The murder of George Floyd more than three years ago sparked a reckoning on the lack of diversity in leadership of U.S. corporations — including asset management, an industry historically dominated by white men.
In the aftermath of his death, a number of asset managers publicly pledged to improve the racial and gender diversity of their workforces, with many creating senior DEI positions that reported directly to the CEO. Since then, diversity in asset management has improved, albeit slowly.
But with the asset management industry facing myriad business challenges, a growing backlash against what some view as overly progressive policies and a ruling this summer by the Supreme Court against affirmative action, some industry experts say efforts to improve diversity are under threat.
“The global conversations around racial justice and gender equality have pushed companies to be more introspective,” said Sasha Jensen, founder and CEO of executive search firm Jensen Partners. “The conversations around diversity efforts and best practices are more common and inclusive than they were before 2020; however, in recent times of economic uncertainty we have seen firms shed representation concerns for the bottom line.”
Among the pressures facing asset managers: a continued squeeze on fees, consolidation and even the emergence of artificial intelligence and its potential effect on jobs.
Troy Duffie, associate director at Center for Financial Markets at the Milken Institute, a nonpartisan think tank, said he thinks it’s far too early to tell how much artificial intelligence will change the asset management industry and impact its workforce.
But it’s not too early to be aware of how flawed data sets could pose challenges to obtaining representative answers to questions put to it.
“AI relies on data sets,” he said. “If the data lacks diversity — gender, regional, racial, etc. — the algorithm’s answers will be skewed. Garbage in; garbage out. Even if we expect fewer jobs in some parts of the industry because of consolidation, the jobs needed to produce sound data sets and analyze and assist AI, should reflect our diverse and interconnected world.”
Current pressures might make DEI seem secondary, Jensen cautioned, but long-term success hinges on having diverse teams.
“As global challenges become more complex, so does the need for varied perspectives to tackle them," she said.
The need for diversity is greater than ever, said Nimisha Srivastava, head of Investments-North America at WTW. “We believe the onus is on everyone in the industry, from asset owners and consultants to asset managers, to not lose sight of the opportunity that more diversity in the industry creates,” she said. “We believe diversity leads to better investment outcomes, and have quantified this outperformance to be 45 basis points per annum in terms of net excess returns.”
Specifically, a WTW report in March found that data collated from more than 1,500 investment strategies found that investment teams in the top quartile of gender diversity outperformed the bottom quartile by 45 basis points yearly in terms of net excess returns.
To maximize benefits to savers and communities investing their assets with asset managers, diversity needs to be taken as seriously as any other financial metric in order to create stronger long-term performance, Srivastava said.
According to the Investment Company Institute’s 2022 U.S. Asset Management Diversity & Inclusion Survey, which was released May 30, the percentage of the workforce from “historically underserved or underrepresented communities” in the industry increased to 34.4% as of June 30, 2022, from 30.5% as of Nov. 1, 2020. However, the percentage of women represented in the industry slipped to 39.7% from 41.8% over that period.
Jensen noted that while white women are increasingly present in senior roles in asset management, progress in other areas has been “slow, stagnant or backpedaling.”
In a follow-up response, a spokesperson for Jensen said other dimensions of diversity – outside of gender – refer to race and ethnicity, noting that Jensen and her team also track the progress of East Asians, South Asians, Middle Easterners, Blacks, Hispanics, and other ethnic groups.
Racheal Hanifan, head of human resources-Americas at Schroders, said she hears anecdotally across the industry that leadership focus on DEI has waned in the face of external pressures.
“But in my view, these external pressures are exactly why the need to maintain a deliberate and targeted focus on DEI is greater than ever,” she said. “Making our business more inclusive and having greater diversity of thought is absolutely necessary to ensure our future success — it’s not just about doing the right thing; having a diverse workforce where people look, think and act differently will ensure we can adapt to these external pressures and meet our clients ever-changing needs.”
Hanifan noted that the firm recently met its target of 35% female representation in senior management globally, and 16% ethnic minority representation in its U.K. business earlier than projected.
Schroders has about $923.1 billion in assets under management.
Pressures on DEI were only heightened earlier this summer after a Supreme Court ruling struck down race-conscious admissions at colleges and universities. Ensuing letters in July from 13 state attorneys general to Fortune 100 companies warning them of possible legal consequences if they used race as a factor in their hiring practices was another concerning development, sources said.
As a result, asset managers are not sure what the new rules of engagement will be, said the Center for Financial Markets’ Duffie.
“The decision for many asset managers to explicitly build diverse teams, invest in diverse funds, and empower diverse entrepreneurs was as much data-driven as it was ethically driven,” he said.
