Commentary: Transforming the investment industry to be truly inclusive

We are at yet another pivotal moment. Our inboxes are deluged with seminars on diversity and inclusion. Each week ushers in renewed declarations committing to "the cause."

As the founder and CEO of an investment firm who is also a woman of color, I welcome this renewed focus, as over the last 25 years I have seen its ebb and flow. Each prior moment catalyzed greater opportunities; but a focus on a few success stories lulled us into forgetting that underlying systemic biases and barriers remained. Consequently, according to the John S. and James L. Knight Foundation, only 1.3% of the industry's $69 trillion in assets under management is managed by diverse and/or women-owned firms, despite findings that their performance was on par with non-diverse peers. More recently, a Stanford University study found investor bias in the evaluation of private equity funds led by black vs. white general partners.

As someone who 24 years ago started an investment firm through a second mortgage on her home, I am profoundly grateful for our clients' trust in our firm, our dedicated colleagues, as well as the privileges bestowed by our terrific industry and country. In an attempt to add my voice to the conversation, I recommend the following for more transformative change:

Some of the disparate growth between women and diverse firms and their established majority peers is exacerbated by broad industry trends. Investment firms face two basic paths for achieving success. The first is to gain scale and offer multiple strategies, product vehicles and distribution capabilities through mergers and acquisitions, and distribution synergies. The second is to carve out a niche in less efficient segments of the market where they have a demonstrable edge. For both models, leveraging technology and outsourcing to reduce cost structures is key.

Since almost 90% of allocations are made through the advice of consultants, they are critical to any transformation. I am encouraged that several consulting firms have begun to evaluate measures to enhance the diversity of their manager recommendations. In order to encourage more organic, as opposed to client directed, recommendations of diverse firms, it is important that consultants' progress (both in terms of the number and size of mandates recommended or allocated by them), be measured relative to their entire client base, including their discretionary outsourced CIO asset pools.

There is ample research that diverse teams lead to more optimal decisions. Therefore, I encourage asset owners to monitor their service providers' progress in obtaining more diverse teams. At FIS, internships that foster relationships with high school and college-age diverse and female students have been invaluable for recruiting talented diverse and female professionals. Programs such as Girls Who Invest, the Toigo Foundation and the National Association of Securities Professionals' FastTrack provide meaningful internship opportunities.

Emerging manager of managers have also been critical for building the pipeline of diverse and women-owned firms. Since most institutions require minimum firm and product assets under management, this early funding support is critical for these firms. However, the emerging manager of managers model could be refined. For example, the commonly used $2 billion threshold to define "emerging" should be customized to reflect industrywide AUM growth and strategy capacity limits. For a microcap manager, $2 billion may be an appropriate AUM level to consider closing, but not for a large-cap growth equity manager.

Intersectionality refers to the complex manner in which different forms of social identity (such as gender, race, class, sexuality, etc.), compound bias. For women of color, the challenge of intersectionality is exacerbated by their absence in diversity and inclusion studies and objectives. The late poet Audre Lorde poignantly described this dilemma for black women: "We are rarely recognized as a group separate and distinct from black men, or as a present part of the larger group 'women.'"

Both the Knight Foundation and Stanford University studies uncovered systemic biases in the investment industry. But the Knight Foundation subsumed women of color firms into either diverse or women-led firms. In order to isolate the impact of race, Stanford University's study explicitly excluded women-led firms. More recently, a major financial publication evaluated the myriad ways in which women are deterred from ascending to chief executive officer by profiling the experience of various C-suite women. But these profiles included no women of color. Yet, the few studies that separately evaluate women of color suggest greater barriers to opportunity than either white women or men of color. McKinsey's September 2018 study found that as their careers advanced, all women in the investment industry lose ground to their male peers. However, women of color are promoted at lower rates than both men of all races, and white women. Although they represent 20% of employees at entry level positions, women of color virtually disappear from representation at higher levels. As a percentage of C-suite positions, they represented 1% vs. 8% for men of color, 17% for white women and 73% for white men. As of this writing, there is only one woman of color CEOs leading a Fortune 500 company vs. three African American males and 33 white females.

While women of color entrepreneurs are primary drivers behind the much higher new firm formation by women founders relative to men over the last decade, businesses with women of color CEOs get less than 1% of all venture capital funding every year.

Given the clear disparity of opportunity for women of color, I urge academics to conduct research and allocators to track employment and contract activity in ways that do not always subsume women of color into either "minority" or "women" classifications.

Tina Byles Williams is the CEO and CIO of FIS Group Inc., Philadelphia. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines, but is not a product of P&I's editorial team.