Diversity Equity and Inclusion Header
Equity and Inclusion
Debunking the Myths
May 31, 2021


Diversity in leadership shines a brighter light on business and investment outcomes

Diverse leaders excel and lead across all sectors of the investment industry today. As decision-makers in their organizations, women and racial and ethnic-minority professionals bring their unique viewpoints and experiences to allocating capital, making investment decisions and helping recognize and promote diverse talent that mirrors the communities and companies they invest in.

“The vibrancy of dialogue around diversity, equity and inclusion across organizations is certainly more amplified today than it’s ever been,” said Nancy Sims, president and chief executive officer of the Robert Toigo Foundation, an Oakland, Calif.-based nonprofit that has been “addressing the intersection between talent and opportunity in the industry for over 30 years.”

Sims and several other leaders who champion diversity in the investment industry, many of whom are Toigo alumni, point to a more widespread awareness of the business imperative of diversity, equity and inclusion, or DEI, across the different sectors of the industry today.

“Not everyone has evolved, however, to appreciate DEI as a strategic aspect of the organization — not programmatic or a set-aside, but integrated into every aspect of the operation,” noted Sims. “That means [not just] how you’re recruiting diverse individuals, but also what environment or culture exists that allows talent to contribute and thrive, to remain engaged and to ascend in their career. The journey can be complex, but it is essential to move the needle so we can change the narrative to one focused on progress.”


Jason Barrett headshot
Jason Barrett
Senior Vice President, GAF Energy
“The embodiment of the Toigo Foundation is the focus on the importance of the fiduciary role. It’s not just a word in the dictionary. It's an action that you have to live. It is a very clear standard...”
Philip Alphonse Headshot
Philip Alphonse
Senior Partner, The Vistria Group
“Education is a critical vertical for the country, particularly as the economy regains its footing post-COVID. The pandemic has changed the way many companies operate and has accelerated years-long trends...”
Onay Payne Headshot
Onay Payne
Managing Director, Clarion -Partners
“The most interesting thing about my career trajectory is that I’ve had the opportunity to demonstrate and exercise a growth mindset, and my learning curve has remained steep...”
Silas A. Myers headshot
Silas A. Myers
Co-Founder, Mar -Vista -Investment -Partners
“We think that diversity and inclusion are the hallmarks of high-performing organizations. Many studies show the impact of diverse organizations on creating better decision-making and better business outcomes...”


From asset owners to asset managers, consultants to advocacy groups and regulators, DEI efforts are expanding to reach more stakeholders. Several research studies have demonstrated the link between diversity and the outperformance of executive teams and corporate results, and the country’s top regulators are recognizing they need to weigh in further. Last fall, Allison Herren Lee, at the time acting commissioner on the Securities and Exchange Commission, said the agency is examining corporate disclosure of diversity data. She quoted several studies that correlate diversity to tangible performance benefits and noted that many investors already incorporate diversity into their proxy voting decisions.

For instance, a 2019 McKinsey & Co. global study showed that companies in which executive team gender diversity ranked in the top quartile were 25% more likely to show above-average profitability than the companies whose executive teams were in the bottom quartile. For cultural and ethnic diversity, that number was 36% more likely to show above-average profitability (see chart).

Diversity wins: How inclusion matters; Mckinsey & Company


“The principal challenge that we face involves representation in rooms where key decisions are made on who takes senior leadership roles and who gets promoted, and in what communities to invest,” said Shundrawn A. Thomas, president of Chicago-based Northern -Trust -Asset Management, who is a Toigo alum. “Unfortunately, those rooms are, by and large, not particularly diverse.”


Matthew Manriquez
Toigo Fellow; Class of 2021,
the Jones Graduate School of Business,
Rice -University
matthew-manriquez Headshot
Matthew Manriquez developed a keen interest in the energy sector from his experience as a combat engineer in the U.S. Army, in which he was deployed across the Middle East. “Growing up in Houston, I’ve always had an awareness of the energy space.

“It’s one of those inconvenient truths, but we have to start there. We have to change the nature of who sits at the decision-making table such that we gain not only broader perspectives, but also access to direct connections to different communities.” Northern -Trust -Asset -Management has long-promoted diverse talent across all functions and on leadership teams, while also integrating DEI into its investment-management processes, including by working with diverse-owned firms across the industry, Thomas said.

