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Asset Management: Firms W/ Diverse Ownership 'Under-Utilised By Institutional Investors'

Posted on May 8, 2017 at 10:10 AM

Firms owned by women and minorities manage only 1.1% of total assets under management, according to a new study of diversity in the $71.4 trillion dollar asset management industry. But it says that firms with diverse ownership are under-utilised by instiutional investors.

The study, which says it is the most in-depth to date on ownership diversity within the asset management industry, is accompanied by an initial analysis which  found no statistically significant difference in the performance of these diverse-owned asset management firms and their peers.

Commissioned by the John S. and James L. Knight Foundation and led by Josh Lerner, chair of the Entrepreneurial Management Unit and the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, and the Bella Research Group, the study examined four segments of the industry. It grew out of Knight’s efforts to diversify its endowment investments.

Knight has deliberately moved $472 million of its endowment – or 22% – to management by women- and minority-owned firms in the past decade, with no compromise on performance, it said.

Looking at mutual funds, hedge funds, private equity funds and real estate funds for this study, it found that the number of women- and minority-owned firms ranged from 3% to 9%, and assets under management ranged from below 1% to 5%.

“This study, and our experience, confirm that there is no legitimate reason not to invest with diverse asset managers in the 21st century,” said Alberto Ibargüen, president of Knight Foundation.

“Diverse-owned firms are underutilized by institutional investors,” said Juan Martinez, Knight Foundation CFO. “We made a conscious decision to change our approach—and we urge our colleagues to do the same.” (my emphasis)

The study noted that more complete data on diversity in the asset management industry would help effect change.

“In an industry that thrives on data, we need more and better information on diverse ownership,” said Professor Lerner, managing partner and co-founder of Bella Research. “But the more we learn, the clearer it is that there are vast and hard-to-justify disparities in asset management.”

  Professor Josh Lerner, Harvard Business School

Diverse Asset Management Project: Firm Assessment  May 2017

Authored by Professor Josh Lerner, Harvard Business School and Bella Research Gorup.

Categories: Behaviour, Governance, Scrutiny