Pension funds most likely to say EDI is important in manager selection
Image: ArienneThuringer/Pixabay
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
Pensions funds are more likely than other institutional investors to say they would probably not appoint an external manager who lacks diversity, a new survey has found.
Pension funds at the forefront
More than a third (36%) of global investors surveyed by consultancy bfinance said they would be unlikely to appoint an external manager who lacks diversity. This figure is highest for pension funds, where 41% said so.
Among insurers and healthcare, 36% said they would be unlikely to hire a non-diverse manager, with 35% of family offices reporting the same. The percentage is lower among global endowments, foundations and sovereign wealth funds with 32%, and falls to just 25% among “other” investors.
Pension funds are increasingly adopting EDI regarding their own team and their scheme members. The latest EDI Report by mallowstreet Insights and Cardano found that nearly half of UK pension funds and professional trustee firms now have an EDI strategy in place, up from 26% last year.
In the UK, the Pensions Regulator has also taken the view that more diverse boards can take better decisions. It published its first EDI guide for schemes and employers in March 2023, but there is no legal requirement to act on the guidance.
EDI was relevant factor in fifth of manager searches
While a sizeable minority therefore claim to make EDI part of their selection criteria, bfinance’s report, ‘Seeking diversity from investment managers’, found that “this expectation does not necessarily translate into implementation”.
Examining all of the manager searches by their clients over the 12 months to the end of June 2024, bfinance asked the lead researcher to verify whether the investor client had treated diversity as a “significant” consideration, a “relevant” consideration or “irrelevant”, specifying that putting a question on an RFP alone would not result in a ‘significant’ rating.
The research found that in just 22% of manager searches, the investor had treated diversity as a 'significant' or 'relevant' factor for manager selection. It is not clear how many searches were examined, and in what proportion they stand to the number of clients.
The consultancy added that in some asset classes, it can be harder to find diverse managers.
“In practice, an allocator searching for a manager in a niche strategy area may primarily be concerned with identifying a sufficient number of credible candidates and less focused on diversity than may be the case when the allocator is selecting managers in a more conventional strategy area,” the report states.
The firm suggests that “broad tenders that maximise the universe of asset managers under consideration for any given mandate” could help investors achieve better diversity “by widening their choices so that these starting principles can flow through to end implementation”.
Has your fund ever not appointed a manager for lacking diversity?
