Why Asset Management Must Address Diversity

Asset managers need to take greater action on improving their internal diversity measures in order to retain business in the future, according to global investment consultancy Willis Towers Watson.

In a new paper, ‘Diversity in the Asset Management Industry’, published this week, Willis Towers Watson identified eight action points for asset managers and other stakeholders to make investment teams more diverse.

The company used its own research into inclusion and diversity in the asset management space to take a snapshot of the industry and identify areas for improvement.

Progress on diversity across the whole investment industry has remained disappointingly slow, the company said. Work was required to “accelerate the pace of change”, it added.

“Ideal” asset managers required “optimal cognitive diversity”, defined as “the inclusion of people who have different ways of thinking, different viewpoints and different skill sets in a team”.

While cognitive diversity was hard to measure, the consultancy group said it was “heavily influenced” by quantitative metrics such as racial and gender diversity.

Willis Towers Watson’s specific development points included:

• Better transparency and disclosure, including of high-level statistics to understand how diversity is reflected across different functions within asset management companies
• Greater use of graduate and returner programs to source a more diverse range of talent
• Use of measurements that go beyond equity ownership
• Removal of requirements that “may unwittingly exclude diverse funds/firms”
• “Progressive compensation structures” and clear, appropriate policies around flexible working
• A focus on team-based investment strategies rather than “star portfolio manager” models, with an emphasis on diverse decision-making teams
• Investors to set targets to significantly increase the diversity of their portfolios
• Updating and improving on internal policies, training and networks “designed to increase diversity and address the challenges of racism, sexism and other unconscious biases”

Chris Redmond, head of manager research at Willis Towers Watson, said: “Addressing the systemic issue of poor diversity in the asset management industry requires a collective effort, and in many cases a fundamental change in mindset and culture. Although some of these efforts will take time to bear fruit, as an industry we need to be challenging ourselves to do more now.”

The work is the latest in a growing evidence base of research showing that diverse asset management teams stand the best chance of delivering positive performance outcomes.

Studies conducted over the past few years by Harvard Business School, Boston Consulting Group and MSCI, among others, has demonstrated the importance of breaking white male mold that dominates traditional asset management.

The Harvard Business School research, which specifically looked at the venture capital sector, found that diversity “significantly improves financial performance” both within individual investments and overall fund returns.