Foundations Still Relatively Slow to Hire Investment Firms Owned by Women and People of Color, Study Finds

Only 18.1% of wealthy foundation assets invested by outside managers are in companies owned by women or people of color, up from 16.6% in 2021, according to a report released Thursday. increasing from Subsidy makers need to improve diversity among asset managers.

This annual report, the third to be commissioned by the Knight Foundation, gathered information from 35 of the 55 richest funders. These foundations, it turns out, channeled her $14.28 billion to invest in businesses owned by women or people of color.

“The foundation is the foundation’s greatest asset,” says Ashley Zorn, Knight Foundation’s vice president of learning and impact. “So the way we manage endowments is also an expression of the foundation’s values.”

The study began as an extension of the Knight Foundation’s own efforts to improve diversity among asset managers, Zorn said. In 2012, the Knight Foundation invested only $7.5 million of her $2 billion fund in businesses controlled by women or people of color. By 2022, these investments will exceed her $1.1 billion and account for 43.5% of the fund.

Other funders, such as the Robert Wood Johnson Foundation and the Kresge Foundation, have also made great strides in improving diversity in recent years, Zorn says.

“Most of the foundations leading the way have been thinking and talking about this for a while,” says Zohn. Despite the underrepresentation of the industry itself, many women and people of color work in wealth management roles, including Emerging Managers Monthly’s online company directory and the Knight Foundation’s own women and people of color. Including those on the list of owned companies.

A new report shows the foundation has slowly improved its portfolio manager diversity over the past few years, but there is much more to do, says Diverse, a coalition of financial industry organizations and professionals. said Robert Raben, executive director of the Asset Managers Initiative. It aims to raise awareness about the presence of women and people of color in the financial industry.

“We’re talking about going from bad to bad,” says Raben. “We’re talking about massive exclusions of trillions of dollars of assets over decades, and there’s a lot of work to be done.”

It’s no surprise that the strongest record in the survey comes from a foundation that has spent years thinking about diversity. The Silicon Valley Community Foundation has spent a decade working to improve the diversity of its wealth managers, said Liz Carey, her president and vice president of finance and operations at the grant maker. In 2022, the foundation invested more than 46% of her fund in businesses owned by women or people of color.

“We want people to know that we work on both sides of the house when they set up the fund with us,” says Carey. “It’s not just about providing grants, it’s also about taking an interest in the ecosystem in which we operate. you can feel it.”

Measuring diversity

While the number of large foundations participating in research has increased this year, several major foundations, including the Simons Foundation and the Ford Foundation, have refused to participate in research or have provided only self-reported or partial data. Several funders expressed concern that the report’s methodology may have underestimated the true diversity of those who manage investments.

In a note accompanying the report, the California Foundation, which participated in the study, explained its own questions about the data.

“Although we understand that there is no perfect approach to measurement, the Fund does not believe that the methodology used in the study will lead to a perfect representation of DEI within the Fund’s investment portfolio.”

A spokesman for the foundation said the study could benefit from broadening the report’s methodology. Although it is a publicly accessible metric, it does not fully take into account the nuances of foundation investments, including those located overseas and listed companies, and the vast majority of foundation funds under management. first.

Several foundations have also questioned whether an investment firm’s staff diversity metric is a better metric than ownership. But an earlier report by the Knight Foundation found that wealth management firms owned by women or people of color were far more likely to lead diverse teams.

For Leben, such methodological nuances are secondary to the much larger task of improving diversity. Such improvements, he says, would not only help rectify deep-seated inequalities, but also help the foundation boost their giving.

“People diversity improves performance,” he says. “Just as asset diversity improves returns.”

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