Men do the Trading. Women do the Marketing.

10/7/20 5:25 PM

According to Bloomberg, the hedge fund industry is "one of the most White-male-dominated businesses in the mostly White-male world of American finance."

Meanwhile, many institutional investors, especially public pension plans, are belatedly recognizing that their organizations should reflect the diversity of their members, their communities and their broader network of stakeholders. Larger pension plans exist to secure the retirements of hundreds of thousands, and often millions of people. These stakeholders include people of colour, pension holders from the LGBTQ community, pension holders who have mental or physical disabilities - and it goes without saying that half of those stakeholders are women.

So why do those same pension plans continue to allocate to alternative asset managers whose owners, leaders and employees who are simply not diverse and inclusive? 

Per Bloomberg: 

"The reasons are many, industry veterans say. One is a Wall Street culture that hires from within and rarely hands coveted trading roles -- the people who move the money -- to minorities or women, cutting off a key avenue for getting ahead. Another is that there are few plum investment jobs, and little turnover at the best firms. And third, it may come down to the fact that hedge funds themselves are resistant to change, and no one is forcing it on them."

".....One common refrain from the industry is that the pool of incoming talent is too limited for hedge funds to rapidly increase their diversity. But those who’ve worked on the problem for decades say firms aren’t always using resources available to them.

“The notion that there’s not enough talent, to me, is very insulting,” said Sue Toigo, co-founder of the Robert Toigo Foundation, a non-profit that works on the placement and advancement of minority MBA holders in the finance industry.

“It simply means people are lazy,” she said. “They haven’t taken the time to look for it.”

At Castle Hall, our ESG Diligence team gathers diversity information on every manager subject to an ESG "Responsible Investment Manager" review. We also consider a much broader range of questions and diligence information beyond core statistics, including:

  • Does the asset manager have a formal Diversity and Inclusion Policy?
  • Is there an individual (or team) responsible for promoting diversity and recruitment?
  • When hiring, does an asset manager explicitly state that they are an equal opportunity employer in job advertisements?
  • Does the asset manager use gender neutral language in job advertisements?
  • Does the recruitment process include work sample tests and make use of hiring panels?
  • Is training on unconscious bias provided to interviewers (and more broadly across the firm)?
  • What actions is the asset manager taking to increase the number of hires from diverse backgrounds - have they sponsored student initiatives for undergraduates or are they involved in not-for-profit organizations focused on promoting investment education for minorities?
  • Are supervisors required to document and explain their rationale for not promoting staff?
  • Does the asset manager conduct regular and anonymous surveys of staff?
  • How does the asset manager consider - if at all - diversity and inclusion issues across their service providers?
  • Has the asset manager been subject to any actions or claims, or made any payments to current or prior employees in relation to workplace misconduct, including in relation to sexual harassment or racial discrimination?

As we think about Diversity and Inclusion, we see three trends converging in the investment industry. 

  1. Large asset owners will increasingly set targets to improve the diversity of the external asset managers they hire when managing portfolios to meet the needs of their pension beneficiaries.
  2. Pension beneficiaries (as well as other stakeholders - for example university students impacted by the management of university endowments) will increasingly demand their pension administrators to take action to hire asset managers who better reflect the diversity of the communities that they are being hired to service.
  3. Asset managers themselves will see an evident business opportunity to positively differentiate their firms by taking leading, not lagging, actions across the full landscape of diversity and inclusion.

(Overdue) change ahead.

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