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Point of View · 08.16.23

The Holistic Way to Invest in Diversity

The standard approach to investing in diversity doesn’t address factors that can make the biggest difference.
  • Sustainable Investing (ESG)
  • Diversity, Equity & Inclusion
  • Investing
Key points
What this is
The standard approach to investing in diversity doesn’t address factors that can make the biggest difference.
Why it matters
Diversity across a firm, including leadership and the workforce, drives financial outperformance and innovation.
Where it's going
Resetting the diversity dialogue should drive positive change by encouraging deeper diversity among investment managers.

Diversity Performs


Diverse teams may be better at innovation that translates into higher profits. Companies in the top quartile for gender diversity on their executive teams were 15% more likely to experience above-average profitability than companies measured in the fourth quartile. According to a report published by McKinsey (2014), this advantage in profitability increased to 21% in an expanded analysis published in 2017. The report further notes that companies demonstrating top-quartile representation of ethnic and cultural diversity were 33% more likely to outperform on earnings before interest and taxes (EBIT).1


As for innovation, companies with above-average diversity in management reported that almost half of their revenue came from innovative products and services, based on a Boston Consulting Group study of more than 1,700 companies. That’s a 20% advantage over firms with below-average leadership diversity. Organizations with more diverse management also reported better overall financial performance.2

Not Just Diverse, but Engaged


It’s not only management that matters; an engaged workforce can also create value. Companies with engaged workforces demonstrated 22% higher productivity, a 2013 Harvard Business Review article indicated. In addition these companies scored high marks on other important measurements vis-à-vis their non-engaged peers, such as lower turnover, higher quality of work and fewer violations of health and safety standards.3


All of this empirical data points to an important conclusion: If we take a deeper view and look not just at the top, we may find a larger group of asset managers embracing diversity than once believed. And they create value. These diverse firms aren’t just small and emerging. They include bigger firms that may be more impactful as they foster diversity within the largest populations of investment workforces.



Emerging Manager Programs: Not the Same as Diversity


Many investors invest in diversity through emerging manager programs, which start with a filter on ownership and size limitations. This approach may be too restrictive. Knight/Bella (2017) recently conducted research that shows many women- and minority-owned managers with smaller asset sizes have an average track record longer than 10 years.


But only 1.2% out of the $47 trillion mutual fund market is managed by women- and minority-owned firms. This demonstrated disparity underscores that this approach is not meaningfully redirecting assets to women- and minority-owned firms.4



Holistic Diversity


Investors should look beyond ownership as the primary (and often only) metric and focus on strategies that measure diversity from multiple angles. For example, our manager due-diligence teams use a proprietary survey of multiple diversity factors that cannot be found in databases for manager searches. We collect data on a wide range of diversity and engagement metrics, including:


  • Total workforce
  • Executive leadership
  • Investment team
  • Community engagement — volunteerism and charitable donations
  • Diversity among professional service providers — brokerage, law firms, accounting firms and others
  • Ownership


Seeking competitive investment performance should be a primary, not secondary, focus of the manager selection process. As a first step, we leverage our deep knowledge and expertise in composing multi-manager investment vehicles to identify managers that have a demonstrated skill in generating competitive performance. The diversity matrix is then applied to create a portfolio that has a holistic approach, integrating both objectives.

Diversity investment framework

1McKinsey & Company. Delivering through Diversity. January 2018.






4Diversifying Investments, A Study of Ownership Diversity in the Asset Management Industry, Executive Report, May 2017; Knight Foundation/Bella Research Group. Whiteout: The Staggering Sameness of Asset Managers, Chief Investment Officer Management, September 2014.

Main Point

Time To Make A Change

It’s time to take a more holistic view of diversity in investing. By resetting the dialogue on all managers, we have the opportunity to drive positive change across the investment industry. We believe this approach will encourage investment managers to take a more expansive view of diversity within their business and across the industry.


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