“If you firmly believe, as we do, that diversity matters to performance, diversity matters to productivity, then how do we make sure that there is no bias in these systems that have been built over decades when we're selecting an asset manager or a vendor?” said Marcie Frost, chief executive officer of the California Public Employees’ Retirement System. “We need to make sure that there is equal access for anyone who has the institutional grade of fund when they seek CalPERS capital.” This year, the CalPERS research institute is working on the impact of race on minorities’ access to capital formation and its implications for the investment industry.

Toigo’s founders “built the organization on the premise that when you have the opportunity and responsibility to make decisions around the placement of capital, you bring forward a perspective that is not only differentiated, but also highly additive in serving the greatest number of individuals and/or communities,” said Sims. “So providing everyone a seat at the table, a role in the deal, or in a leadership capacity, demonstrates that the results of being a more inclusive organization can be achieved.”


At the California State Teachers’ Retirement System, Chief Investment Officer Christopher J. Ailman was part of the CFA Institute’s Steering Committee on Diversity and Inclusion that introduced a 20-step process for asset managers to adopt DEI practices. CalSTRS continues to encourage larger, publicly traded money managers to expand their diversity program at the portfolio manager and executive levels, said Ailman, who is also a Toigo advisory board member.

One interesting area to explore is the unintended bias of language in job descriptions and in performance evaluations, Ailman noted. Past the analyst level, positions in portfolio management tend to have more masculine-leaning language, he said. “And, for both men and women, when they analyze somebody below them, the language they use is dramatically different depending on the gender of the person. These gender tilts have a powerful impact on the ability of women to climb the ladder. So if you screen that or are aware of it, there’s a much better chance of improving the meritocracy for women at a money management firm.”


Organizations should expect to engage in some challenging introspection along their DEI journey. For those beginning to think about it, “there’s a bit of anxiety and uncertainty, which we respect,” said Sims. “Will it alter the culture that’s existed and been successful for a long time? Will it become too onerous to manage effectively?” can be common concerns.

“Today, more than ever, we’re hearing organizational leadership express its intent to have inclusion take hold in their organizations in ways that are not only meaningful, but also sustainable, versus a check-the-box approach. That shift is essential,” said Sims. Organizations should take a strategic look at each of the elements of DEI and related goals, such as how they source talent and through which channels, and are their policies and practices inclusive, particularly those that have influence over performance management and career advancement. “The uniqueness of each organization should dictate how they embark” on the DEI journey, she said.

One myth common to lean organizations without robust staffing is that there may be a limit to how much they can demonstrate their commitment to diversity and inclusion. “Thinking about this strategically presents a variety of options to consider, such as investment platforms that reach diverse managers and entrepreneurs, philanthropy, community engagement and board recruitment, if applicable. The key is to not anchor this important effort solely on recruiting,” Sims said. “However, if there is an opportunity for an addition, whether entry level or mid- to senior level, that one talent acquisition that reflects the firm’s work and intention around inclusion can be a meaningful statement and an important start for the firm.”

DEFINE ‘D’ ‘E’ ‘I’

The CFA Institute’s definition of D&I is “diversity is the spectrum of human attributes, perspectives, identities and backgrounds, while inclusion is a dynamic state of operating in which any individual or group can be and feel respected, valued, safe and fully engaged.”

DEI as it’s evolved today includes the practices and methods to bring diverse talent into organizations at all levels, while inclusion is about their engagement, access to opportunity and participation in decision-making, Sims explained. When it comes to “equity,” she said, “we automatically think about parity in compensation. But equity is also about fairness. If you and I are in similar roles, are you given more opportunity for exposure to certain aspects of the job that allow you to excel faster than I do?” If there is inequity around opportunity and exposure, organizations are encouraged to re-examine manager-employee dynamics and performance assessment, Sims said.

“From the individuals’ standpoint, [the promotions process] should be built with increased transparency. We need to talk candidly about performance and managing expectations. Promotional policies need to be more clearly communicated so employees have a fair shot at advancement.”


A number of the Toigo Foundation’s alumni said the Toigo network has been as important to their work and careers as their initial opportunity to enter the investment industry, and that many of them mentor and teach new Toigo graduates.

“Toigo is a network of bright, ambitious, energetic and kind professionals,” said Carlos Garcia-Tunon, senior managing director at Mackay Shields and a Toigo alum. “We learned a lot from each other, we learned from those that went before us who helped blaze paths within the industry, and we try to share what we've learned with those coming after us who want to follow similar paths.”

“Embrace your difference. Don’t feel your uniqueness is a disadvantage. There may be times when it appears to set you back, from a career perspective. Use that as a learning opportunity,” is what Reginald Sanders, director of investments at the W.K. Kellogg Foundation, said he offers to new diverse talent.

