Investment Managers Start to Consider DEI Despite Challenges
Seventy percent of respondents said they did not have a stated goal to allocate to diverse or minority/women-owned investment management firms.
While diversity, equity and inclusion initiatives are gaining traction with investment managers, there is still a way to go.
In a recent survey from Tannenbaum Helpern and Alternatives Watch of 1,100 end-investor decision makers, 70% of respondents said they did not have a stated goal to allocate to diverse or minority/women-owned investment management firms. In addition, 70% also said that they did not have an explicit allocation plan to promote diversity in their portfolios in 2021 either.
Still, there is progress. Sixty-six percent of respondents said they were in the early stages of growing their allocations to diverse managers. Thirty-nine percent said they had a chief diversity officer on staff, considering minority representation within their own offices.
Fewer than one-third plan to place money with diverse firms this year. Of that group, 57% intend to allocate to diverse managers in the hedge fund arena. Private equity was the second most popular at 43%, while 42% plan to target diverse managers in venture capital.
Of the respondents currently active in sourcing diverse firms and funds, most had a 0% to 5% allocation to diverse investment firms last year. However, a growing number have boosted their mandate to be 6% to 10% allocation to DEI firms, with those firms with that larger target range growing from 7.6% in 2020 to 15.4% at the beginning of 2021.
Respondents cited many challenges with placing money with diverse management firms. For 15% of investors, small AUM made it challenging to provide reasonable allocations while meeting ERISA or other percentage of fund requirements. Another 15% said that the managers’ lack of experience with institutional mandates was challenging. And, 8% pointed to difficulty in sourcing diverse firms.
These challenges come amid a larger trend of institutional investors doubling down on diversity, equity and inclusion as part of their larger ESG mandates.
One of the leaders in this movement is BlackRock, which announced at the end of last year that it intended to push its portfolio companies for greater ethnic and gender diversity for their boards and workforces and is asking US companies to disclose the racial, ethnic and gender makeup of their employees.
More recently, BlackRock agreed to commission an independent audit into its own diversity and inclusion practices and, according to an internal memo seen by Citywire USA, plans to implement the external review next year.