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Jan 30, 2019

Diversity no boost to performance at asset management firms

No difference in return seen across asset classes, says report

Firms owned by women and minorities manage just 1.3 percent of assets in the $69 tn asset management industry, though their performance is not statistically different from the industry as a whole.

These are the findings in a new study – Diversifying investments: A study of ownership diversity and performance in the asset management industry – from the US-based Bella Research Group and the Miami-based non-profit John S and James L Knight Foundation.

The report finds no statistically significant difference in performance among diverse-owned firms across asset classes, even after controlling for risk. This contests the proposition and research across a multitude of fields and industries that has identified the potential economic and social benefits of diversity.

IR Magazine asked the report’s author, Josh Lerner, chair of the Entrepreneurial Management Unit and the Jacob H Schiff Professor of Investment Banking at Harvard Business School, if this was the case. His response is that three firm findings come out of the report.

‘One, the share of diversely owned managers is very small. Two, this small share does not seem to be explained by their relative performance. Three, there is a clear need for data about who these managers are, which may facilitate investment decisions, pensions and others,’ he details. Accordingly, Lerner says he plans further research in this area.

He adds, however, that the biggest barrier to research on diverse ownership or management is the lack of data, as most data providers for the asset management industry do not track diversity in a systematic way.

In terms of the make-up of the asset management industry, the study finds that companies with substantial (defined as 25 percent-49 percent) or majority (50 percent or higher) female or minority ownership represent just 8.6 percent of the industry’s total number of companies in 2017.

That is up from 7.3 percent in 2016 when Bella Research and the Knight Foundation conducted the first major survey of diverse ownership in the asset management industry, an increase the study attributes in part to a wider dataset.

The research identifies 136 female-owned and 120 minority-owned firms in 2017, managing 638 and 467 mutual funds, respectively. Numbers of female and minority-owned mutual funds represent just 5.5 percent and 3.9 percent, respectively, of all mutual funds.

Of the female-owned mutual funds, 338 have substantial female ownership  and 300 have majority female ownership. Together, these female-owned funds manage $430 bn in assets, accounting for less than 1 percent of the total asset class.

Similarly, minority-owned mutual funds comprise 52 funds with substantial ownership and 415 funds with majority ownership: all together, minority-owned mutual funds manage less than 0.5 percent of the total asset class.

‘While there are some slight positive trends, the number of diverse-owned asset managers is not increasing very quickly,’ adds Lerner. ‘As awareness of this issue increases, and the availability of data on diverse asset managers grows, it is my hope that the pace of change will accelerate.’

Juan Martinez, Knight Foundation CFO, comments: ’Institutional investors, such as pension and endowment funds, have an obligation to invest their money wisely. This can – and should – include working with firms that are women and minority-owned. There is no reason not to do so.’