Diversity: On, up, or off investor and consultant agendas?

Diversity issues are beginning to influence manager selection decisions from asset owners and consultants, according to research from think-tank New Financial.

Related criteria are appearing more frequently in requests for proposal (RFPs) and investment consultants’ due diligence processes, according to the group’s data.

The think tank carried out research on 100 asset owners from across the world and conducted 40 interviews with a wide range of investment market participants.

It found that, although asset owners may have already been considering workforce diversity in some way as part of manager selection, the discussion was increasingly explicitly framed. Questions were more focused and came up more frequently, it said.

In the UK, New Financial’s research found that diversity questions were not yet standard on RFP documents, but some asset owners were considering it.

According to the report, NEST, the £1.6bn (€1.8bn) UK government-created scheme to meet auto-enrolment demand, has “agreed to formalise” its diversity commitment in its next RFP.

To just lead on why it adds [financial] value is missing the point. People do make economic returns and financial outcomes arguments but really, for us, it is just the right thing to do.

Ian Baines, head of pensions, Nationwide Building Society

Investment consultants, according to the think tank, were “very clear on the benefits of diversity and are allocating more resources to the theme”.

Early this year Luba Nikulina, global head of manager research at Willis Towers Watson (WTW), said the consultant was going to require workforce gender data from fund managers.

Mercer, according to New Financial’s report, “has been looking at elements of diversity as part of its manager selection process for a number of years”.

Reality check?

Despite its research findings, the think tank noted there were still many people and organisations throughout the investment chain who were unconvinced and believed a focus on diversity comprised financial performance.

Yasmine Chinwala, partner at New Financial and co-author of the report, said diversity had been moving up the agenda in the past two years, but there was “a real division between those who get it and those who don’t”.

Lesley Williams, outgoing director of pensions at FTSE 100 hospitality company Whitbread and outgoing chair of the Pensions and Lifetime Savings Association (PLSA), warned against becoming complacent.

Under the banner of ‘Breaking the Mirror Image’, the PLSA has been running a campaign to increase diversity on trustee boards. During a panel discussion Williams said she was still openly challenged by people arguing why diversity “misses the point, why it’s not important, why it will mean that they’re not able to deliver the right things for their members”. 

She said she was particularly surprised by the findings about consultants.

“I didn’t know it was so high on their agendas,” she said. “It’s actually not my experience. I’ve never heard my investment consultants talking about the diversity at an asset manager at all.”

Almost half of the asset owners in the research sample explained why diversity was important to them. The top three most common motivations for acting on diversity were to improve decision-making, attract and retain talent, and innovate and compete.

Chinwala highlighted that enhancing financial performance was the fifth most common reason, which she said was encouraging because it constituted an argument to counter what was still “a very strong entrenched belief that looking at diversity as part of investment criteria compromises performance”.

Some appear to believe the focus should not be on financial performance.

The think tank’s report quotes Ian Baines, head of pensions at Nationwide Building Society, as saying: “To just lead on why it adds [financial] value is missing the point. People do make economic returns and financial outcomes arguments but really, for us, it is just the right thing to do.”

The full report can be obtained here.