ImpactAlpha, Feb. 19 – Asset allocators inside pension funds, endowments, foundations and sovereign funds overwhelmingly select white and male-owned firms to manage their money. Women and minority-owned firms manage just 1.3% of the industry’s $69.1 trillion in assets.
That homogeneity may be crimping returns, with data suggesting outperformance by gender and racially diverse teams, and growing evidence that the better fund managers of color perform, the more bias they face. Some foundations, at least, are reading the signals.
A new study from the Knight Foundation found that firms led by women and people of color now manage an estimated $8.62 billion, or 13.5%, of the $63.95 billion in assets held by 26 of the nation’s 50 top foundations. “Change comes from knowledge,” says Knight’s Juan Martinez. “There’s a sizable interest among investors for investment manager diversity.”
- Inclusion alpha. The survey covered only assets that could be analyzed with publicly available data or information volunteered by the foundations. Of $1.76 billion in Knight Foundation assets analyzed, nearly half is managed by women- or minority-owned firms. Among other above-average foundations: Casey Family Programs (35.3% managed by diversely-led firms), Robert Wood Johnson Foundation (26.6%), John Templeton Foundation (21.7%) and Carnegie Corp of New York (20.9%). Kellogg, Hewlett, Packard, Ford and other foundations cited a variety of reasons for declining to participate, including nondisclosure agreements with fund managers.
- Intentionality. Ford and Knight Foundations dedicate a portion of their endowments for diverse fund managers. Kellogg Foundation’s mission-investing strategy intentionally backs fund managers of color and seeks investments that reduce systemic bias in the financial system. Kellogg and Prudential have carve outs for first-time and emerging minority and women-owned investment firms. By not properly valuing people of color, big asset allocators are “limiting your ability to generate high risk-adjusted returns,” says Stanford’s Ashby Monk.