“As investors, we try to find uniqueness [in investment opportunities]. When you personally are able to go through the actual life experience of trying to figure out how your uniqueness is different from, and fits in with, the consensus experience, it gives you the actual pattern recognition to identify unique investment opportunities that you just can’t get if you haven’t had to be forced to think about your ‘only’ experience,” Sanders said.

He explained the unique perspective that diverse investment professionals bring in terms of a basketball analogy of a fast break, which is an advantage in terms of scoring.

“This would be like a three-on-one fast break. As a diverse investment professional, not only do you have your ‘only’ experience, but you also have to understand the consensus experience as well as how your ‘only’ experience best fits into the consensus environment in order to succeed. If you have had to only understand that consensus experience, you have a one-on-one mindset. Just as it is easier to score in basketball on a three-on-one fast break than on a one-on-one, it is easier to win in investing when you have a three-on-one advantage from a mindset perspective. That’s the benefit of leveraging the diversity and uniqueness you bring,” Sanders explained, adding that his personal experience has been invaluable to his investment skills.

Thomas, of Northern Trust, offered three pieces of advice for diverse talent coming into the industry: “Know yourself and manage yourself; build your relational capital by developing quality relationships, both within your organization and the industry; and be truly great at what you do.”

Champions of Change, Diversity


Large asset owners double down on efforts to expand DEI across the industry and underscore its importance for investment returns

The tumultuous events of 2020, from the breakout of the COVID-19 global pandemic to the widespread protests against racial injustice, have led U.S. asset owners to double down on their diversity, equity and inclusion practices, both internally and in committing capital to women- and minority-owned asset managers.

“The circumstances in our country have raised awareness of social inequity. It's empowered trustees to ask questions when they might not have in the past. It's made us all much more aware of how issues have continued to simmer and what little has been accomplished,” said Christopher J. Ailman, chief investment officer of the $291 billion California State Teachers’ Retirement System and a Robert Toigo -Foundation advisory board member.


Chiamaka Anyoku
Toigo Fellow; Class of 2021, Harvard -University
Chiamaka Anyoku Headshot
“I grew up mostly in New York during the 2008 financial crisis and witnessed not just how it impacted banks, but how it impacted black homeowners. I want to be a leader in forging a financial world where there isn’t as much destruction and there can be more shared value...”

“Video technology and social media have been a powerful way to record and communicate injustices. A video lets people see and judge for themselves. With increased awareness among a broader audience that the work on addressing systemic racism is not over, more asset owners have joined already-existing conversations and work around DEI. While there has been greater engagement, we are still in early stages, said Susan Yun Lee, managing director of investments at the Broad Foundations and the Broad Family Office.

“The pandemic has certainly been one of those significant events that really causes us to rethink our forward human-capital strategy as well as our pipeline” of diverse talent, said Marcie Frost, chief executive officer of the $444 billon California Public Employees’ Retirement System. “And when you have such a reliance on your workers, with disparate impact on people of color, I think that was startling to some. It has caused this additional analysis about the risks associated with not managing your people as a resource — your number one priority to your company's success.” CalPERS has long viewed human capital as one of its three forms of capital, alongside financial capital and physical capital, Frost said.

“Over the past year, I've had more conversations with other CIOs across public funds, foundations and endowments than in prior years to share [information on] our diversity program and some of its challenges and successes,” said Johara Farhadieh, executive director and chief investment officer at the $22.6 billion Illinois State -Board of Investment, which commits 39.1% of assets under management to diverse managers. “My hope is that we really create long-term sustainable revenue and growth for these diverse firms so that it [becomes] part of the normal course of business for all of us and it’s not just a temporary initiative,” she said.


Plan sponsors need to realize that a diversity and inclusion lens is integral to their fiduciary duty. DEI “absolutely fits within their fiduciary responsibility, whether it’s under ERISA or simply under public pension plan requirements,” said CalSTRS’ Ailman. “The reason is, simply and quite literally, they need to make money. Their goal is to generate a consistent return over time, and to do that you would never exclude half the population or exclude part of the population. You need to tap into all the investment talent you can find.”

“You want the most diverse people you can find around the table asking the toughest questions. You want to avoid group-think where everyone has the same background. That's useless. Fiduciary duty is all about diversity in diversifying the assets, diversifying the thought process and considering all the factors in your investments,” Ailman said. “The fiduciary standard of our board is for the exclusive benefit of our 2 million members in California. It is the same fiduciary standard for all U.S. plans. It is about performance,” said Frost.


