Willshire, which advises on $1.3 trillion in assets for more than 500 pension funds, endowments and other institutional investors, is continuing to get more diverse-owned asset managers into the portfolios of their clients.
The number of Wilshire’s clients allocating to diverse-owned asset managers — firms with non-white or female owners — has more than doubled, increasing to 48 percent in 2022 from 20 percent in 2018, according to the consultant’s latest report. Out of Wilshire’s 24 searches to fill investment mandates in 2022, diverse-owned managers won 4 of them, or 17 percent. Diverse-owned managers were only included in 67 percent of searches last year.
Wilshire has tracked the diversity of its asset management partners since the 1980s. But it wasn’t until 2018 that the company refocused its efforts to support diverse-owned asset managers, began collecting more information about them, and publishing the annual reports. Vitalizing that process was “essential” to achieving the success so far, Joanna Bewick, a senior vice president, portfolio manager, and senior consultant at Wilshire, explained.
“We’ve heard it over, and over, and over again: You can’t manage what you don’t track,” Bewick said.
Robert Raben, executive director of the Diverse Asset Managers Initiative, a group focused on coordinating diversity-related changes in the industry, praised Wilshire’s success. “It’s great that Wilshire both cares enough to report on their progress, and to see improvement. That’s really welcome and consistent with their leadership. Five years ago they issued best in class steps to improve diversity, from implementing the Rooney Rule to tying compensation to diversification for some executives,” Raben said. The Rooney Rule refers to the NFL’s mandate to interview minority candidates.
Most investment consulting relationships are non-discretionary, meaning they don’t make investment decisions on their own. But they still have major influence over investment portfolios that could have hundreds of billions of dollars in assets. And as the gatekeepers, there are at least four significant ways that consultants have influence when it comes to diverse-owned managers, Bewick said.
Wilshire now tracks its meetings with diverse-owned firms and it’s getting more on the books. The number of those meetings has grown at 17 percent annually over the past five years.
More outreach and meetings with diverse-owned firms has led to more of them being added to Wilshire’s database, which institutional investors use to scout for asset managers. “We’re dependent on the managers to share that data, but we set up the infrastructure in order to receive it and analyze it,” Bewick said.
Wilshire says it is also doing a better job helping diverse-owned firms prepare for its evaluations so that they can get a coveted rating that will entice allocators.
Finally, once diverse-owned firms are identified, evaluated and rated, Wilshire is consciously making sure they include them in the appropriate pools of candidates to win mandates.
“We know the talent is out there. As consultants, it is incumbent upon us to make sure that we know that talent, we have them rated, and we’re comfortable with getting them into searches,” Bewick said. “I think consultants have a pretty strong influence over the inclusion rate of diverse-owned firms and searches.”
Now, 67 percent of all manager searches with Wilshire include diverse-owned firms. The consultant would like all searches to include some, but it has struggled to achieve that because the right investment vehicle isn’t available or an asset class simply doesn’t have many diverse managers.
Owners of asset managers that invest in real assets are significantly less diverse than in other asset classes, Bewick said. In the current economic environment, with higher inflation and interest rates, real assets have also been popular investments — they’ve also been a headwind for progress in getting more diverse-owned firms into portfolios.
Long duration and overlay strategies are two other areas where there are fewer diverse-owned firms compared to other sectors. But that’s partly because there are fewer asset managers overall that that run these investments, according to Bewick.
Bewick said that consultants are uniquely positioned to either promote or obstruct diversity in asset management and that Wilshire was choosing to support progress. “We absolutely believe that we have an important role to play,” she said.
But Wilshire and investment consultants won’t solve diversity problems on their own. It must be a collective effort by the industry, Bewick said.
“By its very nature, these mandates that are awarded are not necessarily decisions that the consultant makes, but if we are doing our part with those four areas, then we see an impact,” Bewick said. “We can’t take full credit for that. That is a decision of the asset owner but I think we’re doing our part.”
