Asset owners seek to standardise disclosure, incorporate diversity and inclusion into manager selection.
A group of UK asset owners, including Brunel Pension Partnership, RPMI Railpen, Nest and Lothian Pension Fund, has created the Asset Owner Diversity Charter to tackle a lack of diversity across the fund management industry. The group, the Asset Owner Diversity Working Group, represents more than £125 billion assets under management.
The Group describes diversity as a “systemic inequality issue and especially problematic in the financial sector”, citing research that has found only a fifth of executive committee and board members are women across 468 financial institutions in 37 countries. The financial sector also has a wide gender pay gap and fewer than one in ten management roles in financial services are held by people from black, Asian or minority ethnic backgrounds. Last year, Willis Towers Watson released a report on diversity in the asset management industry that found progress “remains disappointing”.
“Diversity continues to be a problem for the financial industry,” said Helen Price, Stewardship Manager at Brunel Pension Partnership and Co-Chair of the Working Group. “Information on race, age, ethnicity, sexuality and socio-economic backgrounds are not being consistently collected in a way that equips the industry to identify barriers and make meaningful progress.”
Fund managers should manage diversity as a “material investment issue”, she added, but the Group questioned how well this would be done if fund managers themselves were doing little to address the issue in their own organisations.
“Given the slow pace of progress in this area we want to help raise the bar on diversity disclosure across the investment industry by requesting data that is meaningful to us, their clients, but also to the managers themselves,” she said.
Factoring D&I into manager selection
Asset owners are being invited to sign up to the Charter, which its creators say will standardise, and thus improve, disclosure by managers. By signing, asset owners will commit to take account of the diversity and inclusion records of the fund managers they choose. Fund managers that wish to work with signatories will have to disclose information and demonstrate how they are tackling diversity and inclusion (D&I) within their workforce.
Charter signatories will commit to including diversity as part of ongoing manager monitoring via an annual questionnaire. The questionnaire is designed to gather quantitative and qualitative information about the diversity and inclusion actions a manager has taken in the past 12 months. It seeks to identify how managers look at diversity and inclusion across five areas: industry perception, recruitment, culture, promotion and leadership.
Quantitative information sought includes the number of promotions, hires and graduates recruited from various ethnic groups as well as employee turnover and tenure across different groups. Qualitative information includes details about diversity strategies, processes to ensure equal opportunity promotion processes and how managers ensure their recruitment processes are inclusive.
“Not benefitting from the talent pools available”
David Hickey, Portfolio Manager at Lothian and Working Group Co-Chair, said it is “reasonable” for pension scheme members to expect their money to be run by a cross-section of investment managers that reflect the diversity in the scheme. “At the moment this is not the case across pension schemes in the UK. Fund management front offices are currently dominated by white men, and we are not benefitting from the talent pools available in the population – the dominance of a single group suggests a problem with hiring and with culture.”
In addition to the working group, bodies with more than £1 trillion AUM collectively have signed the Charter, including the Avon Pension Fund, Barnett-Waddingham, Church of England Pension Board, Coal Pension Trustees Investment, Cornwall Pension Fund, Environment Agency Pension Fund, LCP, LGPS Central Limited, Local Pensions Partnership Investments, Redington and Willis Towers Watson.
“This new charter gives managers a chance to highlight positive diversity and inclusion practice already taking place, while putting them on a journey to addressing existing challenges and becoming truly diverse,” said Diandra Soobiah, Head of Responsible Investment at Nest. “Any fund manager unwilling to disclose should be a serious red flag for investors.”