With a growing body of research indicating that diverse investment teams often produce better outcomes, asset manager diversity is now a critical issue for investors and their consultants.
“Diversity has become a much bigger part of the conversation in 2020,” said Machel Allen, President and Chief Investment Officer at Metis Global Partners, a boutique woman-owned and Black-owned asset management firm that manages a range of global equity strategies. “C-suite members at institutional investment firms and their consultants are recognizing that homogeneous lenses produce substandard decision-making. The social aspects of diversity and inclusion are important, but Wall Street is ready to take action because investors are realizing that a lack of diversity on the teams making investment decisions could hurt their bottom line.”
Nasdaq has been tracking diversity among private asset management firms at the ownership level for years through its eVestment data, analytics, and intelligence platform. But ownership statistics are just part of the story. That’s why Nasdaq is now using its eVestment platform to gather more data on diversity at asset management firms – especially within portfolio management teams who make buy-sell-hold decisions.
Getting a Clearer Picture of Who Makes Up the Team
Nasdaq’s eVestment recently launched a vastly expanded version of its ESG questionnaire aimed at collecting data on diversity and inclusion (D&I) from thousands of asset managers in over 44 countries. For example, the questionnaire asks asset managers whether their firms have policies that are intended to increase the level of gender and ethnic diversity of senior leadership and investment teams.
“People are looking for a commitment to diverse ideas and diverse thought processes,” said Erika Spence, Global Head of Data Strategy at eVestment. “The data we are gathering now will enable investors and consultants to drill down and see how the people on portfolio teams process information and make decisions as a team.”
Shelly Heier, President at Verus, a leading investment consulting firm, revealed that her firm has seen a groundswell of interest from institutional investor clients looking for more information on diversity at asset managers. “We believe diversity of perspective and thought, which can be an outcome of a more diverse team, can contribute to better investment results,” she said. “The diversity data that Nasdaq is gathering will allow us to evaluate asset management firms in terms of the diversity of the people who are making investment decisions, the diversity of the overall organizations, and the efforts they are making to improve their diversity through recruiting and retention.”
The Business Case For Cognitive Diversity
According to Allen, diversity is crucial to the success of asset management investment teams. “Each person brings a cognitive lens that is based on a lifetime of lived experiences,” she said. “When you have a diverse decision-making group – different genders, ethnicities, ages, cultures, economic backgrounds – then you’re able to develop a much more robust, comprehensive perspective and cover the blind spots that a more homogenous group could miss.”
Nasdaq’s eVestment platform aims to provide investors and consultants with a comprehensive look at diversity on asset manager investment teams. Spence says this information will help Chief Investment Officers and consultants to fulfill their fiduciary responsibility by exploring the extent to which diversity of thought contributes to positive investment outcomes.
Heier says that diversity certainly could be a competitive advantage for asset managers. “Every team of investors will make mistakes. The key is to acknowledge and learn from those mistakes,” she said. “On teams with low levels of diversity, you can have a certain amount of ‘groupthink’ that makes it hard to fully see and recognize investment mistakes. It doesn’t have to be racial or gender diversity – if everyone on your investment team went to the same university, that too can limit cognitive diversity.”
Helping Diverse Firms Stand Out
Nasdaq’s questionnaire includes qualitative sections that allow asset managers to explain their approach to diversity and inclusion at both a firm and product level. The data team then works with asset managers to develop narratives about what differentiates their firms from a D&I perspective for consultants and investors screening on diversity criteria.
“We recognize that statistics are just part of the story about a firm’s commitment to diversity and inclusion,” said Spence. “Part of our goal is to help diverse asset managers tell their stories and position themselves on our platform so that they stand out for the consultants and institutional investors who are looking to diversify the management of their assets.”
Instead of just asking for current diversity metrics, Nasdaq gives asset managers an opportunity to showcase their commitment to diversity and inclusion through pay policies, mentorship programs, and activist engagement in boardrooms around gender and racial equality.
This aligns with Nasdaq’s Purpose Initiative, which seeks to connect women and under-represented minority communities with the resources needed to grow and sustain their businesses.
“Data is power,” said Allen. “Nasdaq’s eVestment is one of our primary marketing tools. It allows boutique firms to punch way above our weight. The newly expanded questionnaire collects diversity and inclusion data at a more granular level, which allows us to differentiate ourselves and illuminate our investment process to consultants and asset allocators who may be searching for asset managers like us. We have already seen tangible benefits from eVestment.”
“Foot on the gas pedal”
Nasdaq’s longstanding effort to build a more inclusive global economy continues with its Purpose Initiative, eVestment’s expanded D&I efforts, and its recent proposal to the SEC that would require public companies listed on the Nasdaq exchange to increase diversity on their boards of directors through greater representation by women, underrepresented minorities, and LGBTQ+ community members.
For Allen, it feels like the long conversation around diversity and inclusion is finally moving into an action phase. “If we care about our society and want it to be the best version of itself, we should want everyone to be able to contribute all their resources without facing any arbitrary hurdles,” she said. “The first step is to make D&I information available, and that’s what eVestment is doing now.”
Spence frames the issue in terms of corporate citizenship. “Change doesn’t happen overnight, but asset managers and investors recognize a shared responsibility to put our foot on the gas pedal to promote change in the financial industry,” she said. “At Nasdaq’s eVestment, we can do our part by providing the transparency around diversity that institutional investors are seeking.”
This article was originally published on Nasdaq.com. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.