Asset management has long been a male-dominated industry–but things are beginning to change. That’s because the best managers are devoting considerable time and resources to changing the situation.
A 2017 survey of 23 asset managers found that white men and women make up more than 80% of executive committees, managing directors and portfolio managers1. And in the US, women make up just 10% of fund managers.2
This breakdown should be unfathomable in 2019. It’s even more unfathomable when one considers the studies that show that companies reap the rewards of diverse management and board leadership in the trajectory of their stock prices, while diverse investment teams deliver better returns.
Why the disconnect? For one thing, the sorts of cultural and institutional changes that allow firms to recruit and retain diverse teams are significant and therefore don’t often happen overnight. They also require a top-to-bottom commitment to changing the way people are hired, promoted and treated by colleagues.
Sharon Fay, Head and Chief Investment Officer of Equities at AllianceBernstein (AB), and Janessa Cox-Irvin, Head of Diversity & Inclusion, shared their thoughts recently about how asset managers can build a more diverse and inclusive work environment and the benefits of doing so for both managers and their clients.
1. Make the Case for Asset Management
To develop a diverse talent pool, asset managers must do a better job of educating young people from diverse backgrounds about the industry.
“There is a lack of access and information for many women and those with diverse racial and ethnic backgrounds,” Cox said. “These are not traditionally populations where our industry was talked about around the dinner table—and I include myself in that.”
That’s unfortunate, because in Fay’s experience, asset management has advantages for groups that may be vulnerable to bias.
“One thing that appealed to me coming into this field is that the culture was not macho or testosterone-fueled—it was much more of an intellectual competition,” Fay said. “Another is that you’re measured every day by whether you’re beating your benchmark, rather than more subjective measures.”
AB spreads the message through a formalized campus recruiting program and partnering with select diversity and inclusion organizations such as Girls Who Invest, a nonprofit organization that aims to increase the number of female portfolio managers and asset-management executives. For the past two years, AB has hosted interns who have completed the organization’s training program.
2. Don’t Accept the “We Can’t Find Anyone” Excuse in Hiring
It’s easy to claim that it’s impossible to find a star candidate who also adds diversity, but such difficulties are often due to a lack of concentrated effort, rather than a true shortage of qualified candidates. Fay stresses that a person who rounds out an existing team is often a more valuable hire than the one with the resume that seems most impressive on first blush. To that end, she insists her teams branch out from existing contacts, alumni networks and other traditional networks, and conduct a broad search for every vacancy.
But even looking beyond traditional networks isn’t quite enough. The best way to find diverse candidates who fill the gaps within an existing team is to choose from a large pool. Hiring a search firm with strict instructions to bring in many diverse candidates not only introduces an objective perspective to the hiring process, it also often identifies talented people who may otherwise have slipped under the radar.
3. Take a Broader View of Diversity
Diversity isn’t all about gender, race, age and sexual orientation. People who grew up in different economic circumstances or cultures or who followed different career paths also contribute unique perspectives. Fay believes in cognitive diversity, and her top managers include a former Israeli intelligence officer and a rocket scientist.
When a senior member of a small, high-performing investment team retired recently, the team knew it needed someone who could replicate his cognitive role. That meant asking critical questions that forced the team to slow down and consider decisions deliberately. As much as the fact that the retiring man was Indian and went to a top engineering university, his way of thinking added to the team’s diversity. With Fay’s encouragement, the team ended up hiring two people: a white woman and a Hispanic man.
4. Tackle Unconscious Bias
Retaining diverse talent is just as important as building diverse teams—and that means making people feel welcome.
“A simple way to think about it is, diversity is like being invited to the party and inclusion is being asked to dance,” Cox-Irvin said. “If people aren’t made to feel included and welcome at the party, they are certainly not going to want to stay.”
In 2019, it’s clearly unacceptable to openly express biases at work. But unconscious biases—the stereotypes we aren’t aware we have—are more insidious. AB began educating employees about recognizing and overcoming unconscious bias three years ago.
But awareness isn’t enough. Asset managers must implement structures that remove opportunities for unconscious bias. Ensuring that diverse teams review candidates for both jobs and promotions is a good first step.
“Any one manager may naturally hire or promote the person who went to the same school or commutes to the same town as they do,” Fay said. “But when you have an independent team that is itself diverse in terms of tenure, gender and ethnicity, you get different perspectives on whether we are treating all candidates equitably.”
Fay says her team also periodically reviews who isn’t getting promoted, both to ensure there is no demographic pattern and to better prepare those who have been passed over for the next opportunity.
5. Don’t Forget Those Who May Feel Left Behind
Some employees feel threatened by diversity initiatives, and dismissing those feelings can exacerbate them. Instead, it’s important for leaders to ensure that everyone in the firm feels they are getting the resources to develop their skills and understands the true purpose of diversity initiatives.
“We have to get over this feeling that it’s going to be a zero-sum game,” Cox-Irvin said. “Adding people who are different from who we had before doesn’t mean subtracting other people.”
At the same time, leaders at asset-management firms must firmly assert that diversity and inclusion are an irrevocable part of the agenda. Fay’s team, for example, must choose one annual goal that relates to diversity & inclusion.
6. Performance and Diversity Aren’t Incompatible
Diversity and inclusion are not just buzzwords—these values are a necessary step toward building a more equitable society. And to Cox’s point that diversity is about addition, not subtraction, a great deal of evidence shows that businesses—particularly investment businesses—don’t suffer at all from making diversity & inclusion a top priority. In fact, it’s the exact opposite:
- Companies in the top quartile for racial and ethnic diversity are 35% more likely to earn returns above the industry median. Top marks on gender diversity raise the odds of above-average returns by 15%.3
- When at least a quarter of a company’s senior executives are women, they outperform the market by 3%. When half of executives are female, outperformance rises to 10%.4
- When venture capital firms increased the number of female partners by 10%, their overall returns increased 1.5% a year and profitable exits rose by 10%. 5
- When traders were randomly assigned to trade in markets that had been experimentally manipulated to consist of either ethnically diverse or ethnically homogenous participants, they priced assets 58% more accurately in the diverse markets. 6
None of these results is surprising. Considering multiple perspectives and experiences creates diversity of thought for investment teams, leading to more nuanced views of the markets and the world. Cultivating corporate diversity is a moral imperative not only for the greater good of society, but for the good of shareholders, employees and clients.
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1 “Ethnic and Racial Diversity at Asset Management Firms,” FundFire and Money Management Institute (Fall 2017) http://www.mminst.org/sites/default/files/file_attach/MMI-FF%20Diversity_in_Asset_Mgmt_Full-Report-FINAL.pdf
2 “Fund Managers by Gender: The Global Landscape,” Morningstar (November 28, 2016) Download here: https://www.morningstar.com/lp/thank-you-content-fund-managers-by-gender-the-global-landscape
3 “Diversity Matters,” McKinsey & Company (February 2, 2015), https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters
4 “The CS Gender 3000: The Reward for Change,” Credit Suisse Research Institute (2016), Download here: https://www.credit-suisse.com/corporate/en/research/research-institute/publications.html
5 “The Other Diversity Dividend,” Harvard Business Review (July–August 2018) https://hbr.org/2018/07/the-other-diversity-dividend
6 “Ethnic Diversity Deflates Price Bubbles,” Proceedings of the National Academy of Sciences (2014) https://www.pnas.org/content/early/2014/11/13/1407301111
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.