Just as diversity of asset classes, investment strategies, geographies, capitalizations and sectors can help strengthen investment portfolios, gender and race diversity can fortify investors against market volatility.
However, despite research indicating diversity drives competitive investment performance, minority- and women-led asset management firms represent a small percentage of the industry today — and an even smaller percentage of total assets under management, which totaled $89 trillion at the end of 2019.
This gap is just one reason why investment consulting firm NEPC views diversity and inclusion as a core priority for today's investors, according to panelists on an Oct. 20 webinar sponsored by NEPC and hosted by Becker's Hospital Review.
"We currently work with almost 50 healthcare clients at over $100 billion in assets under advisement, so we feel we have a pretty good sense of what's driving healthcare organizations in today's environment," said Mike Manning, NEPC managing partner. "One of those things is clearly diversity, and creating an environment that's more representative of the communities you all serve."
A growing body of research, including studies from the Knight Foundation, indicates that women and minority managers drive competitive investment performance, according to NEPC's Nedelina Petkova, consultant for healthcare and diverse manager committee member. Moreover, she said, "allocations to diverse managers can be risk mitigating from both a performance and total business perspective."
Despite these positives, diverse managers face challenges attracting institutional investment capital and are often underrepresented. Thus, NEPC has taken several steps "to improve the representation of talented, diverse managers in institutional portfolios," said Sarah Samuels, NEPC partner and director of investment management research.
Those actions include implementing a diverse manager policy; establishing the Investment Diversity Advisory Council, a forum for institutional investors to discuss advancing and measuring diversity; and engaging with minority finance leaders such as Mellody Hobson, co-CEO and president of Ariel Investments. Essentially, NEPC's diversity and inclusion strategy centers on creating space for diverse leaders.
"Instead of trying to find a way to shove in an additional chair at an already crowded table, the approach that's being increasingly used throughout the industry and at NEPC is to look for multidimensional ways to expand the table, allowing for more chairs to be seated there," said Sam Austin III, NEPC partner, executive committee member and chair of the diversity and inclusion board.
Ultimately, implementing a values-centered diversity and inclusion strategy can help organizations foster authenticity, a key predictor of success, according to Chenae Edwards, NEPC senior consultant for healthcare and co-chair of the diversity, equity and inclusion network.
"It's important to align the values of your organization from a firm and employee perspective, but also with an eye toward the communities you serve," she said. "People will look and see that this strategy is real and something they need to support for the long term."
Looking to the future, it's clear to NEPC leaders that diversity and inclusion will be critical to investment performance and is key to improving the financial industry and society at large. To better understand the importance of diversity and inclusion in the investment space and NEPC's related efforts, click here to view a recording of the webinar.