Nicole Allain-Stockton
Toigo Fellow; Class of 2021, the Wharton School, University -of Pennsylvania
Nicole Allain-Stockton headshot
Nicole Allain-Stockton said she did her Master of Business Administration with the aim of pivoting into investment banking. Prior to business school, she worked at Black-Rock in the Financial Markets Advisory group...

“We also have our stakeholder groups that are becoming much more active and, frankly, more like shareholders. They want to know what’s happening within the system and how we are approaching [environmental, social and governance issues] that are increasingly visible. We take all of this information that’s coming from our membership and factor that into our fiduciary duty as well as the 7% growth assumption of the portfolio, which is very similar for all public plans,” said Frost of CalPERS. She added that the challenge for boards is to translate how to meet the 7% growth year-over-year while addressing these issues around human capital, climate and governance, both internally and in their investment portfolios.

“At the end of the day, we all want top-tier managers. So how are you going to know that you have the top tier if you’re not vetting a more inclusive pool of managers,” said Farhadieh. The Illinois SBI’s global equity portfolio, which includes allocations to diverse-owned managers, is a top-decile performing portfolio.


CalPERS has long taken the engagement approach, versus divestment, to encourage companies to move forward on ESG issues, Frost said. It helped lead the Climate Action 100+ initiative for companies to move toward net-zero emissions by 2050. “We believe that we have to be at the table for our voice to matter and because we want to be in front of the investment opportunities during the transition” to a net-zero economy.

Another area of engagement for CalPERS is in promoting board diversity. There’s real progress with more women and people of color joining boards, said Frost. “We're now seeing commitments from Fortune 500 companies around improving their C-suite and board diversity, starting with gender and people of color.”

At CalSTRS, said Ailman, “I’m most proud of the fact that we have been focused on diversity for almost 20 years. We’ve been consistent and active. We’ve learnt from our mistakes and we’ve adapted.” CalSTRS participated in the CFA Institute’s project to set DEI objectives and approaches for the industry.

The Illinois SBI has “a fairly robust diversity policy, with specific goals and metrics for diverse firms across all asset classes. We also encourage trading with minority- and women-owned broker-dealers, and we have an emerging broker council where we [have] partnered with Black-Rock to increase trading with diverse broker-dealers,” said Farhadieh. “On a quarterly basis, we provide full transparency on commitments by AUM and by fees paid to managers. It’s not that we would ever want to pay more fees to diverse managers, but when you're talking about a large allocation to an index manager versus a $30-to-$50 million commitment to a private equity manager, fees may be a better way to look at the diversity allocation versus just utilizing AUM. We also bifurcate between the active book and the passive book because, again, it could be skewed just based on the allocation to an MWDBE index manager,” she said, referring to minority, women and disadvantaged business enterprises.


“The Broad Foundations, internally, have engaged in DEIJ (Diversity, Equity, Inclusion, and Justice) learning that spans, among other items, honoring of heritage months and promotion of culture and inclusivity, a revised performance-review process that is more transparent and equitable, and coursework to learn about systemic racism and white-dominant culture,” said Lee. She added that organizations need to reach out to diverse pools of candidates for recruitment and be committed to train them for success. “Use your influence as a customer to advocate for diverse teams. It makes a difference,” she said, noting that the Broad Foundations’ fiduciary goal is to deliver the best investment results in order to support its philanthropy.

“In 2007, the W.K. Kellogg Foundation made a commitment to become an anti-racist organization. That is a big change, because when you decide to be anti-racist, you are no longer on the sidelines. You are in the game, actively doing something about the issue. If you say you’re nonracist, you may want more diversity and inclusion within the industry, but you are passive and on the sidelines. An active commitment meant everything had to change within the Kellogg Foundation as far as recruiting, building an inclusive environment, board composition and workforce composition,” said Reginald G. Sanders, director of investments at the W.K. Kellogg Foundation.

Today, almost half the Kellogg Foundation are people of color and 90% of staff are people of color and women, Sanders said. “I’m a product of Bob and Sue Toigo having the anti-racist mindset to start the Toigo Foundation. As a Toigo alumnus, I am still benefiting from it 30-plus years after its founding,” he said. “Working at the Kellogg Foundation is part of paying it forward.”


