Despite focus on diversity, female representation among key decision-makers in asset management is still disappointingly low. But asset owners have the potential to use their influence deliver change.
Diverse teams make better decisions, and inclusive cultures foster and retain the best talent. But the financial services industry has a reputation for lacking diversity across its employees, including poor representation of women.
As we recognize International Women’s Day, this is the opportune time for asset owners to revisit the importance of gender diversity in asset management firms.
Our 2019 Diversity Dressing: The Hidden Figures study of the asset management industry found that, globally, only 12% of the key decision-makers were women, representing just 1 in 8 from a population of 50:50.
Over the past three years, there has been a minor improvement but the proportion of women in these roles remains disappointingly low. Our new research shows that 13.7% of key decision-makers are women – an increase of just 0.6% annually. 1
But there has been a change in the makeup of less experienced key decision-makers who are influential in managing portfolios. Encouragingly, the proportion of female key decision-makers who have zero to five years’ experience increased significantly from 19% in 2019 to 32% in 2022.
This is also above 30% – the level at which a minority is expected to become an influential body that can affect change. And it sends a genuinely positive message that although it takes time to improve gender diversity – and indeed other forms of diversity – change is gradually happening.
It is clear there is significant potential to improve the diversity of thought, decision-making, processes, and leadership across the industry. And we believe this change can only happen through engagement with asset managers.
Exercise fiduciary duty while making a difference
Asset owners can make a massive difference because they own the capital, they hire companies and pay the fees of the asset managers, which comes with influence.
Asset owners have a fiduciary responsibility to target the best possible outcomes for their beneficiaries. This means selecting the managers that have the highest potential for outperformance. Indeed, there is increasing focus on the link between diversity and the need to provide good investment outcomes for beneficiaries.
There are many considerations that go into manager selection, including investment philosophy, risk management and investment processes, but we think one consideration should be: Are they building the best team possible?
That is why we believe asset owners can generate better risk-adjusted returns by working with managers with diverse leadership teams and decision makers.
Are asset managers investing in companies with Boards that can best manage risk and navigate the future? There is a bulk of research that shows having more diversity on Boards improves decision-making.
This comes down to basic good governance and risk management that investors should be conducting, but there are opportunities to be found too.
What actions can asset owners take?
A key challenge is that asset owners often do not know where to start when addressing diversity.
The first stage is to gather data and measure it. Asset owners should have a structured way to assess the diversity of current and prospective managers. Then drill down into the portfolio to analyse how diverse the Boards of underlying companies are.
There are many other measures of diversity which are equally important including race, sexuality, and socio-economic background. But gender diversity is increasingly disclosed and available from asset managers, so that is a good starting point.
Then, owners can identify the potential risks they need to manage and, on the flip side, identify the opportunities they can draw from this.
Second, owners should engage with managers on their processes, policies, and outcomes on diversity. They should revisit their investment beliefs and their policies to set out what is important to them and consider using this information in due diligence or manager selection.
Ask your prospective and incumbent asset managers how they build teams, how they recruit, and what policies they have in place to ensure they get the best candidates. Invite managers to explain why their teams appear unrepresentative of the broader society and encourage them to increase their potential diversity in decision-making.
Stage three should involve monitoring and measuring the outcomes over time.
At Mercer, we strongly believe that through their influence, asset owners can make a difference in the asset management industry while improving investment outcomes for the beneficiaries they represent.
Read more Diversity Dressing - Progress evaluation
References to Mercer shall be construed to include Mercer LLC and/or its associated companies.
This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity without Mercer’s prior written permission.
Mercer does not provide tax or legal advice. You should contact your tax advisor, accountant and/or attorney before making any decisions with tax or legal implications. This does not constitute an offer to purchase or sell any securities. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed.
For Mercer’s conflict of interest disclosures, contact your Mercer representative or see www.mercer.com/conflictsofinterest.
This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances.
Information contained herein may have been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential, or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.
Investment management services for Canadian investors are provided by Mercer Global Investments Canada Limited. Investment consulting services for Canadian investors are provided by Mercer (Canada) Limited.