Is Enough Being Done to Achieve Greater Diversity in the Investment Industry?

By Paula Robinson and Sonja Shirkevich

While there has undoubtedly been movement toward greater diversity in the investment industry, is enough being done to achieve meaningful progress and improve investment results? Greater diversity leads to better investment outcomes and makes teams more representative of the people on whose behalf they are making decisions. At WTW, we have examined several dimensions of Diversity, Equity, and Inclusion (DEI) to better understand the pace of change, identify key industry trends, and further highlight its benefits.

Better data helps to demonstrate the benefits of diversity. In 2022, WTW collected detailed diversity data for more than 1,500 investment strategies. Gender diversity is an example of an indicator that can signal broader cognitive diversity, more diverse perspectives, and more inclusive decision-making. Our analysis supports this, with investment teams in the top quartile of gender diversity outperforming the bottom quartile by 45 basis points (bps) per annum in terms of net excess return.[i] This relationship also holds when you look at the largest asset classes, where equity and credit display a gender diversity premium of 46 bps and 14 bps a year, respectively.

While this type of analysis is promising, further data transparency is needed. It is hard to overemphasize the importance of measuring and monitoring diversity. Consistent and meaningful data collection allows for a greater understanding of where the industry stands today and where it is headed. Data transparency is also a comparable and tangible measure of progress. A robust qualitative view of diversity trends in the industry can also be used to understand the larger diversity picture. To better understand this picture, WTW has created a broad set of minimum standards and areas of best practice that can be used to measure progress.

These data points represent some of these minimum standards for asset manager DEI best practices:[ii]

• 80% of managers have a formal DEI policy
• 93% of managers have provided at least partial diversity data
• 77% of managers have policies to support careers, parents, and caretakers

There is a common belief that the largest firms can implement more DEI policies and initiatives because they have more resources and often larger talent pools from which to select. While this may be true in some respects, WTW tested whether it translates into greater diversity overall — and our data suggests not yet. For one thing, our analysis to date concludes that there is no meaningful relationship between firm size and greater diversity based on ownership or senior leadership.

When it comes to DEI, it is difficult to be prescriptive about what “good” looks like with exact numbers. While not every single DEI action is applicable to every firm, many of these areas of best practice can set firms on the fast track to improved DEI. Until more best practices are adopted, though, we would not expect to see a large enough, or fast enough, change in the overall diversity in the industry, suggesting we may be going too slowly today.

These are some of the key statistics for the industry at large,[iii] highlighting that best practice measures are being adopted, while acknowledging further engagement and improvement are still required much of the industry. These are some of our findings for managers:

• 42% have measurable objectives in their DEI policies, but only 25% of firms link leadership remuneration to DEI key performance indicators
• 5% currently have no plans to collect granular diversity data at the firm level
• 56% are members of industry diversity initiatives
• 51% have targeted initiatives to attract more senior diverse talent. Only 40% are measuring the gender or ethnicity pay gap, and 38% are measuring the bonus gap
• 54% are measuring and monitoring multiple diversity lenses outside of just gender and ethnicity
• 43% do not undertake staff engagement surveys and 1/3 have not provided DEI training to staff

In addition, 57% of firms provide mentorship, training, and sponsorship to underrepresented groups.

DEI should be measured across multiple dimensions. The industry has largely focused on gender and ethnicity to date, two of the largest underrepresented groups in absolute terms. However, all firms are encouraged to expand data collection about other inherent and acquired traits of diversity, such as neurodiversity, socioeconomic, sexual orientation, nationality, and disability, to build a richer picture of cognitive diversity across the organization.

Conclusion

Incremental progress over time can ultimately bring significant change. Progress requires ongoing evolution and meaningful action from asset owners, advisors, and asset managers to ensure all are on the same journey, moving at the right pace, and seeing progress being made. Meaningful engagement and comprehensive reporting allow for the opportunity to build a richer picture of the state of DEI in the industry today, with a clear vision for progress for future years.

May 2023, 23-03

Paula Robinson is Head of DEI Manager Research, WTW

Sonja Shirkevich is an Investment Analyst, WTW

[i] Sources: WTW, asset managers, eVestment. Diversity data and net performance data as of December 31, 2022. The universe of managers is based on 543 products 1) Whose managers have responded  to WTW’s DEI questionnaire, providing gender diversity data for the investment team managing the strategy and 2) have a five-year track record of relative performance available on eVestment, against their self-selected preferred benchmark or three-month SONIA [our assumption for a risk free rate] if this is not available. To calculate net performance, WTW subtracted the largest stated fee available on eVestment from gross performance. When both fees and gross performance were not shared for a strategy, WTW used net performance obtained directly from eVestment.

[ii] WTW as of December 31, 2021. Data based on 407 asset managers who responded to the WTW DEI questionnaire which can be found at https://www.wtwco.com/en-us/insights/2023/03/diversity-in-the-asset-management-industry-on-the-right-track-but-at-the-wrong-pace

[iii] WTW, December 31, 2021.