Lack of diversity in asset management laid bare

DATA

Companies in the top quarter in regard to racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians.

Vivian Hunt, Dennis Layton, and Sara Prince, “Diversity Matters” (report, McKinsey & Company, London, November 24, 2014).

A linear relationship exists between racial and ethnic diversity and better financial performance in the US: for every 10% increase in racial and ethnic diversity on the senior executive team, earnings before interest and taxes rise 0.8%.

Nearly 90% of asset managers are white and around 75% are white men.

Chief Investment Officer Magazine, “Whiteout: The Staggering Sameness of Asset Managers",  September 2014

African-American and Latino employees together make up 28% of the US workforce – but only hold 3% of leadership positions in the investment industry.

On average, the performance of asset management firms owned by women and minorities, both in terms of absolute returns and risk-adjusted returns, is stronger than the performance of firms that are not owned by minorities – and this superior performance carries across all asset classes.

A fund-weighted index of single-manager women- and minority-owned hedge funds generated a cumulative return of 82.39% for the five-year period ending March 2011, while an index of single-manager, non-diversity funds returned only 51.00%.”

A 2012 report by the National Association of Investment Firms (NAIC), found that: “NAIC Firms have produced superior investment returns over a sustained period benchmark [1998 to 2010] against the general PE [private equity] industry, including the buyout subset . . . in each of the four industry benchmarks.”

National Association of Investment Firms (NAIC), “Recognizing the Results—The Financial Returns of NAIC Firms: Minority and Diverse Private Equity Managers and Funds Focused on the U.S. Emerging Domestic Market” (report, KPMG, Washington, DC, and New York, 2012). The last reports on the performance of firms owned by women and members of minority groups used data from 2011; further study, using more recent data, would be desirable.

A woman is less likely to be running a US mutual fund than working as a doctor (37%), lawyer (33%), accountant or auditor (63%). Women are also better represented in law leadership ranks: 20% of law firm partners are women, while 24% of federal judges are women. Moreover, 19% of partners in US accounting firms are women.

Enterprising Investor, “Women in Investment Management: The Business Case for Diversity”, June 30, 2015

“When we looked at teams that were run by men and women together, when we have collaboration and diversity of thought, that was actually the bucket of performance that we saw outperform more than any of the others across both short and long time periods. So I think it’s really confirming that having a diversity of thought and opinion going into portfolio management of the funds that you are looking at makes a really big impact.”

Heather Brilliant, CFA, chief executive of Morningstar Australasia at the 2015 Women in Investment Management Conference in San Antonio, Texas

“Having a diverse team managing portfolios has a far better outcome. That has been my experience running a mutual fund business and then moving over to the endowment space. But I will second the comment that there are so few women to study.”

Rice University does not – and has never had – a female hedge fund manager investing for the institution.

Allison Thacker, president of the Rice Management Company at the 2015 Women in Investment Management Conference in San Antonio, Texas