In our previous article Men do the trading. Women do the Marketing, we highlighted Bloomberg's comment that the hedge fund industry is “one of the most White-male-dominated businesses in the mostly White-male world of American finance.” Castle Hall’s own dataset, gathered from our ESG Due Diligence platform, supports disparities in the representation of women between investment, business management and other support roles within the asset management industry:
The recent McKinsey report, Diversity Wins, shows that the case for diversity within asset managers is stronger than ever: “greater diversity, in terms of both gender and ethnicity, is correlated with significantly greater likelihood of outperformance”.
As we look forward, it is clear that asset owners will place a key priority on Diversity and Inclusion - both to generate better performance, and to ensure that the asset managers hired by pension plans better reflect the diversity of the pension plan's owners - the end beneficiaries.
Castle Hall's ESG Diligence captures a wide range of metrics around diversity and inclusion, which go beyond the "raw statistics" to look at more granular policies and behaviours - and the overall culture of an organization. When we evaluate an asset manager as "leading" or "lagging" their peers, some of the factors we consider include:
Diversity & Inclusion Strategy
An effective Diversity and Inclusion strategy requires policies and supporting human resources within the organization to lead efforts related to diversity. Within our dataset, only 44% of asset managers have implemented a Diversity & Inclusion policy outlining the firm’s approach to enhance diversity and inclusion within the organization.
When looking at HR leadership, only 33% have appointed an individual (or team) responsible for promoting Diversity & Inclusion - meaning that two thirds do not have a Diversity & Inclusion “champion” responsible for leading all D&I initiatives within the firm.
The Talent Pipeline
Assessing an organization’s talent pipeline is helpful to understand how the risk of unconscious bias is being mitigated during the recruitment process. As part of the ESG due diligence carried out on behalf of our clients, we have found that 24% of asset managers have not incorporated work samples and 44% do not make use of hiring panels as part of their recruitment process to objectively assess a candidate’s skills. Both of these - relatively basic - features of an effective recruitment process help provide more tangible evidence of candidate capability and mitigate bias from individual members of the recruitment team to hire "more of the same".
Building an inclusive workplace
Individuals from minority groups may face challenges and barriers to thrive within an organization. A recognized best practice in order to increase inclusiveness is the implementation of networking or mentorship groups. Such groups support minority groups by providing access to individuals in higher ranks of the organization to assist them in career progression and by extension increase diversity at higher levels of the organization. Encouragingly, 67% of asset managers in our sample offer mentoring initiatives to members of staff - but one third still do not.
Diversity and Inclusion is a journey: asset owners recognize that even committed asset managers will need time to progressively evolve their organizations to become more diverse. But, as ever more evidence supports the view that more diverse organizations produce better investment outcomes - which is entirely logical, when considering the evident value of cognitive diversity when making investment decisions - asset managers that move too slowly will be rapidly outpaced.
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