Lack of diversity in asset management – a question of awareness

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The asset management business is full of white males. To be fair, many asset management firms have achieved excellent performance by recruiting extremely intelligent people, albeit from a narrow social, ethnic and gender group.

In my role as Head of European and UK Equity Manager Research, I am acutely interested in the significance of diversity and what it can bring to organisations. Although there are no hard and fast rules, I think there are some lessons that we can infer from our research experience. At Russell, we are highly diverse, with associates from many different countries and cultures; also with a wide cross section in terms of age and with a strong female representation in our Investment Division. But for manager research purposes, I’m not interested in ticking diversity boxes and trying to impose a definition of an idealised, diverse asset management profile. I want to be pragmatic and to fully recognise the existing strengths of different investment management teams, as well as any potential weaknesses they may have in culture, team dynamics and expected stability. In my view, diversity awareness is extremely important for asset managers, but depending on circumstances, it may not be necessary for these firms actually to have highly diverse teams. Diversity is no guarantee of good performance, but will likely improve the probability of good performance across a wide range of asset classes and over time, particularly during changing investment regimes.

The investment management business is highly success-orientated, and asset managers will hire new talent of whatever kind, where they believe it will make a positive difference. As a manager researcher, I need to recognise that narrowly-based investment firms can still succeed in the short-term, whilst noting possible weaknesses that may impact in the future. For instance, in boutique firms, by definition, the founder members will typically be a small number of people who know each other well, and are therefore likely to have come from similar backgrounds. We find that boutiques can generate some of the strongest investment performance, being very focused on results and hungry for success. At the same time, part of the secret of their success is their ability to focus on the things that they do well, and a keen awareness of the areas in which their skill-set is lacking.

So as I research managers, one of the key factors I’m looking for is the self-awareness of the individuals involved, their ability to assess where their competencies lie, and to distinguish the areas they know from the areas they don’t know. At larger organisations, although I’m on the look-out for a more diverse array of staff, for instance across nationalities, ethnicities, gender, education and ages, I recognise that asset managers can still generate strong performance without necessarily exhibiting a high level of diversity. Within Europe, there are certain countries whose asset management organisations are particularly narrowly focused, relying on the graduates of only a few top universities in select disciplines. Many of them can and do succeed in generating good performance, but again, self-awareness is key. It’s interesting to see and hear of more firms actively engaging with behavioural consultants, and commissioning personality assessments for their teams.

Markets and market moods are always changing, and different investment eras throw up different challenges and adopt different paradigms. So for me as a manager researcher, the key thing is to know that our investment managers are well adapted to the current environment and have an awareness of their own skill sets and behavioural pre-dispositions. The merit of a relatively narrow team profile is that there can be great cohesion between the individuals. In these cases, where they hire outside their own stereotype, I’m often sceptical, and I’m not surprised to see the new recruit leave 6-12 months later, having failed to fit in to the prevailing culture. But the great weakness of a lack of diversity is an inability to adapt to changing circumstances and a vulnerability to group think.

That’s why my colleagues and I at Russell are very sensitive to diversity issues and why, certainly in larger organisations, we believe there can be substantial benefits to a more diverse mix. In particular, having a different array of temperaments, predispositions and behavioural traits can lead to a higher quality and more vigorous internal dialogue, and an ability to identify and respond to changes in the market environment more adaptively.

Véronique Botton, Head of Europe & UK Equities research

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