“If you look at just the industry statistics, as far as I’m aware, the first minority set-aside pension money that was earned by an MWBE firm was at Brown -Capital Management back in 1991, which got a $40 million account from CalPERS,” said Edward Ramos, head of external advisors, diversity portfolio management, at the $81 billion New Jersey Division of Investments. He had joined Brown Capital to start its international equity division right after his Toigo fellowship.

“Here we are, 30 years later, and MWBE firms manage 1.3% of all assets in the U.S. We need to admit to ourselves that after 30 years, what we've been doing is not working as an industry. Of course, specific plans have moved that needle beyond that 1.3%, and I’m trying to apply those best practices to what we do in New Jersey. But the industry paradigm needs to be much more bold, more intentional, more creative,” said Ramos. “For instance, when did you last hear about a CEO being fired for having poor diversity outcomes?” he asked.

There’s no ecosystem in financial services that doesn’t have diverse talent, said Ramos. “Over the course of my career, I’ve heard every excuse in the book, and perhaps the most insulting one was, ‘We don’t know if your results are repeatable,’” said Ramos, who has managed three five-star Morningstar-rated funds in his career. He said he attributes much of his success to building diverse teams where every member has had an equitable voice in contributing to the firm’s success and equitable compensation.


Asset owners across the spectrum who have been front-runners on DEI initiatives say they are willingly sharing lessons learned from failures and successes with their peers. “First of all, ask the hard, cold questions of ‘What does diversity look like at your firm? Is it just entry-level? Is it in your board of directors?’ said Ramos. “Also, be vocal with all your asset managers that diversity outcomes are important to you and that you expect to see progress.”

“What I have noticed is that the biggest focus tends to be on the external phases of recruiting diverse talent and influencing industry partners to have more diverse representation,” said Kellogg’s Sanders. “But the really hard work is inclusion and promotion of diverse talent, and making sure that your house is in order internally. It requires a mindset shift and a behavioral shift that often needs a lot of help, because it involves changing biases that you’ve grown up with.”

“The best advice — and I constantly give it — is go to the CFA [Institute’s Report on “20 Actions and Best Practices to Promote Inclusion in the Workplace”]. Number one is the hardest one, which is to define what diversity means to you. From that you will be able to measure from where you are now to where you want to go,” said Ailman of CalSTRS. “And be intentional. It has to be a tone from the top. It is from the standpoint of, ‘Are you putting enough people on your internal investment committee who give you a different perspective?’ We’ve learnt from the science that a more diverse decision-making group yields better results.”


There is increasing interest by asset owners in seeking out more emerging and diverse talent. “Anecdotally, we have had more discussions in the past year with other corporate plan sponsors who want to learn about our diverse managers program,” said Brian Andersen, vice president of investment strategy at Exelon, which has had a women- and minority-owned manager program for about 20 years.

“It’s a myth that there isn’t diverse talent out there,” Andersen said. He noted that diverse-owned firms manage over $4 billion of Exelon’s investment office assets. “We bring all firms into our investment-approval process in the same way to meet our ERISA fiduciary standards and to make investment decisions in the best interest of our plan participants. We’ve shown that you can select diverse managers and adhere to ERISA,” he said.

Under the Exelon D&I Partnership Program, last year 11 organizations on the investments side were recognized for their diversity commitment and approach. “We’re one of the first corporate plans to have a partnership program,” said Andersen. “It’s not about being prescriptive, but to ask how they’re approaching DEI at their firms.”


Several studies have shown that diverse teams correlate with better business outcomes. However, the inefficiency case is perhaps even stronger, said Sanders. “A Knight Foundation report highlighted that women- and minority-owned firms account for less than 5% of private equity managers and less than 1% of hedge fund managers. And women and people of color are 70% of the U.S. population. That is an inefficiency that’s so wide, it will take decades to close this gap,” he said. “As an investor, I haven’t seen another inefficiency in the market that’s as big as 70-to-5 or 70-to-1, that will also take decades to close, and that’s where the returns are.”

Several plan sponsors are now able to show the investment results from diverse management, said Farhadieh at the Illinois SBI. “We ranked number one in private equity performance amongst all public funds for the 10 years ending June 30, 2019, net of fees. We had a return of 16.7%, and 24.1% of that NAV was committed to minority- and women-owned private equity fund managers. It’s a beautiful story,” she said.

Scales of Equality

Demonstrating Excellence

As diverse talent grows and thrives across the financial ecosystem, the focus turns to sustainable DEI

As demands for social and racial equity sweep across the U.S., in the wake of the COVID-19 pandemic’s disproportionate impact on women and minority communities, the investment-management industry, like others, has had to turn its gaze inward. Asset owners and their own employees have demanded more transparency in – and commitment to – diversity, equity and inclusion policies, both internally and with external partners.

