New analysis released by WTW has revealed that an investment team with a greater level of diversity leads to better investment outcomes. In the company’s new paper, “Diversity in the asset management industry: on the right track but at the wrong pace,” data show that investment teams in the top quartile of gender diversity outperform the bottom quartile by 45 basis points yearly in terms of net excess returns.
The detailed diversity data, collated from over 1,500 investment strategies, has also been broken down by asset class. The findings show equity and credit displaying a gender diversity premium of 46 basis points and 14 basis points yearly per annum, respectively.
In future years, WTW will provide additional insights into diversity data through the WTW Diversity Index, which will allow an investment strategy to measure and compare its diversity with that of peers today as well as its optimal diversity level. This will enable WTW to monitor the diversity premium at an even more granular level over time.
Additional data collated this year from over 400 asset management firms on diversity, equity and inclusion (DEI) show that only 42% of asset managers have any measurable objectives in their current DEI policy, while nearly half (49%) have no targeted initiatives to attract more senior diverse talent.
While to date the industry has largely focused on gender and ethnicity — two of the largest underrepresented groups in absolute terms — WTW is also encouraging all firms to expand data collection across other inherent and acquired traits of diversity, such as disability, sexual orientation, socioeconomic status and neurodiversity.
The results of WTW’s research furthermore found no meaningful relationship between organizational size and greater diversity across ownership or senior leadership, indicating that while there may be a perception that larger firms are able to appoint specialist resources and implement more DEI policies and initiatives, this does not always translate into increased overall diversity.
“There has undoubtedly been progress made on diversity by many asset managers in recent years, but the fact is that the pace of change at an industry level is still slow and disappointing,” said Chris Redmond, head of Manager Research, WTW. “We are hopeful that the truly extraordinary investment performance benefits linked to superior diversity can serve as a catalyst for acceleration. That is why we believe it is crucial to analyze the data on an ongoing basis to track where we are as an industry and to stimulate conversations; however, it is also important that we look beyond pure numbers to form a robust qualitative view on DEI and culture to really understand how each asset manager is progressing and how quickly targets can be reached.”
“We have integrated DEI across our research and portfolio management processes, compelling us to engage with asset managers to improve and share best practice,” said Paula Robinson, director, U.S. Equity Manager Research, WTW. “We have also built out a comprehensive DEI reporting toolkit for asset owners to set out, and set off, on their own DEI journey. The long-term success of DEI requires asset managers, investment consultants and asset owners to collectively commit to change.”
The full paper can be accessed here.