Calls for racial equity in the financial system have rightfully been increasing since the murder of George Floyd last year.  In the past few months, we have seen virtually every major investment bank and many smaller advisors and asset managers decry systemic racism.  This is a welcome advancement. No longer is the industry focusing only on basic questions of diversity, which we regard as table stakes in a movement for social change; instead, the investment industry and society are asking hard questions about the role of financial institutions in perpetuating racial inequality.  In particular we are seeing mainstream industry actors finally examining the roots of economic injustice.

And yet … with all of this talk, we are seeing little movement, especially among consultants and advisors.  Investment consultants and advisors serve as critical intermediaries between asset owners (foundations, high net worth individuals and families, pension funds, etc.) and actual investments, which are largely managed by asset managers.  As an industry, the investment and financial services field must make deliberate efforts to change the practices they use to determine which asset managers have the privilege and responsibility to manage money, deliberately opening opportunities for new and diverse asset managers – especially BIPOC (Black, indigenous and people of color) and women managers.  Just saying it needs to happen won’t make it so. Rather, as a group of asset managers of color and advisors has recently called for, there must be a concerted effort to change the behavior of consultants and advisors to systematically remove the barriers that prevent the flow of capital to BIPOC and women asset managers.

For context: White, male asset managers control 98.7% of the investment industry’s $69 trillion in assets under management. [1,2]

The Due Diligence 2.0 Commitment  makes the case for changing the methods by which asset managers are evaluated and selected. The Commitment is based on a framework developed by Rachel Robasciotti, Brent Kessel, Tracy Gray and Erika Seth Davies, with contributions from over a dozen BIPOC asset managers. It offers a detailed roadmap for inclusive due diligence practices that are rooted in common sense and a commitment to breaking down the barriers facing BIPOC and women asset managers.

At Cornerstone Capital Group, we have been following many of these practices and advocating for investing with a racial equity lens for years:

  • Since our inception, we have been tracking the gender diversity of managers.
  • We have been reporting on the racial/ethnic diversity of managers to all of our clients, regardless of whether they ask for manager diversity statistics, since 2019. We find this practice helps develop greater awareness of the importance of manager diversity across our whole client base.
  • We have always looked at the context in which a fund manager is doing their work. We do not believe in arbitrary asset thresholds or length of track record as indicators of a manager’s or fund’s future success. Particularly in impact investing, innovation is essential for scale to be achieved and we are very grateful to be able to support several new and emerging managers.
  • We also recognize that diverse teams make better decisions than homogeneous teams and we have intentionally sought out diverse fund managers to work with since we started as firm in 2013. In fact, we can proudly say that of the firms with whom we have client assets:
    • 29% are at least 50% owned by women or people of color.
    • 45% have executive leadership teams and investment departments with 25-50% women.
    • 50% employ 25-50% people of color on their investment teams.

Despite our long-standing focus on diversity and equity, we know there is more work to be done. We are proud to become one of the first signatories to the Diligence 2.0 Commitment.  We invite our colleagues at other investment firms to join us and the others who have already signed in this important effort. We invite investment consultants and advisors across the industry to help break down the systemic barriers that have prevented BIPOC and women managers from attaining critical positions managing assets and helping to ensure capital is being used more responsibly and equitably.

[1] www.duedilligencecommitment.com

[2] https://knightfoundation.org/reports/diversifying-investments-a-study-of-ownership-diversity-and-performance-in-the-asset-management-industry/