The CFA Institute will work with 30 asset owners and managers as “experimental partners”, implementing diversity and inclusion action plans in their businesses.

Over a two-year period, the partners will liaise with the CFA Institute in implementing diversity and inclusion action plans, with the aim of the process to be a guiding light for other investment firms to follow.

It marks the second phase of a project by the CFA Institute responding to demand for greater diversity and inclusion in the investment management industry.

In September last year the CFA released a guide, Driving Change: Diversity and Inclusion in Investment Management,which included 20 action plans for investors to use in a bid to increase diversity and inclusion.

The guide was developed following a series of workshops – with 344 participants from 99 companies representing $38 trillion in assets – where they discussed what they are currently doing when it comes to D&I, what has been effective and ideas for improvement.

Rebecca Fender, head of the Future of Finance initiative at the CFA Institute, said what the workshops revealed is that there is no best practice in the industry when it comes to diversity and inclusion.

“We were well positioned to use our convening powers to bring people together and uncover best practices. What we found is they don’t really exist yet,” she said.

“This is a generally competitive industry and this is a topic where people want to work together.”

Experimental partners, which include VFMC in Australia, will choose up to three of the 20 action points to implement over two years. There will be quarterly check-in calls with the CFA Institute to learn about what is working in their own firms, and also with the other partners.

“We don’t want this to be a compliance exercise but we want our partners to choose what works for them and figure out who’s responsible, what metrics they will look at, and what their action will be.”

A steering committee for the CFA’s diversity and inclusion workshops included Chris Ailman, CIO of the $214 billion CalSTRS, which has been a leader in diversity and inclusion in the investment industry.

In the past year every CalSTRS staff member has participated in a diversity and inclusion training class, and it was one of the first funds to develop a long-term business plan to expand the diversity of the management of investments. Since 2007 it has produced an annual report of its diversity efforts.

“I believe human capital is the most important asset in the investment management industry.  Diversity of people brings diversity of thought and that leads to better risk adjusted outcomes and better investment decisions. Therefore, diversity is critical to our industry and a key requirement to improving results,” Ailman said.

“Group think within the markets and finance industry has led to some catastrophic failures and losses. Group think of similar people with similar life experiences, educations, and location has failed to pick up exogenous risk time and again. Diversity and inclusion will not stop all failures, but it will open the environment to ask more questions, consider risks differently and in the end lead to better decision making and better long-term outcomes.”

Within the investment team at CalSTRS there is 50/50 gender diversity. Within the top investment management ranks it is now exactly 50/500 gender diverse, with roughly 40 per cent minority and 60 per cent Caucasian in ethnic diversity.

Industry action

Fender said a number of forces in the industry were driving the demand for more diversity. These include the move away from the star portfolio manager to team-based decisions, and the acknowledgement and willingness to change inherent biases.

“It has been a topic of interest for many asset managers coming to the CFA Institute to ask how to get more diversity. They want to hire the best and brightest without constraint,” she said. “It is also driven by asset owners which have diversity and inclusion as a priority and see it as a way to bring values to investing.”

Of the current CFA charterholders only 19 per cent were women. However, Fender, who is a CFA, said about 40 per cent of the candidates currently sitting the CFA are women. In China that figure is closer to 50 per cent.

“This is a view into the trend and the supply side of labour in the industry,” she said.

As a collective, CalsTRS’ Ailman says there is plenty the industry can to do improve its score on diversity and inclusion, which he describes as two Ms and three Ps.

“First Measure and Manage diversity as a critical part of human capital management efforts. Just as we would not hesitate to measure and manage the diversity of our portfolio risk, we need to do the same with our investment teams,” Ailman said. “Second; Pipeline, Parity, and Promotion.  We need to continue to build the pipeline of young talent across the globe, our industry has a terrible image from TV and Hollywood. Second, we need to be very, very conscious and intentional about Parity of the duties, opportunities and salary. Lastly, promotion – we need to be intentional about diversity and promote it within our firms and across our industry.”

Some of the action points in the CFA’s paper include mentorship; tying leadership level compensation to culture and diversity metrics; practicing business diversity for example when selecting managers ask consultants to propose a diverse slate of firms; and using creative training techniques to uncover biases.

Fender said the most basic, but foundational, of all the action points was defining what diversity means for the organisation, and why it matters. For most of the workshop respondents diversity matters because it can improve business outcomes.

The CFA Institute, which itself is an experimental partner, uses the definition of the centre for global inclusion.

“I sit on our internal D&I council as well and we have thought carefully about this. We used a definition that is very broad, and want to create an inclusive environment where everyone can do their best,” she said.

Storytelling is also an important tool, and one of the least traditional on the action point list, Fender noted.

“Storytelling can be powerful in bringing the quality aspect to culture. It is hard for culture to be just about quantitative aspects. The industry needs to showcase more of its good practices,” she said.


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