“We’re here today for one goal: to advance diversity, equity, and inclusion in the investment industry,” said Nicole Musicco, CalPERS chief investment officer, as she opened Catalyst: California’s Diverse Investment Manager Forum. Co-hosted with the California State Teachers’ Retirement System (CalSTRS), Catalyst brought together more than 130 global investors, representing a combined one trillion dollars in assets, with the next generation of diverse emerging entrepreneurs.
We pride ourselves in being a leader and an advocate for policies that make a difference and move the needle on important issues. For more than 30 years, CalPERS has developed and implemented diverse emerging manager programs and invested in up-and-coming managers from a wide variety of backgrounds. The 2020 McKinsey report, Diversity Wins: How Inclusion Matters (PDF), supports that diverse teams working in inclusive environments make better, more sustainable decisions that yield greater returns. In 2015, we partnered with CalSTRS to host events to bring awareness to the lack of diversity within investment teams and the lack of allocation of capital to diverse populations.
Slow Progress Requires Greater Action
A report by the John S. and James L. Knight Foundation, Diversifying Investments, found that funds managed by diverse-owned firms were overrepresented in the top-performing quartile of mutual funds, hedge funds and private equity. However, women- and minority-owned firms only made up 3 – 9% of the industry and controlled just 1 – 5% of the assets under management in 2019.
“The statistics for underrepresented minorities and women and other groups indicate we need a lot more effort to truly realize the label ‘beautiful country’ in the investment management industry,” said Scott Chan, CalSTRS deputy chief investment officer, during his remarks at Catalyst. Now we’ve moved on from discussing the issues to acting as the industry has made little progress in integrating diversity, equity, and inclusion to provide a pathway for investors and entrepreneurs.
Investment Leaders Share Their Strategies
Global investment managers took the stage at Catalyst to share their inclusive practices and policies that have proven results within their own firms. Here are just three pieces of advice, from the many shared at Catalyst:
Start with your leadership.
“DEI cannot be a standalone topic solved by HR or solved by a diversity team that you formed or even by a few strong leaders. It has to be embedded as a true business initiative. It has to be driven by the most senior PE members of your team,” said CalSTRS’ Scott Chan. Diversity, equity, and inclusion (DEI) programs that are successful rely on leadership that is clearly committed, DEI trained, and accountable with aligned governance, according to the CFA Institute’s Accelerating Change (PDF) report. It’s essential that leaders communicate clear messages about the purpose of DEI for it to drive change within their organization.
Define diversity, equity, and inclusion and what it means to your firm.
James C. Rhee, leader, educator, investor, and goodwill strategist, says his practice is to not only define DEI for the firm but also other terms like employee compensation and engagement. A working definition of diversity, equity, and inclusion will guide the firm in what policies to review, change, and promote within the organization.
“Our entire business model was built on being unleashed from a gap and really looking at human behavior and creating synthetic definitions of words like equity and compensation that have been too narrowly defined. There are lots of other forms of compensation and equity,” Rhee told us during his fireside chat at Catalyst, “The Value of Kindness at Work,” while sharing his story of how he reinvented the plus-sized chain Ashley Stewart by listening, uplifting, and empowering the Black women leaders of the company. “The women that I served were leaders. All I had to do was create an environment with them and listen to them so they could exert the agency.”
Embed diversity and inclusion into your culture and recruiting practices to attract and retain high-performing talent.
Kristin Green, founder and partner of Forerunner, said she always wanted to build a team that could debate around the table to get to better answers, and the best way to do that was to look for different perspectives, backgrounds, and viewpoints.
The Inclusive Finance Playbook from the Investor Leadership Network points to two fronts that lead companies to better attract talent and have higher-performing teams more engaged: (1) fundamental systems, programs, and policies that make work accessible to a wide number of people, and (2) team dynamics that set the tone for employee experience and engagement. These two factors improve a company’s innovation and growth while lowering risks such as employee turnover, litigation, and public scandals.
“Because of our team being diverse and being open-minded and constructive in the conversations we have, we also have a very diverse-looking portfolio. Not only just the companies and what they do but the people who lead them and how they build their teams as well,” she said during the panel, “Building a Successful Venture Capital Franchise in a Post-SVB World.”
The allocators and diverse entrepreneurs who attended Catalyst left with new relationships and connections and an array of tips, strategies, and advice on how to push their companies toward innovation and growth. CalPERS and CalSTRS remain committed to partnering with each other and other industry leaders to share ideas, explore opportunities, and stand up to the challenges of building inclusivity and diversity in the investment industry. This work will allow us to develop world-class talent and build a resilient portfolio that will deliver financial security for our members in a rapidly changing world.