Several organizations are leading the way by baking DEI into their talent-management practices and their investment processes. Diverse leaders in the senior-most roles across different sectors are cautiously optimistic today that this could be a turning point for the industry to shift beyond good intentions and commit to true inclusivity and opportunity for women and people of color.

The Robert Toigo -Foundation alumni, who are leaders in asset management, private equity and real estate, offered insightful perspectives on the investment imperative of DEI, and shared policies and programs that can help advance DEI at any organization.

Asset Management

Amplify Your Voice

“What we saw as a result of the pandemic laying bear many of the systemic inequities that, quite frankly, have long been in plain sight but ignored by much of society, combined with this reality being punctuated by the George Floyd murder and the response we saw from many communities, was an incredible catalyst [to re-examine diversity] for the industry,” said Shundrawn A. Thomas, president of Chicago-based Northern Trust -Asset Management.

“In talent-management processes, people are now finally saying, ‘To get different outcomes, we need to do some things differently than what we’ve done historically,’ whether that’s true commitment to going to different places to recruit or accelerating promotion for very readtalented women and minorities,” said Thomas, noting that NTAM has focused on diverse talent since he joined its executive team over 12 years ago, when he was the sole person of color there. Today, of Thomas’s nine direct reports, five are women executives and three are people of color; and in the expanded 18-member executive team, seven are women and six are people-of-color, he said. NTAM also extends a DEI lens to its engagements with asset managers, broker-dealers and stakeholders in the marketplace, and it works with women- and minority-owned firms.

“One of the greatest tools that I have as a leader, whether it’s inside my organization or outside in the broader marketplace, is my voice. I have the opportunity to use my positional leadership in the industry to actually influence others in a positive way,” said Thomas, who penned a widely read letter, Breaking the Silence, to civic and business leaders last June after George Floyd’s death that he said garnered an overwhelmingly positive response. “What I heard from other people-of-color leaders is that they felt more emboldened to share what I would refer to as ‘their truth.’ And I also heard from majority leaders that they felt a stronger responsibility and took it upon themselves to use their voice. So my experience was very meaningful for me, but it certainly encouraged others, which gives me a lot of hope.”

Sustainable Earnings Lens

The DEI approach at New York-based investment manager Mackay Shields is part of the firm’s overall commitment to the United Nations Principles of Responsible Investment, said Carlos Garcia-Tunon, senior managing director and lead portfolio manager for the firm’s fundamental international equity strategies.

“Our team is focused on identifying companies that can exhibit sustainable earnings growth over time. We believe that building an inclusive corporate culture and maintaining strong corporate governance structures allows companies to successfully manage relationships with all of their stakeholders, including employees, customers and the communities in which they operate, and often enables those companies to deliver consistent earnings growth.”

While it feels like an inflection point in the industry where more organizations are embracing DEI, sustaining the momentum will require organizations to see the benefits of building and sustaining a diverse workforce, along with a joint sense of accountability and collaboration by industry participants, said Garcia-Tunon, noting that Mackay Shields has long believed that diversity helps the firm achieve superior business outcomes.

As diversity relates to attracting and retaining talent, “any individual generally feels more welcome if there is commonality with other individuals within the firm. It’s important for diverse firms to connect people with similar backgrounds and interests, and help them build relationships internally,” he said.

With more corporate data increasingly available on how companies manage their environmental, social and governance risks, including in areas like DEI practices, asset managers can be more aware of a company’s strengths and weaknesses upfront, Garcia-Tunon said. “And as this information becomes widely available, it clearly drives changes in behavior as well.”

Approximately 32% of companies in the Russell 1000 disclose some level of race or ethnicity data about their employees and, within that number, 6% of companies disclose intersectional data on gender by race/ethnicity (see graph), according to nonprofit data firm JUST Capital, which reports that it expects investor demand will continue to bring improvement in diversity data disclosure.

JUST Capital's corporate demographic datasets

Above-Average Returns

“The reality is we have to continue to make the business case for ‘D,’ ‘E’ and ‘I’ and educate the world that outcomes and values are now, and frankly have been, interlocked. Together, they improve performance and will unlock higher returns,” said Perry Hollowell, who manages equity derivatives strategies and is senior portfolio manager at Chicago- and New York-based Guggenheim -Partners.

