While U.S. institutional investors have slightly increased their allocations to diverse-managed funds, more than 95 per cent of their capital commitments remain concentrated in non-diverse managed funds, according to a new report by the National Association of Investment Companies.
It found overall, institutional investors’ allocations to diverse-managed funds increased from 7.6 per cent in 2012 to 11.1 per cent in 2022. However, among corporate pension plan sponsors, these commitments gradually increased to 7.9 per cent in 2020 and then significantly dropped to 4.3 per cent in 2022. Union pension plan sponsors were inconsistent in their commitments, starting at 3.1 per cent in 2012 and peaking at 9.8 per cent in 2014, but plummeting to zero in 2022.
Diverse-managed funds received commitments, on average, 25.6 per cent smaller than non-diverse managed funds. This gap increased to 37.8 per cent among funds led by ethnically-diverse women.
The New York State Common Retirement Fund led public pension plan sponsors with 62 commitments to diverse-managed funds. Among corporate pension plan sponsors, Duke University’s Employees’ Retirement Plan led with 35 commitments and among union pension plan sponsors, the Operating Engineers Trust Fund of Washington D.C. reported 21 commitments.
Notably, diverse-managed funds required median assets under management of US$45 billion to attract public pension investments, compared to just $20.2 billion for non-diverse funds — a 123 per cent higher threshold.
“We are encouraged to see that public pensions increased commitments to diverse-led funds over the decade studied and we hope corporate and union pensions will begin to follow their lead and expand the capital flow to this high-performing market segment,” said Robert L. Greene, president and chief executive officer of the NAIC, in a press release.