Discovery Data Blog
Meet Your DEI Goals by Connecting With More Diverse Managers
December 7, 2021
While many institutional investors have extolled the virtues of prioritizing diversity, equity, and inclusion within their portfolios, pension managers have taken the lead in allocating their funds accordingly.
One reason defined-benefit plans have led the way in this area may be due to mandates from their plan sponsors, often public entities, which require them to work with diverse managers and advisors. Such requirements reflect both a growing awareness of structural under-representation and recognition that investing with diverse managers does not necessitate accepting lower returns.
A recent report by Morgan Stanley found that public pension funds’ management teams are more diverse than other types of asset owners, and more likely to have an established process around diversity when it comes to their investments.
They’re also more likely to see such investments as a means of improving returns. More than 60% of public pension funds believe that working with multicultural investment teams can significantly improve performance, compared to just 20% of insurance companies and 14% of other asset owners, the Morgan Stanley report found.
But meeting diversity mandates can be difficult. Minority and women-owned businesses account for just 3.8% of advisory firms and 5.6% of assets under management.
Finding Diverse Managers
Discovery Data’s new Diversity & Inclusion dataset can help. Firms can easily target and connect with minority and women-owned businesses to meet pension fund diversity goals.
The dataset provides powerful insights on all registered investment advisory and broker-dealer firms, along with race, ethnicity, gender, and contact information for their decision-makers, allowing pensions funds and other asset owners to discover new opportunities and expand their outreach.
The dataset comes as public entities are expanding the diversity mandates to which pension funds must adhere. Just last month, California Gov. Gavin Newsom signed a bill that will require the California Public Employees’ Retirement System (CalPERS) and California States Teachers’ Retirement System (CalSTRS), the two largest public pension funds in the United States, to publish annual reports detailing their investments with diverse asset managers.
Lawmakers have also introduced legislation in New York that would require that the New York State Common Retirement Fund, the third-largest public pension system in the country, aim for 20% of assets invested with minority and women-owned businesses and report its progress to the legislature.
Similar initiatives have passed in Massachusetts and Maryland. The commitment to DEI investing by pension fund managers—as well as other asset owners—is part of a broader effort toward investing based on environmental, social, and governance (ESG) factors, which increased tenfold from 2018–2020, according to Morningstar.
Beyond Pension Funds
While pensions plans may have led the way on investing with diverse managers, defined-contribution plans appear poised to follow suit as corporate America has widely adopted DEI initiatives. A 2020 survey by Willis Towers Watson found that nearly two-thirds of employers have reviewed their retirement plans with an eye toward diversity and inclusion, and one-third have made a change based on that review.
Allocating funds to a more diverse group of asset managers is not only a way for institutional investors to meet increasingly important diversity mandates, but it’s also the right thing to do. Discovery Data is proud that its Diversity & Inclusion dataset can help investors in that pursuit.