“We know intuitively that higher returns are earned by going where there's less competition. So if you believe that talent is evenly distributed but opportunities are not, then ‘D,’ ‘E’ and ‘I’ become a means to generating above-average returns, because you're basically going to opportunities that have fewer incumbents in play,” he said.

While there’s increased scrutiny into how companies report diversity metrics, the real challenge is how to quantify equity and inclusion, and that may be an impediment to wider adoption.

At Guggenheim -Partners, which is a recent signatory to the U.N.’s Principles of Responsible Investing, Hollowell is part of the team looking at integrating ESG practices across its equity investment portfolios. “Some of those lines between ‘E,’ ‘S,’ and ‘G’ start to get blurred. For example, a metric like board diversity probably falls under good governance but may also look and feel like social impact. And the line between environmental justice and social justice is probably nonexistent, because communities most impacted by climate change are probably those most underserved in the first place. So those lines can be artificial in nature,” he explained.

Hollowell is also excited about participating on the firm’s Social Justice Initiatives Operating Committee, formed in the aftermath of the social and racial injustice protests last summer. It is instituting paid internships and scholarships for people of color and financial capital for minority business enterprises and community projects promoting diversity and equality.

Investment Advisory

Seeding Talent

“If you want to look at it from a positive, glass-half-full perspective, there are around 1,800 Toigo alumni in this business who are excelling in their areas of specialization. So there has been progress, but it is nowhere near what we need it to be from an equity perspective. Our journeys are still fraught with challenges derived from bias and prejudice. There are still too many spaces where we have the ‘only one in the room’ experience,” said Raudline Etienne, founder of New York-based Daraja Capital, an advisory firm for startup and boutique alternative asset managers.

While there’s progress on the employment side and there are cultural shifts at organizations, Etienne said her focus is on the economic ownership of businesses, which presents a different challenge. “The flow of talent is there, and there are many aspiring fund managers. What isn’t there is membership in networks where friends and family put in millions. Although aspiring diverse fund managers may be successful and wealthy, this is first-generation wealth, and it may be harder to take entrepreneurial risk,” she said. “What isn’t there is the risk-taking appetite on the part of limited partners to go first. Lowering the barriers to entry and making the on-ramp a little easier is one of the structural ways that I can help,” said Etienne, who is developing an investment platform to seed diverse-owned and -led alternative fund managers.

Desire for change, for diverse inclusion, “has to come from the top — [it’s] simply a basic requirement,” she added. “A desire that comes from the top doesn't necessarily always get implemented throughout an organization. It has to flow through to the bottom with intention. Unless you have structures of practice, communication, exchange and the ability to have dialogue from top to bottom, you're going to run into what I call ‘recalcitrance’ in the organization.”

Real Estate

Multiple Points of Support

“The case for diversity and inclusion has been made. We don’t need to spend time on justifying it any more. That is the starting point of expectations,” said Leslie D. Hale, president and chief executive officer of Bethesda, Md.-based RLJ Lodging Trust, a public real estate investment trust. “But clearly we have a long road ahead to get to where we want to be with respect to diverse representation in the industry.”

“The lodging industry has a tremendous number of career-growth opportunities given the inherent structure of the industry. For lodging-related companies, you can find diverse talent on the management-company side and with many other stakeholders that participate in the industry. The ingredients are there — opportunity and talent — but we need to be thoughtful and committed to taking steps to advance the talent throughout these organizations,” said Hale, noting RLJ Lodging has diverse representation within every function.

“RLJ is in a unique position, as diversity has been a core value since the company was founded,” said Hale, noting that one third of its board are women and one half represent ethnic minorities. “We believe that it’s important that boards represent the constituents they serve. If you’re a pension fund, your board should represent the composition of the firemen, teachers and others who are your plan beneficiaries. If you’re a retail company, your board should represent your customers.”

Advancing diversity starts at the top with the CEO and lead executives who drive the values of the organization, Hale said. Her own success was facilitated by strong training, support by mentors and sponsors, and access to opportunity. “No one gets anywhere without support in some form or fashion. Some of it has to be organic and some of it comes from the organizational structure. There’s no one-size-fits-all that solves this challenge, but awareness and commitment are required,” she said.

Private Equity

Making an Impact

“In the last five years, the impact ethos has exploded, where people are much more open to impact investing and sustainability goals,” said Greg Shell, managing director of the Double Impact Fund at Boston-based Bain Capital.

