Why diversity is important: Calif. funds

“Our goal is to build a more diverse and inclusive investment industry culture with a specific focus on current CalPERS and CalSTRS external investment managers and staff,” enthused Ben Meng, CalPERS CIO speaking after the recent 2019 CalPERS and CalSTRS Diversity Forum.

The two California-based pension funds, with a combined assets under management of $580 billion, invited over 400 attendees from academia, business, and investment to Sacramento to explore the connection between diversity, human capital and performance, touching particularly on how diversity and inclusion drives value both in investment management and corporations.

In a series of engaging keynotes and panels, the forum celebrated best practice and new research and gave participants tangible next steps on how to increase diversity within their workplace and fresh momentum to push the diversity cause.

“The Forum is an opportunity for investment professionals to come together and collectively address a challenge that we as an entire industry face,” said CalSTRS CIO Chris Ailman.

The investment industry’s lack of diversity remains a critical issue, not only morally but also for its own long-term success, given the wide recognition that diversity of thought leads to better risk adjusted outcomes and better investment decisions.

Yet Ailman, who oversees a strategy that includes around $12 billion AUM with emerging managers (equivalent to around 10 percent of the fund’s externally managed assets) and an internal headcount whereby half of CalSTRS non-administrative investments staff identify as ethnically diverse – important since around 50 percent of assets are managed internally –  insists the diversity message is getting through to the industry.

“I’m not seeing any fatigue, just the opposite,” he said, crediting particularly the efforts of the CFA Institute’s Diversity & Inclusion project.”

As a unique addition to this year’s event, the CFA institute led workshop sessions focused on giving participants the chance to work with their industry peers to generate and share ideas around improving diversity and inclusion in their own firms.

Similarly, Meng and his team also note continued progress.

“While we cannot speak for the whole investment industry, the external investment managers we talked to in preparing for the forum seem more concerned and engaged on diversity than they were two years ago. Managers are developing and implementing new diversity and inclusion initiatives and increasingly using data to better determine what is working and what is not,” he said.

Leadership from the top

Leadership from the top is a key solution to solving the diversity problem, said Meng.

“Commitment to diversity and inclusion from senior leaders fosters an inclusive and respectful culture, increasing the pipeline at all levels.”

According to CalPERS website, 44 per cent of the pension fund’s executives are female, 40 per cent of its senior leaders are female and 70 per cent of its team leaders are female. Data collection and reporting, and continued research are also important tools, he adds.

“Asking about human capital topics during the due diligence process for new mandates for external managers sends an important signal from asset owners to asset managers; asking about how the external managers ensure diversity of thought in investment decision-making is important.”

It’s not only leadership. Diversity must be embedded in beliefs, said Ailman who argues that diversity and inclusion must become a core value and “the norm” supported at the highest levels in all sectors of the investment community.

“This same standard should be applied whether examining makeup of corporations or looking for the next asset manager.” However, he does note that diverging definitions of diversity muddy the water. “The definition of diversity is evolving, and no two people have the same definition. Organizations need to identify what diversity means to them. Once this crucial step is complete, organisations can then better focus their efforts and more effectively measure results.” Diversity is a long-term commitment where change doesn’t occur overnight, he concludes.

“We hope that after the Forum, attendees will return to their respective organisations with renewed conviction to move towards a highly diverse and inclusive workforce.”