An Asset Owner Guide For Investment Portfolios

Of the more than $82 trillion in assets managed by the US wealth management industry, women-led and diverse companies manage only 1.4%. Achieving a Diverse, Equitable and Inclusive (DEI) investment value chain has a long way to go. As the ultimate owner of the capital, the asset owner has the ability and responsibility to drive her DEI within the investment management team and portfolio and across the asset management industry.

Last summer and fall, Milken Institute senior directors Blair Smith, Troy Duffy, and I worked with the DEI on the Asset Management Executive Council within the Milken Institute’s Center for Financial Markets to ensure that asset owners were racial, Created a guide to increase ethnicity, gender. Diversity of investment portfolio. The guide is also intended for consultants advising them and asset managers looking to become part of their investment portfolio.

This guide outlines four elements on the road to inclusive capitalism. Build diversity and inclusion into governance. Procurement of diverse human resources. I will accept it fairly. We are committed to impartial oversight and engagement.

Pillar 1: Incorporating diversity, equity and inclusion into governance includes investment committee composition and cultural diversity, team training on diversity, incorporation of DEI into investment beliefs, addition of DEI to investment policy statements, limited partnership agreements and the insertion, design and implementation of DEI clauses in side letters. Plans to collect diversity metrics, sign diversity pledges, report and publish diversity, and establish structures and incentives to foster diversity.

Pillar 2: Source Diverse Talent consists of building a diverse investment team, sourcing a diverse investment firm, and investing in a diverse portfolio company. This includes expanding searches beyond traditional talent pools and reporting on progress in hiring diverse talent.

Third Pillar: Underwrite may reduce and/or waive minimum General Partner (GP) and Limited Partner (LP) commitments, minimum performance and fee discounts in underwriting and negotiations with various emerging managers. impartially consider new risk paradigms, including Investors should holistically assess inclusiveness at the investment team, investment portfolio, and service provider levels.

Fourth Pillar: Fair monitoring and engagement efforts include establishing a baseline for LP managers and measuring progress over time. This will increase the diversity of existing asset managers and amplify their overall influence.

We have a long way to go to achieve a diverse, equitable and inclusive investment value chain. As the ultimate owner of the capital, the asset owner has the ability and responsibility to drive her DEI within the investment management team and portfolio and across the asset management industry.

Mechanisms to accelerate change are available in the industry. For example, investment consultants have traditionally met with asset managers to provide initial investment memos. When asset owners investment professionals consider reversing the traditional process by meeting with various asset managers for initial screening and providing investment consultants with a first draft of investment memos there is.

Not surprisingly, only a limited number of financial institutions have the internal capacity to implement this strategy, but by reversing the process, they are not familiar with or interested in responsible investment strategies, including impact investing. Investment advisors who do not have can look to other LPs for guidance on diverse managers. Where scrutiny has already been carried out. The authority to implement this strategy and others deployed in the industry rests with the power and authority of the asset owners.

As the diversity, equity and inclusion landscape continues to evolve, an open exchange of inclusive investment best practices is essential to increasing the proportion of women and diverse-owned businesses in the U.S. asset management industry.

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