To tackle long-standing racial inequities, institutional investors must go further than allocating money to minority-owned asset managers or even directly investing in companies that seek to benefit communities of color, a new research paper says.
Investors will have to hold a magnifying glass to their own investment policies and priorities, diversity and inclusion practices, and assess whether they are equipped to address inequities in the communities in which they aim to invest, research from Cambridge Associates LLC said.
"For a challenge like systemic racism and universal bias that is in society, you have to take a systematic approach," said Liqian Ma, Boston-based head of impact investing research at Cambridge Associates.
"It can't be, 'let's make an allocation to a diverse manager.' It has to be a change in mindset. It has to be a reframing of the opportunity set and really unlearning a lot of the biases institutional investors have when dealing with (money) managers," Mr. Ma added.
In the research paper this month, Cambridge Associates challenged investors to take a three-pronged approach in their investment portfolios and investment practices to target racial inequities.
First, institutions should make clear the purpose, priorities and principles of their investments aimed at addressing racial inequity, and make racial equity an investment priority and codify it in the investment policy, the report said. Secondly, investors should start allocating capital to racial-equity investments.
Finally, investors should put racial equity at the center of the investment selection process by looking at their own culture and diversity policies, determining whether they have the "cultural competency" to address the needs of communities of color and if these needs are considered in the investment decision-making process, the report said.