Institutional asset owners and managers have revamped their focus and efforts to improve diversity at their own offices and across the asset management industry at large. According to new research, Cerulli-Russell Investments 10X10 Part 1: Diversity & Inclusion, authored by Cerulli and sponsored by Russell Investments, this renewed focus has asset owners and managers formalizing their approaches and promoting diversity externally, as well as incentivizing their partners and vendors to adopt measures meant to increase diversity and inclusion (D&I). The research was compiled from interviews conducted from mid-July to mid-August 2021 with leading institutional asset owners and asset managers. It also leverages data and insights from Cerulli’s existing suite of research on the institutional asset management space.

Setting goals and dedicating resources to recruiting, hiring, and retaining diverse talent are helping institutional asset owners and managers achieve desired organizational change. “Most organizations have established committees or councils that are tasked with determining the metrics through which they will promote and track diversity year-to-year. Recruiting and hiring is often the first place to start,” according to James Tamposi, senior analyst at Cerulli.

A theme that emerged from this research was the need to search for untapped pools of diverse talent, often done by recruiting from nontraditional channels. Asset managers are widening their candidate pools by expanding their list of target universities for recruiting using “blind” hiring processes and other means. In addition to hiring diverse talent, asset owners and managers describe the need to retain diverse talent, a challenge that becomes particularly acute in the middle of their organizational structures. “It is at this level, for roles requiring investment management experience, where the pool really narrows and firms are competing for the same limited group of candidates,” said Tamposi.

To better retain these individuals, asset managers have created mentorship and career development programs. Furthermore, in attempts to increase diversity in the industry at large and help solve the broader systemic issue, several participants have created programs that seek to guide minorities toward the asset management space, aiming to grow the potential candidate pool downstream. Such programs include mentored fellowship and financial literacy as early as elementary school.

In examining efforts to promote diversity externally, the research finds that asset owners and managers encourage business partners and vendors to adopt measures. Asset owners, for example, are increasingly issuing business-related requests for proposal (RFPs) that include diversity inquiries, thus incentivizing their asset management partners to self-evaluate. Cerulli finds that asset owners are employing various methods of assessing diversity at their asset management partners, including looking at diversity through the lens of ownership structure and targeting woman-owned and minority-owned businesses, or assessing diversity throughout their partners’ employee bases, an endeavor that requires a somewhat larger resource commitment.

Asset managers are increasingly making D&I a focus of product development. According to previous research conducted for Cerulli’s 2020 U.S. Environmental, Social, and Governance Investing report, the top social themes addressed for product development at that time include gender (67%) and diversity (60%). Similar to asset owners, managers participating in this research outline efforts to promote diversity among partners such as trading firms, operational support providers, and companies they use for ancillary activities (e.g., travel). 

As institutional asset owners and managers evaluate diversity and inclusion holistically, many are committing resources to the initiative. D&I committees generally include managers from across organizations and personnel from demographics that asset owners or managers prioritize to target. Some firms have established heads of D&I, and many have committed funds toward acquiring diversity data. “To take on diversity, organizations must establish it as a goal and dedicate responsibilities toward achieving that goal,” says Tamposi. “Diversity is not free—an organization must devote resources to acquire and maintain it or, alternatively, face an opportunity cost,” he concludes.

“The industry must be committed, intentional, and serious enough to confront D&I with the same rigor we apply to any other key business challenges. D&I goes well beyond initial sourcing of talent. We need to emphasize actively supporting every talented, diverse individual trying to build their career,” said Kate El-Hillow, Chief Investment Officer, Russell Investments. “We recognize D&I is a complex issue that takes engagement at all levels, and inspired ideas and planning to make progress. Not because it is simply right, but also for the sake of improving investment outcomes for our clients. Great investing requires diversity of thought. And diversity of thought requires a diverse and inclusive workforce.”

Founded in 2021, Russell Investments’ 10x10 Partner Innovation Lab is a discussion of perspectives among 10 institutional asset owners and 10 asset managers.

• Institutional asset owner participants include: Fujitsu Global, Mazda Motor Company, Microsoft, Mitsubishi Electric, Nestle, Roche, Robert Wood Johnson Foundation, The Boeing Group, The New York Presbyterian Hospital, Thomas Jefferson University, Unilever

• Participating asset managers include: BlackRock, Brevin Howard, Hamilton Lane, Oaktree Capital Management, J.P. Morgan Asset Management, Morgan Stanley, Putnam Investments, RBC Global Asset Management/BlueBay Asset Management, Wellington Management, Western Asset Management