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Governance

Diversity becoming more important to asset owners, new research shows

Diversity is moving up asset owners' agendas, with the issue beginning to influence how they interact with providers, select managers and structure their own trustee boards, shows new research by think tank New Financial.

"Diversity from an Investor's Perspective" researched 100 asset owners around the world, representing more than $8 trillion in assets. The research found that 74% of asset owners in the sample mention diversity in their annual reports, while 42% said they are addressing diversity internally, across their investment functions and on trustee boards. Further, 13% of respondents said they use diversity as a theme for portfolio allocation.

When it comes to external factors, assets owners are stepping up engagement with their providers, as diversity begins to influence manager selection. A report of the research said diversity criteria are coming up more frequently in RFPs and investment consultants' due diligence processes.

The report cites U.S. public funds that carve out a portion of their portfolios to allocate to investment managers and invest in businesses owned by and/or managed by women and minorities. Allocations range from 1% to 35% of total assets.

The research also found that 21% of respondents are setting their own diversity targets, mostly related to improving female representation.

Speaking on a panel discussion at a briefing to release the report, money management executives recognized the importance of diversity in their industry.

"The issue with the fund manager industry is we place enormous value on 10-year service" and track records, said Mark Burgess, chief investment officer for Europe, the Middle East and Africa at Columbia Threadneedle Investments, which sponsored the research. Mr. Burgess said when roles become available or firms look to recruit graduates, managers should look across the breadth of talent.

Harriet Steel, global head of business development at Hermes Investment Management, which also was a sponsor, added on the same panel: "It seems obvious to us that if you are excluding part of the population that represents either your client base, audience or talent pool, you are compromising your ability to deliver performance and returns."

When it comes to their own institutional client base, Mr. Burgess and Ms. Steel agreed that the sample in the New Financial report is more advanced in their thinking about diversity by comparison.

The research was also sponsored by Brown Brothers Harriman and was produced in collaboration with the Pensions and Lifetime Savings Association.