US fund manager diversity falls under regulatory spotlight

FT

Institutional investors also demand data on women and ethnic minoritieswaldenTS

Efforts by US asset managers to hire and promote women and people from ethnic minority backgrounds are coming under heightened scrutiny following pressure from the US financial regulator to make diversity data more readily available.

 The Securities and Exchange Commission asked asset managers in January to provide information on their workforces as it tries to better understand industry diversity. A growing body of evidence has shown that businesses with diverse staff outperform more homogenous companies.

Catherine Verhoff, chief diversity officer at PGIM, the $1tn investment manager, expects the SEC “to put more teeth behind” its voluntary diversity initiative “in the not-too-distant future”.

The SEC’s eight-page survey asks whether companies have a written diversity and inclusion policy, and whether diversity and inclusion considerations are factored into recruiting, retaining and promoting staff.

The regulator also requests data on the gender and racial or ethnic make-up of workforces by job category, from the senior level to administrative support and other roles.

US employers with 100 or more employees are already required to report such data to the US Equal Employment Opportunity Commission annually, but it is not made public.

A January report from McKinsey, the consultants, found that companies in the top quartile for gender diversity in their executive teams were 21 per cent more likely to outperform peers on profitability last year, while companies in the top quartile for ethnic or cultural diversity were 33 per cent more likely to outperform peers.

Pamela Gibbs, director of the SEC’s office of minority and women inclusion, says it plans to publish aggregate findings from the survey in an annual report to Congress, which will be publicly available.

But the breadth of the findings, including potential trends at investment advisers, depends on the type of data the SEC receives, as well as the level of participation.

“The information may be grouped by workforce size and type of entity, but at this time, no decision has been made about how the results will be presented,” says Ms Gibbs.

Everybody acknowledges the challenge. Everybody acknowledges the aspiration. But we haven’t had hard data—on diversity—from an asset management standpoint. This offers the opportunity to learn

Craig Pfeiffer, Money Management Institute

Historically, industry-level diversity data for asset managers has been difficult to obtain, though some big companies revealed information about their ethnic make-up to FTfm last year.

BlackRock, for instance, revealed 35 per cent of its US employees were black, Asian or other ethnic minorities.

FundFire, an FT news service, and the Money Management Institute, a trade association, recently requested diversity data from 23 fund companies managing more than $5.3tn.

The survey, which found significant gaps between the number of white and minority employees at asset managers, noted the most severe disparities among executives, where only five black and five Hispanic professionals were counted across the 209-person sample. Among this group, 88 per cent were white and 7 per cent were Asian.

When it came to managing directors, the pool of 2,089 people showed similar diversity gaps.

White professionals accounted for 86 per cent, while Asian professionals made up 7 per cent. Only 4 per cent of managing directors identified themselves as Hispanic while a little more than 1 per cent were black.

The confidential survey also polled asset manager diversity across other US-based roles, including portfolio managers, associates and analysts, along with those working in distribution, technology and operations.

The findings come as some of the industry’s largest asset managers, including BlackRock and Axa Investment Managers, joined other financial institutions in signing the UK’s Women in Finance Charter and pledging to boost their gender diversity at the senior level.

Heidi Ridley, chief executive of Axa IM’s Rosenberg Equities division, says her company has set a company-wide target for women to represent 40 per cent of its senior executive team by 2020, up from its current 36 per cent.

“There is a target around diversity [for the management board], and our achievement of that does influence our compensation,” she says.

In addition to the SEC’s recent push to collect diversity data, US asset managers are also reckoning with transparency calls from institutional investors, particularly pension clients. Some US public pension plans have even gone as far as requiring diversity disclosures from asset managers seeking to win contracts to manage their funds.

Since 2015, Illinois’s public pension plans require investment advisers and consultants to disclose certain diversity data — including the percentage of investment and senior staff who are minorities, women or disabled — before a contract can be awarded.

Ms Verhoff says the voluntary nature of the SEC’s latest initiative shows the agency is “taking baby steps so they don’t get a lot of pushback on this”. PGIM, however, does not publish workforce diversity data itself.

She is of two minds about the diversity self-assessments, in that they are “a little toothless”, but also provide a template for assessing corporate diversity programmes.

“When people start measuring what it is they are doing, and they see how far behind they are, they start trying to fix it,” Ms Verhoff adds.

Another industry veteran wonders if the assessments will unfairly put companies that already have more diverse workforces in a bad light. “It can cause managers with better data to self-select and mask the disparity in the industry — and the firms that have the worse diversity gaps to not report,” says Heather Brilliant, managing director at First State Investments, who is responsible for managing the company’s Americas business. The initiative could, however, reveal more about successful diversity and inclusion programmes, she adds.

Craig Pfeiffer, president and chief executive of the Money Management Institute, believes the SEC’s approach is “the appropriate first step”.

He adds: “Everybody acknowledges the challenge. Everybody acknowledges the aspiration. But we haven’t had hard data—on diversity—from an asset management standpoint.

“This offers the opportunity to learn and do it in an impacting and sustainable way.”

In order to make diversity and inclusion a priority, companies can start by making sure senior staff are involved in efforts, experts say.

Ms Verhoff, in her role as chief diversity officer, reports to David Hunt, chief executive of PGIM, who backed the reporting structure so diversity and inclusion efforts did not get “lost” as one of the many human resources priorities, she says.

PGIM launched a pilot programme last year that enlisted 20 senior women and 20 senior men across the business who pair off and meet at least once a month to discuss gender equality and other leadership topics.

Engaging men and women in senior roles has helped make sure everyone participates to find a solution, including brainstorming how to develop women’s careers and communicating needs to mid-level managers, Ms Verhoff says.

“The conversation with the men got deeper, broader and more detailed . . . and I thought it was a breakthrough day,” she adds.

Credit:Original Article  by Danielle Walker here FT

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