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Investing in Diverse Fund Managers

A new report highlights the Kresge Foundation’s Investment Office’s progress in its efforts toward a more diverse, equitable and inclusive asset management industry.

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As of September 2021, 1.4% of U.S. based assets were managed by women and people of color-owned firms, despite women and people of color representing 70% of the U.S. population

A new report highlights the Kresge Foundation’s Investment Office’s progress in its efforts toward a more diverse, equitable and inclusive asset management industry.

The report, In Pursuit of Alpha by Investing in Diverse Fund published by Management Leadership for Tomorrow, explores the strategy Kresge has developed to counter the underrepresentation of women and people of color in the industry.

According to the report, the foundation’s approach was focused on:

  • People: Reimagining and rebuilding their talent networks in order to purposefully create a more diverse and inclusive team, thereby improving their internal team’s decision-making
  • Portfolio: Intentionally sourcing, vetting, and investing in the best diverse-owned firms across all asset classes to boost portfolio performance
  • Pulpit: Meaningfully and systematically championing DEI initiatives within the industry to break down the barriers facing diverse industry talent and diverse-owned firms

To date, 20% of the foundation’s U.S. assets under management, or $360 million, are invested with diverse-owned firms. The foundation has also increased diversity on its internal team and has led industry efforts to increase DEI awareness and transparency within the asset management field.

Key takeaways from the Kresge Foundation’s approach include:

People

  • The foundation leadership implemented a series of initiatives including blind resume reviews and broadening their recruiting network through partnerships with several nonprofits that serve more diverse populations.
  • In 2015, Kresge Foundation established a $2 million student-managed investment fund at Oakland University which complemented a new course designed to teach the essentials of portfolio management, stock selection and portfolio evaluation.
  • Foundation staff developed the Kresge Operationalizing Racial Equity (KORE) initiative in 2017, a cross-departmental initiative that started as a 14-person diversity, equity and inclusion (DEI) task force with a goal of developing the skills, comfort and competency of foundation staff to have better discussions about racial equity.

Portfolio

  • In 2019, Kresge Foundation’s investment office formally pledged its commitment to DEI through its “25% by ‘25” initiative – a commitment to intentionally direct 25% of the foundation’s U.S. assets to be managed by diverse-owned firms by 2025.
  • When partnering with managers, the foundation focused on identifying six key attributes with prospective managers: partnership mentality; performance-orientation; mission-alignment; a definable, repeatable competitive advantage; a rigorous risk management framework; and fit between a manager’s target fund raise and the investment strategy they are pursuing.

Pulpit

  • The foundation partnered with funders and a financial technology company to conduct a survey to understand the racial and gender composition of the U.S. asset management firms. The goal was to gain a greater understanding of their asset managers’ demographic makeup and to begin to inform conversations and promote transparency from other comparable capital allocators and among their portfolio of asset managers.

According to the report, Kresge acknowledges the work that still exists and identified several obstacles and concerns including sourcing and performance.

“I’m fully confident that our performance will be improved over the next 10 years because of the diverse-owned firms we’ve identified and partnered with since launching 25% by ’25. And I’m also confident that our entire industry will benefit as others come to similar conclusions and fully embrace greater diversity within their teams and investment partners,” John Baker, chief investment officer at the Kresge Foundation said.

Want more?

Read the full report.

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