Two surveys have shown that fund managers may only be talking the talk on diversity, but as fund selectors get serious on the issue, they may have to act fast.
- Surveys by Willis Towers Watson and Redington have shown fund management group’s are making slow progress on diversity
- WTW has threatened to remove companies that fail to meet diversity targets from its influential preferred list
- Analysing diversity would seem an ‘easy win’ for fund management groups
Two surveys this week called into question the asset management industry’s commitment to diversity. Willis Towers Watson (WTW) research showed that the sector was making ‘disappointingly slow’ progress on changing its recruitment mix, while pensions consultancy Redington showed just 47% of fund managers evaluated gender diversity when researching potential investments.
While fund managers can reasonably argue that evaluating environmental or social impact is in its infancy, it can hardly make the same claim for governance. Data on board diversity has been widely available for some time - Egon Zehnder’s Global Board Diversity Tracker, for example, has been running for 14 years.
Equally, it has long been clear that board diversity promotes better corporate outcomes. It seems odd, therefore, that fund managers should not be factoring it into their analysis of companies at a time when every basis point of performance is important. Also, if they know it improves the outcome for the companies in which they invest, why do they choose not to do it in their own companies?
To be fair, change takes time and needs to start at the bottom. Many fund management groups have made considerable progress in recent years, even if it has not been industry-wide.
They may be about to receive a pretty significant incentive to act. As part of its research WTW threatened that those who failed to improve diversity within the next 12 months risked being removed from the company’s influential preferred list. The group advisers on $2.6 trillion in assets, so this promises to be a good incentive.
WTW isn’t doing this because it makes them look good, but because they have found a relationship between diversity of teams and investment performance. This makes intuitive sense. If a team has the same qualifications and perspective as the next team, it is harder to glean differentiated insights from, say, a company’s report and accounts or a meeting with its management team.
This would seem to be an easy win for fund management groups. Senior management diversity is not difficult to analyse and, whether cause or effect, appears to go hand in hand with good corporate performance. Those fund managers that are already incorporating it into both their own businesses and their investment decision-making look to have a major head-start.