarters (78 per cent) of manager searches deemed diversity as irrelevant. Just 14 per cent believed DEI was significant and 8 per cent treated it as relevant.
These findings appear to contradict claims from 36 per cent of institutional investors who say they would be unlikely to hire an external manager that lacks gender and ethnic diversity.
Martha Brindle Senior Director, Equity at bfinance says: “A consistent large minority of investors have said that they’re unlikely to “hire an external asset manager who lacks gender and/or ethnic diversity. In practice, however, this intent does not necessarily translate into allocators’ manager selection activity, and this may be particularly true in certain asset classes and sectors.”
She adds: “This raises a question for asset owners: what happens when principles meet practices?”
Brindle says there are “various plausible reasons” why investors’ actions deviate from their principles.
“An allocator searching for a manager in a niche strategy area may primarily be concerned with identifying a sufficient number of credible candidates and less focused on diversity than may be the case when the allocator is selecting managers in a more conventional strategy area.”
This contrasts with broad tenders that maximise the universe of asset managers under consideration where DEI is generally seen as more important.
The focus on DEI is driven by various industry and academic studies that support the argument that diversity brings myriad benefits such as reduced ‘groupthink,’ stronger performance and improved risk management.
For example, WTW finds that investment teams in the top quartile of gender diversity outperforms those in the bottom quartile by 45 basis points a year.
Yet Fiyin Kosoko Senior Associate, ESG and Responsible Investment at bfinance, says the global asset management industry is “still struggling on this subject”, especially in key portfolio management and leadership roles.
In bfinance’s research, only 38 per cent of asset managers reported that more than 30 per cent of their management personnel are women. Just 11 per cent report that more than 30 per cent of their management personnel are from ethnic minorities.
“While there have been clear signs of progress, such as improved transparency on gender pay gaps, disparities relating to gender and ethnicity remain very much in evidence,” he says.
A separate survey published by Reboot this April finds that more than one in five (21 per cent) UK fund managers say that a lack of ethnic diversity in their workforce has stifled their ability to win over new clients.
The survey also found that more than two thirds institutional investors believe that employing people from ethnic minority backgrounds when selecting funds or awarding mandates will become more important for investment firms over the next five years.
Kosoko says institutional investors should consider other facets of diversity such as socioeconomic background and educational profile, when assessing diversity but concedes these aspects remain less measurable.
Kosoko warns that DEI policies may be “largely symbolic and superficial”, and advises asset owners to look at mentoring programmes, recruitment practices, employee engagement surveys and strategy-level investment practices which give deeper insights into diversity.
