The Financial Times

24 October 2020

Attracta Mooney

Asset managers have been put on notice to overhaul their “male and pale” workforces or risk losing clients after one of the world’s most influential advisers to pension funds found that diverse investment teams significantly outperform.

Willis Towers Watson, which advises on $2.6tn in assets, said its analysis of more than 2,400 individual investment teams globally found that diverse groups outperformed those with no gender or ethnic minority employees by 20 basis points a year on average.

“There is clear evidence to say that an investment team that is more diverse will deliver better outcomes,” said Chris Redmond, head of manager research.

He added that progress on diversity across the asset management sector was “disappointingly slow”.

As part of a new action plan, WTW will speak to asset managers across the world about the need to tackle the lack of women or people from different ethnic or social backgrounds in their investment teams.

Those who fail to improve diversity over the subsequent year face being removed from WTW’s influential preferred list, leaving them at risk of clients withdrawing hundreds of millions of dollars in assets, Mr Redmond said.

“Where we don’t see progress, we will likely go ahead and change our conviction level, and typically clients will follow [our recommendation] and money will leave,” Mr Redmond said.

Only 4 per cent of UK fund assets are managed exclusively by women, compared with 85 per cent run by men, according to research by New Financial in 2018. A study from Morningstar, the data provider, this year found that the number of female fund managers across the world has remained stagnant for two decades at about 14 per cent.

The Investment Association, the UK trade body for asset managers, found that in Britain, fewer than 1 per cent of investment managers were black.

WTW said its manager research team was aiming for a 20 per cent increase in the number of meetings it has to find top new investors with asset managers that have diverse workforces.

It also plans to increase its allocation to diverse teams within its delegated portfolios — where it oversees investments for clients — believing this will lead to better returns.

In a research paper to be published next week, the investment consultant said measuring diversity of asset managers needed to go beyond simply equity ownership. It also called for a shift away from a star fund manager model to one based on teams.

“The majority of our preferred managers have a diversity issue. The industry is a long way away from where we need to be,” said Mr Redmond.

A study by Redington, a rival investment consultant, recently found that fewer than half of asset managers evaluate gender diversity when researching potential investments.

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