July 5, 2022

Finance & Economy

Let's Talk About Investment

Consultants focusing more on DEI efforts of managers they evaluate

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In 2020, 40% of NEPC’s clients invested a total of $34.7 billion in strategies managed by diverse-owned and diverse-led firms, the report showed. NEPC had worldwide institutional assets under advisement of $1.37 trillion as of June 30, up 22.6% from the prior year, according to Pensions & Investments’ annual consultants survey.

Some consultants have been measuring money manager diversity for decades.

Wilshire Advisors LLC, Santa Monica, Calif., for example, has been tracking and analyzing data on diverse-owned managers since the late 1980s and now has identified 225 diverse-owned public- and private-market managers for use in manager evaluations, said Joanna L. Bewick, Pittsburgh-based senior vice president, portfolio manager and chair of the firm’s diverse-owned manager committee.

Ms. Bewick said the number of Wilshire’s investment management clients that invested in diverse-owned firms rose to 34.7% in 2020 compared with 22.7% in 2019 and 19.8% in 2018. As of September this year, an estimated 37.4% of Wilshire’s discretionary and non-discretionary clients hired diverse managers.

Like NEPC, Wilshire focuses its evaluation of money managers on the diversity the company’s owners, Ms. Bewick said, noting “company owners chart the course of the company and set the tone.”

Wilshire revamped its diverse manager program in 2018 to include measures such as presenting at least one diverse manager in every public market manager search for clients; a diversity education program for clients, diverse-owned managers and Wilshire employees; and the addition of discretionary compensation for senior consultants tied to the quantity and quality of their interactions with diverse-owned managers, Ms. Bewick said.

Wilshire had $1.08 trillion in worldwide institutional assets under advisement as of June 30, up 10.7% from the prior year, P&I survey data showed.

Industry sources said the death of George Floyd, a Black man, by Minneapolis police in May 2020 was the catalyst for asset owners and consultants alike to make changes to better incorporate DEI principles into their money manager evaluation, due diligence and hiring practices.

“People had an awakening last year after the death of George Floyd. It brought a lot of attention to DEI principles, and the industry is moving toward thinking about money managers more holistically,” said Lauren E. Mathias, senior vice president and non-U.S. equity investment consultant in San Francisco-based Callan LLC’s global manager research group.

She also has oversight of Callan Connects, a program that specializes in coverage of emerging, diverse-, women- and disabled-owned money management firms.

While asset owners aren’t necessarily firing money managers that lack diversity, Ms. Mathias said Callan is fielding more questions about manager diversity, and the number of RFPs seeking diverse managers is on the rise.

Historically, public pension funds have broadly adopted strategies run by diverse managers, but corporate pension funds, endowments and foundations increasingly are seeking diverse managers, she said.

Callan recently expanded its evaluation of money managers from a focus just on the diversity of the owners of the firm to measuring diversity throughout the entire firm, Ms. Mathias said.

“We want to see improvement in managers’ diversity measurement across the company so we can gauge the firm’s recruitment and retention of employees from underrepresented groups and how they are promoted to eventually become senior leaders,” Ms. Mathias stressed.

Callan had $3.22 trillion of worldwide institutional assets under advisement as of June 30, an increase of 27.6% from the prior year.