“We look for opportunities to partner with entrepreneurs whose businesses are improving the lives of people and communities and the environment, while allowing us to deliver attractive returns to our investors,” said Shell. Sectors of interest include access to and affordability of healthcare services for vulnerable populations, climate remediation, renewable energy, education to upskill and reskill low- and middle-income skilled labor, and other areas, he said. The fund also seeks to work with its portfolio companies to add BIPOC — black, indigenous and people of color — members to their boards and senior management teams.

Many in the private equity industry today understand that the best-performing teams need to source talent from a wider variety of places than they have in the past, Shell said. “It’s about recruitment, retention and advancement. And we help power the recruitment of our portfolio companies. So we’re looking to have impact not just on our own firm, but on all companies that we partner with,” he said. The firm works with headhunters who provide diverse talent as well as nonprofit groups that develop and support diverse talent. Besides the Toigo Foundation, Management Leadership for Tomorrow and Sponsors of Educational Opportunity are examples.

“Investors today are confronting the sense that there are some truly unsustainable societal issues that need redress, whether that’s climate risk or that’s all the way to a racial reckoning. The question we ask is, ‘Can the private sector take a role in helping to address these problems?’ The answer is ‘Yes,’” said Shell. “Take the Georgia voting law as an example: Where a generation ago, companies wouldn't have been compelled to take a public position on the law [to limit ballot access, among other restrictions,] now it seems not just important, but urgent for some companies to take a stand, as they know that customers and employees are watching, and that they get to choose how they spend their time” and who they support.

It's In Our DNA

“Private equity companies have made progress in recruiting, retaining and promoting diverse talent by a tenfold increase from when I entered the business in 1996,” said Tarrus Richardson, CEO of IMB Partners. The minority-owned private equity firm in Bethesda, Md., has seen $700 million in revenues since 2010 in the utilities and government-contracting sectors, with four of its six current businesses being minority-owned or women-owned. “But when you look at it on a percentage basis, there’s still a big area for improvement in the industry,” he said.

“I would encourage people to speed up, to think bigger at hiring levels, and not one-offs. There’s added value from people really feeling comfortable [in diversity,] and so hiring in groups of sixes and tens of diversity, versus one at a time, is going to move the needle much more successfully,” Richardson said.

As a comparison, he points to the rush of hiring that private equity firms engaged in when they first entered international markets. “They hired locals and none of them had private equity experience. But they saw the clear business case and trained them. The truth of it is, it’s a diverse American marketplace. That’s what we’re saying people need to do from a diversity and inclusion perspective in the U.S. And the fact is, you can no longer show up with a nondiverse team to raise capital or do business in certain markets.”

“Diversity and inclusion is in our DNA. It is part of the ethos of what we do,” Richardson said. IMB Partners was one of the first bridge-to-business grant recipients from the Toigo Foundation, and the Toigo network is integral to its success, he said.

Training in the private equity industry is key to the success of all talent, he noted. “Thinking about the training that you put in place so that your representatives get exposure sooner and giving them access to networks beyond your company so they get 360 support inside and outside, are the ways that can help solve the diversity gap in talent.”

A Part of Fiduciary Focus

With the pandemic and social-unrest events of the past year, there have been a lot more conversations initiated by institutional investors who want access to women- and minority-owned funds, said Mina Pacheco Nazemi, managing director of private markets at Charlotte, N.C.-based Barings. “Some of that is a knee-jerk reaction, where people are making quick decisions to, perhaps, satisfy their board,” she cautioned. “They are not thinking about the market with a comprehensive, long-term view. My concern is that if you’re three to five years down the road and [these investments] don’t pan out, they will then have an excuse to say, ‘This is why you don’t give money to a diverse-owned fund,’” Nazemi said.

At Barings, “D&I isn’t what we do, it’s who we are,” said Nazemi, who counts herself lucky to be at a firm with strong diverse representation across its ranks. Two-thirds of the investment committee and half of her investment team are women and ethnic minorities, she said, noting that the team invests across private equity and real assets. “I’ve always thought of D&I from the perspective of, if you’re a homogenous group of individuals making decisions, I guarantee that it’ll be the wrong decisions. You need different perspectives and different ways of looking at the risks of any investment,” she said. “And it’s important to realize that our success, the success of diverse teams, is across mainstream investments.”

“Since the start of my career, I’ve had the role of a fiduciary in managing assets in the best interests of my investors [and] for the beneficiaries of pension plans so they can have that financial security,” Nazemi said. “D&I is part of that process, and if you’re not committed to it, you’re not meeting your fiduciary duty.”