After the murder of George Floyd, the $110tn global asset management industry stood out in its efforts to signal its concerns about racism. Leading institutional investors not only made public promises to foster diversity in their own ranks, they voted in increasing numbers to support shareholder resolutions calling on other managements to do the same.
A year and a half later, asset managers are struggling to live up to their professed ideals. Black employees and members of other minority groups remain dramatically under-represented in the sector — particularly in senior roles — and industry executives say it could take years to mount the recruitment efforts needed to make their workforces truly diverse.
Just this month, a US House financial services committee report on 31 investment firms with $47tn in assets found “serious shortcomings” in their diversity efforts. While 38.4 per cent of the US is non-white, last year only 17.6 per cent of the firms’ executives were, the report said. More than four out of five of their senior managers were white, and only about three in 100 were black, the committee found.
Across the Atlantic, many asset management companies are still working to collect diversity data and understand the make-up of their workforces. A report this year on diversity in the UK investment and savings industry found that only 20 per cent of human resources staff believed their companies were doing an adequate job of collecting such data, raising the question of whether asset managers are heeding their own counsel.
“Managers are now signalling the importance of ethnic diversity alongside gender [to companies they invest in], but big questions remain around how well they can do that when they don’t have their own houses in order,” says Helen Price, head of stewardship at Brunel Pension Partnership, which manages money for local government pension schemes in the UK. “For an industry obsessed with data, there needs to be a focus by asset managers on tracking their own numbers.”
The asset management industry did respond quickly to the global protests that followed Floyd’s death on May 25, 2020. The House financial services committee said 25 of the 31 firms it examined made statements at the time about “improving racial equity”. It said 94 per cent of the firms “reported engaging in evaluations of their diversity and inclusion programs and initiatives for the year 2020”, compared with 74 per cent in 2016.
The importance that asset managers are putting on racial diversity has also been highlighted by their votes on diversity-related resolutions at company meetings. Shareholder support for such measures — largely reflecting the votes of institutional investors — has risen to about 42 per cent this year from 26 per cent in 2020, according to Proxy Insight, the data provider. At JPMorgan Chase, Citigroup and State Street, shareholder resolutions calling on the banks to carry out a racial equity audit were backed by about four in 10 shareholders, while a majority of investors supported diversity resolutions at American Express and Union Pacific.
However, not all asset managers are as ready to talk about their own diversity records. When the FT contacted 23 leading asset managers for information on how many employees in their investment teams were non-white, 15 declined to provide data. Seven of those 15 did report some diversity information to the House financial services committee.
Among the asset managers that declined to provide diversity data to the FT was the UK’s largest, Legal and General Investment Management, which has told FTSE 100 and S&P 500 companies that from 2022 it will vote against the chair of their nomination committee or the chair of their board if they fail to meet its diversity expectations. Legal and General, the parent company of LGIM, which was not asked for information by the US House committee, said: “We are committed to making more data publicly available in future.”
Asset manager data in the public realm points to the challenges ahead. The US House financial services committee — which solicited 2016-2020 diversity data from investment firms with more than $400bn in assets each — found that they had made only limited progress on diversity in recent years, or in the months immediately following Floyd’s death.
None of the 31 firms had a black chief executive — they included 27 white men, three white women and one Latino, the report said. The number of non-white executives did rise by 1 percentage point to 17.6 per cent between 2019 and 2020, but the gains were less than half a percentage point for both blacks and Latinos. The firms actually had a slightly lower percentage of black employees in 2020 than in 2016 — 10.9 per cent, versus 11.1 per cent.
Racial and gender disparities are also glaring when it comes to the portfolio managers who make investment decisions. A 2017 study by FundFire and the Money Management Institute found that only about 1.5 per cent of US portfolio managers were black. In the US, only about 1.3 per cent of mutual fund assets were managed by minorities or women, according to a 2019 study by the Bella Research Group and the Knight Foundation.
Working in the clubby world of asset management can be an uncomfortable experience for minority employees, says Shundrawn Thomas, a black American from the south side of Chicago who now serves as president of Northern Trust Asset Management, a $1.2tn fund house based in the Midwestern US city.
When he began working in financial services three decades ago, Thomas says it was a “culture shock” to walk on to a trading floor where so few people looked like him. But even now, he says he has stepped into meetings where clients have “presumed I was the help, not the senior leader”.
With few black mentors available, Thomas says, black employees face additional hurdles when they try to climb the corporate ladder in asset management. “Informal” recruitment, with current employees recommending candidates for jobs or promotions, often benefits people who went to the same schools or have the same background.
“There is one thing about having the work ethic and putting in the effort, but it’s a different thing having someone show you the ropes,” Thomas says.
A similar lack of support faces black employees in the City of London, says Dawid Konotey-Ahulu, a native of Ghana who came to the UK as a teenager and is now co-founder of investment consultancy Redington and co-founder of an internship programme aimed at improving black representation in the financial industry. During three decades in the financial services industry, he says he has “always been the only black guy in the room”.
Progress on diversity is increasingly being recognised as a business imperative in asset management. “The failure to diversify is not just a moral issue, it’s about performance,” says Robert Raben, founder of the Washington-based Diverse Asset Managers Initiative and a former US assistant attorney-general. Responsibility for pressuring asset managers lies in large part with boards, he says. “It is your fiduciary duty to diversify. It’s staring us in the face.”
Funds with greater leadership diversity do better, according to a 2020 research report by Willis Towers Watson, the investment consultancy, which found that diverse investment teams outperformed those with no women or ethnic minority employees by an average of 20 basis points a year.
“The data I’ve seen is that diversity makes just about every kind of team better and the work experience richer,” said Bill Stromberg, chief executive of asset manager T Rowe Price, who is retiring from his post at the end of 2021.
However, industry executives say that addressing diversity issues could take a long time because of past failures to recruit and train non-white fund managers. Experienced black portfolio managers are “extremely rare”, says Chris Redmond at Willis Towers Watson, who monitors asset managers on behalf of pension funds and other big investors.
“Diverse talent doesn’t just walk in the door on its own. It’s a pretty niche-y profession,” Stromberg said. Reflecting its culture of promoting from within, T Rowe Price has been focused on bringing in young, diverse talent, alongside a few senior external hires. “In five, 10 years, it will be a more diverse industry,” he says.
Sasha Jensen, the head of executive search firm Jensen Partners, gave a similar assessment, estimating that it could take five years or more to diversify the talent pipeline in asset management. “You can’t miraculously produce a diverse talent pipeline in two years, it’s just not possible,” she said. “It’s a long road and we are only at the beginning of it.”
Northern Trust’s Thomas says the asset manager has increased its emphasis on putting more diverse candidates forward for job interviews. “We are not forcing people to make decisions about ethnically diverse candidates, but we are going to make sure there are more opportunities,” he said.
Whatever the short-term results, these kinds of conversations are raising hopes among some racial diversity campaigners that change is coming to the asset management industry. Even if scant progress has been made thus far, they say, top executives are thinking differently about the issue.
“Not every asset manager has their own house in order,” says Konotey-Ahulu of the Redington consultancy. “But what I am seeing is a real willingness that I have not seen before to step up. A lot of senior managers are starting to realise you will find yourself on the wrong side of history if you don’t deal with this.”