by Sean Kearns, Editor-in-Chief, Longitude
After the challenges of the pandemic, the focus for asset managers is now less on recovery and more on innovation. But how can this aspiration be translated into a competitive advantage?
New research among investment professionals who subscribe to the Financial Times indicates that identifying and acquiring new talent is a key concern for firms, with a quarter naming this as one of their top strategic priorities for the next year.
As well as targeting new digital and tech skills in their recruitment strategies, many buy-side firms are now committed to broadening their talent bases. In the research, conducted by Longitude, a Financial Times company, 61% of respondents say they have committed to recruiting investment professionals from a more diverse range of personal and professional backgrounds.
ESG as a talent magnet
There are good reasons to do so. Firms lacking their own diversity and inclusion credentials will find it harder to engage credibly on environment, social and governance (ESG) issues, especially when public pledges to change are on the rise. The research shows that 59% of buy-side firms believe their commitment to ESG will become an increasingly important factor in attracting the best investment talent.
Thomson Reuters identifies signs of progress in the private equity and venture capital sector, with growing numbers of firms issuing statements announcing their diversity commitments. There are high-profile initiatives under way, such as Prudential Financial’s $200m commitment to private-equity investment, which has been constructed with a diversity and inclusion bias built in.
But there is, of course, more work to do. In the US, the Knight Foundation has concluded that investment firms owned by women or members of racial- or ethnic-minority groups manage just 17% of the $300bn assets under management (AUM) at the 55 largest foundations in the country. Meanwhile, according to analysis by Morningstar, in the UK, there are more funds run by men called Dave than there are female managers in the industry.
“We’re now at 33% of women in senior roles, and we want to go further, to reflect the diverse society we serve,” says Doug Sharp, senior managing director and head of EMEA at Invesco. “We’re 7,000 people, a good-sized organisation, but not huge. We’re entrusted with $1.5tn of other people's money and, if we influence the companies that we invest in, that's a much bigger lever [with which] to impact society in a positive way.”
There is an increasing body of evidence that suggests that more diverse asset-management firms perform better. For example, recent analysis of the real-estate sector by GCM Grosvenor and NAREIM found that the most diverse managers had outperformed or matched their less diverse rivals in six of the past seven years.
Yet, the perception of trade-offs persists in the industry. Morgan Stanley research recently found that 89% of asset owners said diversity among external managers is important or a top priority – but 56% believe they must choose between financial gains and incorporating diversity into their investment decisions.
With priorities for recruitment shifting to reflect the availability of new technologies and evolving stakeholder priorities, the business case – and moral imperative – for diversity cannot be ignored. As fund managers prepare for a future beyond the pandemic, it’s clear that a change in mindset is needed for true progress to be made, at every level of the industry.