Diverse asset management study stymied by nonparticipation

How diverse are the asset management firms managing the endowments of the 50 wealthiest U.S. colleges and universities? That’s a question the Knight Foundation set out to answer—but one that remains unclear, since 34 of the 50 wealthiest institutions aren’t willing to talk about it.

The research, which looks at the top 25 public and top 25 private universities, provides an incomplete picture, given the underwhelming participation of institutions. Four colleges self-reported data, leaving only 12 universities that provided asset manager rosters to the researchers.

But if an answer can be pulled from the limited data: their asset management firms are not very diverse at all.

The study, released Thursday as an interim report due to the lack of comprehensive data available, was a joint effort by the Knight Foundation and the New York University Stern Center for Business and Human Rights. It relied on research conducted by Global Economics Group, a business management consultancy.

Unpacking the Study

Among the 16 universities that participated either partially or fully, there are significant differences in diversity. According to Stanford University, which self-reported data, 38 percent of its assets are under management with diverse firms—the highest reported figure of any institution in the study.

Duke University, which fully participated by sharing its asset management rosters with researchers, has 32.1 percent of assets in the hands of diverse firms.

On the opposite end of the spectrum, diverse-owned firms manage 6.6 percent of Rutgers University’s assets and 10.3 percent of Michigan State’s.

The report includes statements from some colleges explaining their commitment to diverse firms. Others opted to explain why they chose not to participate; their reasons include lack of personnel to gather the information and an inability to share proprietary information. Some offered no comment at all.

“Diversity, equity, and inclusion are core values at Stanford University. Stanford Management Company (SMC), a business unit of the University, is fully engaged in Stanford’s diversity initiatives and has its own [diversity, equity and inclusion] Action Plan that can be found on its website. SMC is committed to increasing diversity among its staff, expanding upon the existing diversity of the endowment portfolio, and contributing to diversity in the asset management industry,” Stanford said in a statement included in the Knight Foundation report.

Duke did not include a statement and did not respond to a request for comment.

“At Michigan State University (MSU) we believe that diversity, equity and inclusion must be upheld at all institutional levels,” read a statement included in the Knight Foundation report. “MSU Investment Office continuously seeks to identify a diverse pool of investment funds, however we do not select investment funds based on identity. MSU is bound by the Michigan Constitution as amended by the passage of Proposal 2 in 2006 and upheld by the U.S. Supreme Court in 2014, which prohibits Michigan public universities from providing preferential treatment to, discriminating against, or protecting any individual or group based on classifications in the operation of public employment, public education, or public contracting. Therefore, every academic and administrative unit at MSU must honor these principles; the MSU Investment Office is no exception. While Proposal 2 prevents discrimination and preferential treatment, it in no way negates our ongoing and fundamental commitment to DEI.”

Despite its low numbers, Rutgers pointed to the importance of DEI in its statement.

“Rutgers University is committed to developing a more diverse, equitable, and inclusive environment. The university recently released its first diversity strategic plan, which identifies concrete steps toward charting a more inclusive path forward that models excellence for the institution. Rutgers acknowledges that there are many factors, including ownership, that should be accounted for when assessing the diversity of our investment partners. Factors such as the composition of executive leadership and persons in investment decision-making roles, for example, are also critical evaluation components,” Rutgers said in the report. “Diversifying our portfolio improves when taking these considerations into account. An important component of advancing diversity in the investment management industry is accomplished through the recruitment, development, and retention of new professionals. We monitor the diversity of our partners at all levels of their organizations to understand how they evolve over time.”

A Lack of Transparency

Outside observers as well as those involved with the study criticized the lack of institutional participation, arguing that providing such data yields valuable investment insights.

“We know that a number of university leaders are working to identify and include high-performing diverse-owned firms to manage endowment funds. But the paucity of reliable data on the ownership of investment firms makes it all but impossible to accurately chart progress or to motivate reluctant schools to do more,” Michael Posner, director of the NYU Stern Center for Business and Human Rights, said in a news release accompanying the study.

Some observers were more pointed in their criticism.

“While this study shows signs of progress, it also illuminates how far we have to go. For one, 34 institutions, representing $273 billion in assets, declined to participate. It’s absurd that in 2022—when so many institutions have finally committed to transparency—such a large number of schools still refuse to report their diversity figures,” Robert Raben, executive director and founder of the Diverse Asset Managers Initiative, said in a news release addressing the interim report.

Raben noted by email that even for the colleges reporting the highest percentage of assets managed by diverse firms, there were still a lot of unanswered questions. Though institutions such as Stanford and Duke have strong diversity representation in this area “relative to the field,” he noted that “we have zero idea what’s behind that number. Is it all or mostly white women? Is it LGBTQ? South Asians? We know from other sources that the numbers for Black and Latino/a managers are vanishingly small, which is the core problem. So, first, the universities need to disaggregate the data so we can see exactly what’s going on.”

Asked about colleges on the other end of the spectrum that lack representation—such as Rutgers—Raben was critical.

“It’s typical, and terrible,” Raben wrote. “It likely means … that 93.4% of the entire endowment is managed by white men. In what sector is talent almost uniformly distributed only to white men? No field, and asset management’s vestigial exclusions of women and people of color is costing them returns. If you’re not working with all the talent, you’re missing out on returns.”

Though the Knight Foundation uncovered limited diversity among higher education asset management, insights from the National Association of College and University Business Officers offer a more positive outlook, noting that many colleges are crafting policies to address such concerns.

“Over the past two years, we have seen some slight increase in interest among colleges and universities for using diverse managers,” Ken Redd, senior director of research and policy analysis at NACUBO, wrote in an email. “From fiscal year 2020 to 2021, the share of institutions that said they have a policy of considering the hiring of investment managers owned by women or people of color grew from 5.8% to 7.7%, according to our NACUBO-TIAA Study of Endowment (NTSE) series. The growth was somewhat more noticeable at private colleges and universities, where the share with a policy of considering diverse firms grew from 6.8% to 10.2%.”

Long-term trends around diversity are unclear, Redd explained, since the survey question has only been included in the NACUBO-TIAA Study of Endowment series for the last two years.

Redd encourages institutions seeking to enhance diversity in asset management to engage their governing boards on the matter and get buy-in, update their investment strategies to include diversity goals, and consider bringing in outside consultants who have a strong sense of the landscape and can identify diverse firms.