Casting a Wider Net - Action Center on Race and the Economy

Executive Summary

In recent years, concern about the need for greater representation and inclusion of racial and ethnic minorities has been growing in major institutions in the United States, from police departments to Hollywood studios to corporate boardrooms. This concern has now reached the capital markets, where various individuals and organizations are highlighting the issue in terms of the bottom line: research shows diverse representation in the boardroom leads to improved corporate performance. On the flip side, the lack of diversity limits the talent pool of skilled people who can manage members’ assets and leaves potential returns on the table. It also increases the likelihood of missing opportunities in an increasingly global, diverse world, and ignores the rapidly growing diversity of the country’s—and world’s—population.

This report focuses on the diversity conversation within the financial services industry and specifically on the role that investment consultants play in advancing financial performance through valuing diversity. The goal is to understand how investment consultants value diversity within their organization and how they advance diversity by recommending minority asset managers as solutions to the needs of large institutional investors.

Most pension funds hire consultants to help manage portfolios in accordance with their demands and needs. Pension funds ask consultants to introduce and evaluate asset managers, help develop investment policy statements and asset allocations, offer independent advice to boards, and essentially serve as an extension of the fund’s investment office. This positions consultants as gatekeepers between pension funds and asset management firms, including those emerging firms led by women and racial and ethnic minorities. Emerging managers and minority-and women-owned business enterprises (MWBE) are newer and smaller asset managers where the majority of their ownership consists of minorities and/or women. Given this, consultants can play a critical role in promoting diversity in the financial sector if they choose to make it a priority—or if their clients insist that they do.