Diversify your Portfolio and your Perspective

Stephen McCourt, Co-CEO of investment consultant and fiduciary manager Meketa, says asset managers are beginning to deliver on diversity and inclusion.

For an industry that purports to deliver robust ESG investment solutions, the financial services sector often fails to lead by example.

For the year 2021/22 figures from PwC reveal the gender pay gap in financial services at 26.6%, far exceeding the 12.1% in the wider UK market.

The picture worsens when looking at the asset management sector specially.

Less than 1% of asset managers in the UK are Black, according to 2021 research from Bloomberg, while no asset manager features in LGBTQ lobby group Stonewall’s list of top 100 employers for 2022; banks including Citi, Credit Suisse and Barclays are featured, as well as the Financial Conduct Authority.

A Knight Frank study of diversity in the US-based asset management industry, using a sample representing US$82.24 trillion in assets under management (AUM), finds that only 1.4% of total AUM is managed by diverse-owned firms as of September 2021.

Mission Investors, an impact investing network, says: “The asset management industry continues to struggle with a lack of diversity — despite evidence demonstrating that there is no significant difference in the performance of firms owned by women and minorities when compared to their peers.”

In fact, according to Knight Frank: “Performance is empirically indistinguishable among minority-owned, women-owned and other firms.”

One firm that recognises the importance of not only employing a diverse workforce, but ensuring it works with asset management firms run by women and minorities is Meketa – an employee-owned, global investment consulting and advisory firm.

Sixty-one percent of Meketa’s employees are women or racially diverse; 54% of investment professionals are women or racially diverse and 46% of its shareholders are minorities or women.

Stephen McCourt, Meketa Co-CEO, says: “Diversity and inclusion is important to our business. We have spent a long time cultivating a culture of inclusion and it is relevant to our employees, our clients and the managers we work with.”

For almost two years, McCourt and his fellow CEO Peter Woolley have been members of  CEO Action for Diversity & Inclusion, an organisation compromising 2,200 CEOs business leaders who have pledged to support “a more inclusive workplace for employees, communities, and society at large”.

As part of its involvement in this organisation, last April, Meketa hosted its first ‘Days of Understanding’ which are founded on the idea that “frank conversations conducted in a safe place can help unite us by laying a foundation for change”.

McCourt says: “The evidence of the success of Meketa’s diversity, equity and inclusion (DEI) approach comes from the feedback from employees. We have a healthy and inclusive culture which means we are going to attract better talent and retain the best people.”

In August, the firm also adopted the voluntary CFA Institute Diversity, Equity and Inclusion Code for Investment Professionals in the United States and Canada.

Under-representation

As a fiduciary manager, Meketa also needs to reflect its belief in DEI as a value driver through the asset managers it recommends to clients.

Since the start of 2020, Meketa has been gathering data from public and private markets asset managers within its proprietary database. The initiative is focused on evaluating asset manager efforts more thoroughly to have a deeper understanding of DEI within their organisations.

McCourt says: “For large asset owners and advisors like Meketa there’s a natural bias and gravity towards favouring large asset managers, because when you’re searching for strategies and managers, you’re scoring those managers. Generally, the bigger the [AUM], the better the scores. But it’s important to always be looking for smaller managers because often that’s where the talent is, and the better fee concessions for our clients.”

This May, Meketa reported the findings from its second Annual Diversity, Equity & Inclusion Questionnaire covering 2021 policy and process at asset management firms.

The first thing to note is that out of 803 firms who received the questionnaire, 420 responded. This is a 50% response rate increase from managers compared to 2021.

“The most significant change was the number of respondents; about a third of managers responded in year one and about a half responded a year later. We see that managers are taking this more seriously,” McCourt says.

However, he adds that it is not in asset managers’ interests to avoid completing the survey.

“If organisations do not have good things to say about their DEI policies, they’re less likely to respond. The interpretation by us is that no responses are worse than [a weaker] response. The point isn’t to shame people but to share best practices and to ensure that organisations are improving.”

Deeper investigation

A second change from 2020’s survey is the breadth and depth of DEI investigation.

Typically, a woman- or minority-owned firm is defined as having at least 50% ownership by women or minorities.

McCourt says: “What’s changed in recent years is we evaluate asset managers more broadly. The effort is spent not just in identifying and reviewing diversity among asset managers, which we do, but also evaluating the DEI policies, practices and metrics to ensure that we’re doing our part to elevate those practices across the broader industry.”

The report reveals that – as with the 2020 survey – women continue to be the least represented in portfolio management positions, while minority employees are least represented in equity ownership.

Asset managers are also failing to employ women and minorities in senior positions. Lower-level roles are the most diverse by both racial and gender measures.

More than half (59%) of promotions were given to males and over two thirds were given to non-racially diverse people.

But there has been progress in ensuring a pipeline of under-represented groups. In 2021, 42% of new employees were either female hires, diverse hires, or both.

However, the turnover rate was 4% higher for women than men.

The report also demonstrated a lack of commitment to putting in systems and process that promote DEI.

More than two thirds (69%) of asset managers said they did not have a diversity and inclusion committee or group within the organisation that includes members of senior management. However, a third said they plan to introduce one in the next 12 months.

The picture was similar for asset managers linking DEI to the performance objectives for senior management in the last 12 months, with 62% saying they included such an incentive.

The story improves, however, when it comes to formulating a formal DEI policy. More than three-quarters (78%) of managers now do so, and an additional 6% of managers plan to implement a policy in the next year.

McCourt says the ability to commit to DEI varies depending on an asset manager’s size.

“There is more consistency in the types of policies and practices that we see adopted across asset managers. If you’re a global asset manager with 5,000 employees, you’re going to have different committees, different structures, different DEI practices than you would if you’re a five-person asset manager with one office,” he says.

McCourt would also like to see asset managers extend DEI policies to their service providers. Just 18% include DEI policy reviews in their evaluation of service providers, and only 29% partner with minority, women, and disadvantaged business enterprises.

As part of its commitment to expanding its own relationships with emerging, minority-owned, women-owned and disabled-owned business enterprise investment managers, later this month, Meketa will host a public and private markets emerging & diverse manager research day.

McCourt accepts that it takes time to implement effective DEI policy and process across an organisation but says: “DEI is a journey and we recognise committed managers will need time to progressively evolve their organisations to become more diverse. However, it is important to keep in mind that those that move too slowly may be rapidly outpaced.”