Although firms owned by women and minorities show performance statistically similar to the industry as a whole, they only represent 1.3 per cent of assets under management for U.S.-based mutual funds, hedge funds, private equity and real estate funds, according to new research by the Bella Research Group and commissioned by the John S. and James L. Knight Foundation.
In 2010, the Knight Foundation considered how diverse the investment managers in its portfolio was and found there was very little diversity among its investment managers, says Juan Martinez, the foundation’s chief financial officer.
“We as an organization felt that we needed to address that,” he says. “We needed first to understand why that happened, and then secondly, to make sure that we could increase diversity within the portfolio while at the same time not having any kind of a concessionary return expectation.”
Over time, the foundation has focusing on improving the diversity among its investment portfolio, says Martinez, noting as of June 30, 2018 it had $827 million, representing 36 per cent, of its endowment holdings invested with diverse-owned firms.
With regards to women and minority firms, people have raised the issue that there’s a feeling they will underperform or they must accept a concessionary return, says Martinez. “But actually, in the study, what we found was that women and minority firms are equally distributed if not over-represented in the upper quartile of performance for the entire industry.”
Martinez says he hopes the research will encourage investment managers to nurture new diverse talent within their investment ranks and encourage asset allocators to look for diversity in choosing their investment managers.
“We’re hoping that, as asset allocators are making the decisions to allocate capital, they are intentional about the diversity of their managers . . . . We think that there’s a lot of untapped opportunity and potentially untapped returns that the industry really ignores.”