“Asset managers want to understand how they can do what’s best for their business without becoming political fodder, and many advocates for diversifying the industry are helping organizations navigate this brave new world.”
WTW’s Srivastava said she does not think the asset management industry is losing its interest in racial and gender diversity, but added that the “market pressures of the last couple of years have challenged resources being devoted.”
She also said she has seen more asset managers adopt clearer metrics for DEI initiatives, such as the use of dashboards for data management, and recruiting objectives, which “create a path to continual improvements.”
WTW expects to see managers making progress on a regular basis, she added.
“We believe we are leading the industry in collection on manager diversity data, whether that is specific asset manager diversity stats, tracking manager progress or our proprietary diversity index,” she said. “We do not set specific goals, but we measure and assess where managers are today, and hold them accountable to their own stated objectives to us.”
However, she also cautioned that market declines have placed cost pressures on asset managers, resulting in a reduced focus and budget for specific DEI specialist resources. But this can be mitigated by “putting clear accountability on leadership of these organizations and having measurable objectives to keep diversity front and center,” she added.
WTW had global assets under management of $163 billion. In 2022, the firm reported $4.7 trillion in AUA.
John A. Barker, vice president and chief investment officer of the Kresge Foundation, a philanthropic private foundation with an endowment of $4.2 billion as of the end of 2022, said that the asset management industry has always been prone to distraction, and DEI efforts have unfortunately had their fits and starts.
“The good news is since 2020, Wall Street and the asset management industry have launched hundreds of diversity and inclusion efforts,” he said. “Allocators — specifically in the foundation and endowment space — have been increasingly transparent in reporting the diversity related to the firms they allocate to.”
Barker noted that endowments and foundations are increasingly reporting what percentages of their portfolios are allocated to diverse-owned firms via surveys such as the Knight Foundation survey.
“Unlike five years ago, we’re now having discussions around diversity and how it can improve decision-making with all of our investment partners,” Barker added. “We’re also annually asking them to complete a survey that captures the demographic composition of their staff and leadership. This survey is voluntary, but we encourage each of our partners to participate. The individual firm data is treated confidentially and is not shared beyond our staff.”
According to a December 2022 report from The Knight Foundation, among 29 foundations that participated in its study (with total AUM of $78.86 billion), 18.1% was invested with diverse-owned firms at year-end 2022, up from 16.6% in 2021 and 16.2% in 2020.
Duffie cautioned that establishing true equity in the asset management industry will take time, but he has witnessed some positive developments in this sphere.
He cited, for example, a February report from McKinsey that said some $340 billion of corporate commitments to racial equity were made between May 2020 and October 2022, most of which came from the financial services industry.
“The fact the commitments were made is a positive step for the industry,” he said, but added he needs to see more transparency in how firms are deploying such funds.
“We need to better understand what problems each company is specifically trying to solve, we need transparency on how the money is being spent and whether or not the commitments are helping to solve the gaps or challenges each firm is trying to address,” he said.
“A third-party should be able to measure and assess the progress to hold firms accountable to what they said they would do.”
DEI, including racial and diversity advocacy, isn’t a trend one should lose interest in, which is why it remains a foundational piece of his firm’s strategy, said Patrick G. Halter, president and CEO of Principal Asset Management. “We’ve made progress, but DE&I isn’t something you can set and forget,” he said. “Not only is maintaining momentum on DE&I core to our purpose, but it also produces results and is a differentiator as we work to attract, retain, and develop employees who reflect our global clients.”
Principal has AUM of $674 billion.
Demesha McKinney Hill, head of diversity and community relations at Janus Henderson Investors, said asset managers understand the importance of DEI and that they are taking steps to measure and report on their progress.
“They are integrating diversity, equity and inclusion into their business processes beyond workforce planning and integrating this into supplier management and their approach to corporate philanthropy to ensure there is opportunities for all business to compete,” she said.
She noted that 40% of Janus Henderson board seats are held by women, and 30% were held by ethnically diverse members as of June 30.
“DEI is integrated into our operations and key stakeholders understand their role and responsibilities when it comes to promoting and fostering an inclusive workplace,” Hill added.
Crystal Castille-Cromedy, senior vice president of talent and chief diversity officer at Hines, a real estate investment firm, said at diverse officers at the firm accounted for 27% of the total as of August 2022, up 2 percentage points from 2021.
In addition, in 2021, 50% of all newly hired U.S. officers were either women or from an ethnic minority, marking a 10% rise from the prior year. DEI efforts have internal support, she added.
“Our DEI efforts are viewed as an enabler for helping the business grow and achieve its strategic goals, which has the support of the executive committee.”
Hines has $95.8 billion in AUM.
