Unique research identifies the barriers to diversity in portfolio management, what the industry is currently doing to improve diversity, and analyses what needs to be done to accelerate change.
New Financial’s latest report, Diversity in Portfolio Management, looks at what it is about the asset management industry – and portfolio management specifically – that makes building a diverse work force so challenging.
This research was conducted by New Financial in collaboration with the Diversity Project, and was supported by Allianz Global Investors, Hermes Investment Management, and GIC. It will be launched on Monday 24th September at an event hosted by AGI.
Based on interviews with more than 100 people working in and around portfolio management the report includes:
• Data showing the lack of diversity in portfolio management today
• Why diversity is important to portfolio management and why now
• The skill set required to be a portfolio manager
• The 18 key barriers to entry and progression
• What asset management firms are currently doing to improve diversity
• What needs to happen to accelerate the pace of change
The highlights of Diversity in Portfolio Management are:
1. Moving up the agenda: diversity is moving up the agenda of the asset management sector. In the context of portfolio management, there is a broad consensus that diverse voices enhance investment performance by increasing diversity of thought. This in turn improves decision-making and investment idea generation while guarding against groupthink and herd mentality.
2. Under pressure: asset managers are under increasing pressure to improve diversity – and quickly – from both external and internal sources. Government, regulators and clients all want to see increased representation from women and minority groups, while employees are also becoming frustrated by the glacial pace of change.
3. Starting from a low base: our research paints a stark picture of portfolio management dominated by white, middle class, straight men. Only 4% of UK fund assets are managed exclusively by women, compared to 85% run by men. During our research we came across only 12 black portfolio managers based in London, and nearly two-thirds of the industry’s leaders went to private schools.
4. The ideal portfolio manager: Our research found that the essential skill set for a PM includes numeracy, intellectual curiosity, analytical ability and an aptitude for learning. However, this broad view of who could become a PM does not reflect the reality of the narrow, subjective criteria that determine who actually makes it.
5. Barriers to entry and progression: we identified 18 barriers to entry and progression for portfolio managers. The top ranked barrier is the meritocracy myth: the asset management industry firmly believes that the best will rise to the top, that “merit” is objective, and that companies promote and reward staff based purely on performance – but that is simply not true.
6. A generalist approach: asset management firms are not yet tackling the lack of diversity in portfolio management specifically – nor does it appear to be a priority. While they recognise barriers to entry and progression exist, there is a relative lack of understanding of how these barriers are prioritised and their cumulative effect.
7. An uncollaborative effort: our research found a distinct lack of collaborative spirit amongst asset managers. The biggest barriers cannot be tackled by any one firm on their own – peers will need to come together to discuss and set industry standards, and work with the wider investor community, including asset owners, investment consultants and regulators.
8. A disconnect: there is little alignment between the biggest barriers and the most common actions taken by firms to improve diversity. Only one of the top five actions points we identified directly answers a top five barrier, and we observed very little activity in response to the remaining four barriers.
9. Signs of change: asset management firms have begun a concerted effort to review, update and formalise their HR policies. While they may not be breaking new ground compared to other business sectors, this shift signals an encouraging change in thinking for the industry.
10. Widening the gene pool: the industry is also turning its attention to improving diversity at entry level and raising the profile of asset management as a career to feed the future pipeline of portfolio managers. Firms are playing a more active role in graduate recruitment by introducing structured programmes and looking beyond STEM graduates and the same handful of universities.
Yasmine Chinwala, partner at New Financial and co-author of the report, said:
Our research shows diversity is moving up the agenda for asset management firms, but few are tackling portfolio management specifically. This is a serious issue. Portfolio management cannot remain an outlier in diversity statistics indefinitely just because it is difficult.
We found broad consensus across the industry that diverse voices enhance investment performance by increasing diversity of thought, that diversity improves decision-making and investment idea generation while guarding against groupthink and herd mentality.
Yet when it comes to portfolio management (i.e. those in charge of making investment decisions at the very heart of asset management) there is scarce evidence that the industry is actively cultivating the diversity of thought that can bring all these benefits.
The industry must act. This research deliberately highlights a wide range of interesting practices and ideas shared by participants to stimulate discussion and collaboration to shift the industry’s thinking from bare minimum to setting high standards and prompt genuine, sustainable change.
Jane Welsh, Co-Founder and Project Manager at The Diversity Project, which collaborated on the research, said:
I am delighted that the Diversity Project has been able to collaborate with New Financial on such an important piece of research. This report highlights both the cultural and practical barriers to achieving true inclusion and diversity in portfolio management and sets a challenge to the industry to address these as a matter of urgency. It also highlights the value of collaboration in addressing some of the specific barriers in the asset management industry and is a vital call to action.
Andreas Utermann, CEO and Global CIO at Allianz Global Investors, which supported the research, said:
By shining a light on the barriers to greater diversity in portfolio management, and the lack of success in addressing the most significant barriers in an effective manner, this report makes uncomfortable yet vital reading. It makes clear our obligation to ensure that current momentum translates into permanent, sustainable change. To that end, as well as underscoring the need for more concerted and effective action, the report offers practical suggestions for where and how asset managers can step up to the challenges we all face.
Harriet Steel, Global head of Business Development at Hermes Investment Management, which supported the research, said:
Women are still heavily underrepresented in senior roles in the investment industry, including portfolio management, which is why we need to widen the pool of candidates from which we recruit. Moreover, the industry needs to take taking meaningful, measurable and visible steps that deliver long-term change so that we can encourage and empower women, affording them the opportunity to succeed.