Russell Investments and Cerulli Associates’ 10×10 Survey: Asset Owner and Manager Perspectives on Diversity and Inclusion

By Russell Investments , an AGB Sponsor November 2, 2021 Blog Post

Opinions expressed in AGB blogs are those of the authors and not necessarily those of the institutions that employ them or of AGB.

Recently, Russell Investments asked Cerulli Associates to interview 10 of our asset management partners, as well as 10 organizations that had participated in our 2021 Partner Innovation Lab, an annual roundtable event where leading asset owners brainstorm their greatest concerns and areas of interest.* We were able to gather insights from some of the industry’s most prominent thought leaders, extracting individual perspectives on topics discussed at the event—including diversity and inclusion (D&I).

Here are some of our findings. The full report from Cerulli Associates can be found here.

What’s Driving D&I?

The general consensus was that D&I is driven by internal pressure, as both asset owners and asset managers believe that diverse teams lead to better outcomes. Most organizations stated that the need for additional diversity has generally arisen through company and team meetings. Several said their younger employees are particularly focused on diversity efforts.

While most asset owners and managers have some sort of grassroots initiative, many also cited organizational leadership driving the push (i.e., the CEO, board of directors, or executive committee making diversity a firm-wide objective). In addition, the top of the organization may incentivize diversity via executive compensation. One manager with whom Cerulli spoke explained that 5 percent of executives’ bonuses were tied to improvements in their teams’ diversity metrics. Another manager said that rather than tying specific employee bonuses to team diversity, the firm’s overall bonus pool was partially determined by improvements in diversity. Another top-down measure that regularly surfaced in interviews was firms requiring diversity training for hiring managers to increase awareness of their own biases.

Defining Diversity

Both asset owners and managers stated that one of the key challenges was simply defining D&I. They must define diversity before they can promote it, and they must also define what constitutes success. Most participants define diversity in terms of gender, race, and ethnicity, and they generally set goals, or aspirational benchmarks, based on diversity metrics of the country in which the hiring office is located.

Nearly all participants also mentioned diversity of backgrounds, circumstances, age, and sexuality. No participants mentioned religious diversity. When participants mentioned the promotion of sexuality diversity, this was geared more toward inclusion measures than diversity.

Implementing D&I

When it comes to the successful implementation of D&I, one asset manager broke it down into four buckets: hiring, developing, promoting, and retaining.

Both investors and managers implement diversity measures via hiring and recruiting practices. Almost all participants spoke of the need to search for untapped pools of talent, often recruiting from non-traditional channels. Some have addressed this by expanding their list of target schools. Others have implemented “blind” hiring processes where they don’t target specific universities. Some participants said their companies have also begun to broaden their focus on academic majors.

In addition to acquiring talent, asset owners and managers described the necessity of measures to retain talent. Although promotions are a tool that organizations could use to retain diverse talent, no participants mentioned diversity being a key input into promotion decisions. Rather, organizations seem to focus more on developing diverse talent so that the individuals are later promoted on their own merits. Tools used for developing talent include mentorship programs where entry-level employees are matched with an executive mentor.

Efforts to promote diversity are not without challenges, depending on the organization. For example, maintaining a diverse group of employees can be difficult for small investment offices. One nonprofit interviewed by Cerulli cited this as a challenge for its investment team simply because headcount was limited to five people. Instead, at this nonprofit, diversity is considered at a broader, enterprise level.

Evaluating Diversity of External Parties

While many asset owners traditionally evaluated the D&I of asset managers based on ownership, some are now broadening their focus to managers’ entire organizations. One asset owner initially assessed the D&I of managers in its public investment portfolio, then expanded to private investments. Notably, multiple asset owners mentioned that measuring diversity in the alternatives space is more difficult than for traditional managers due to the lack of reporting requirements. Finally, a select few asset owners have gone so far as to evaluate diversity at holdings/portfolio companies of funds.

Most organizations do not have formal policies for diversity—it is simply a consideration in the overall process. And some asset owners look for managers who are making progress on diversity initiatives rather than judging them on their level of diversity at a given point in time.

Asset owners that didn’t have approaches to assessing D&I externally mentioned they intended to start by talking to their investment consultants or outsourced chief investment officers. They rely on strategic partners to educate them on initiatives of other clients to discover best practices.

The Bottom Line

A broad takeaway from this research is that promoting diversity requires proactive behavior. To take on a comprehensive approach, an organization must define diversity, set goals or objectives, implement measures to carry out those objectives, and employ systems to track progress. An organization must also maintain an inclusive environment so that it taps into diverse perspectives. Another takeaway is that diversity is not free—an organization must devote resources to acquire and maintain it or, alternatively, absorb a substantial opportunity cost.

*Participating institutional investors included the following corporate retirement plan sponsors, in alphabetical order: The Boeing Company, Fujitsu Global, Mazda Motor Corporation, Microsoft, Mitsubishi Electric, Nestlé, Roche Molecular Systems, and Unilever. Participants also included the following nonprofit investors: New York-Presbyterian Hospital, Robert Wood Johnson Foundation, and Thomas Jefferson University.

 Participating alternative asset managers included Brevan Howard, Hamilton Lane, and Oaktree Capital Management. Participating fixed-income asset managers included BlueBay Asset Management and Western Asset Management Company. And participating multi-asset-class managers included BlackRock, J.P. Morgan Asset Management, Morgan Stanley, Putnam Investments, and Wellington Management.

With Thanks to AGB sponsor: Russell Investments

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Sophia Wang
Market Analyst, Non-Profit and Healthcare

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