Game Changers: How do asset managers view diversity, equity and inclusion?

Henning Stein:

How do asset managers view diversity, equity and inclusion? Do they embrace it as a source of competitive advantage? Do they recognize it as a means of maximizing performance? Do they see it as a business decision, or something else? Do they understand where diversity ends and inclusion begins?

Henning Stein:

I'm joined today by Tilly Franklin, CIO at the University of Cambridge and Collin Meadows, Senior Managing Director and Head of Digital Ventures at Invesco. We are going to consider these questions because the answers are vital, not only to our industry, but also to our stakeholders.

Henning Stein:

The basic business case for diversity equity inclusion is well known. There's well known research showing the links between diversity, equity, inclusion, and corporate performance on the other side, that first emerged, actually, nearly 50 years ago. But, now the question is, does our industry really reflect that fact that it pays literally and figuratively to give everyone a voice?

Henning Stein:

Colin, you want to go first?

Colin Meadows:

Sure, so I think to your question, I think the industry is starting to recognize it. I don't know that it's been fully recognized. I think, as you've mentioned, there've been a number of studies over the years. I remember one from my old firm, McKinsey which suggested that a higher percentage of women in senior positions in publicly traded companies led to greater returns on equity.

Colin Meadows:

There've been other similar studies like that. In our own experience at Invesco, we've been managing an emerging manager funded fund since the early eighties. I think in its most recent iteration, as we deployed over 800 million in capital to first and second time funds that are headed primarily by women and diverse minorities, and returns have been fantastic.

Colin Meadows:

So, I think the business case is there to be made. I think the opportunity is just, still enormous. So, if you look at just the 70 trillion or so in AUM, in the industry, in the US, just over 1% of that is managed by women or ethnically diverse managers, and so the opportunity ahead of us is large, but I do think that the understanding of what it could mean is certainly there.

Henning Stein:

There seems to be real money behind it. It's not only about values. Tilly, what are your thoughts?

Tilly:

Sure. Well, I agree. I think, this is certainly a topic that everybody's talking about now. If I think back to over a decade ago when I first got into the business of being an asset allocator, nobody was talking diversity really very seriously. I mean, it just was the case that asset management was probably one of the least diverse industries out there, but on the few occasions, back in those days, when I raised it as an issue, people sort of looked at me as though I was talking about some outlandish subject.

Tilly:

Whereas now, I think only a short decade or a bit more later, everybody's talking about it. That doesn't mean that the industry has actually become significantly more diverse. I think there are seeds, as Colin has mentioned, but still, if you look at the UK, which is a market that I'm closest to, and gender diversity, which is an area that I'm closely involved in personally, only 10% of investment decision makers across the board are female at the moment.

Tilly:

So, we still have an immense task ahead of us to increase diversity, but I think the good news is everybody talks about it all the time. And, I think whilst in some cases, in some firms, they may be paying lip service to an issue of the day. There are definitely other firms and managers that I work closely with who are genuinely really trying to take action, and to redress this imbalance.

Tilly:

I think one of the issues that we find though, is that actually the applicant pool is still relatively unrepresentative. So only 20% of applications for entry level investment roles in the UK are from women. So, you can't just sort of say, "oh, the firms need to hire more women." You actually need to go one step further back and say let's inform and empower women and other diverse communities to actually aspire to these roles, because until there are a greater number of applicants we're not going to be able to fix the issue.

Henning Stein:

And, do you see that across the board, because you're referring now to fund managers basically, right? But, Colin was more talking about the firms and the venture firms that are run by emerging managers. Colin, would you share that view, or do you see that there is really meaningful progress in the 1980s if you look back?

Colin Meadows:

So, I think that the progress is beginning. I think from a gender diversity standpoint, which has been a fair bit of the focus, certainly at Invesco, and I'd say across the industry where we're starting to see some progress. I think to Tilly's point, one has to be, firms have to be very intentional and proactive about this. I think for a whole set of reasons, but I think left to their own devices they're not going to have a large pipeline of applicants that are diverse. They have to create those.

Colin Meadows:

I think that investment firms in particular are frankly, well-suited to do just that. It's what, as I've long said, what we do in our day jobs is, we kind of look around corners and discover undiscovered gems, right? In the investment standpoint. I think we can do the same from a diverse candidate standpoint as well, but we have to just focus on it, and frankly insist on it as well.

Colin Meadows:

I think tactically, there's a number of things that that firms can do to make it happen, but it has to be intentional, and it has to be a focus.

Henning Stein:

And looking at Cambridge Tilly, how do diversity equity inclusion considerations shape your work, and shape the work of your team?

Tilly:

Sure. Well, I think there's probably two ways to look at it. One is, how have we gone about building our own team, and then obviously, how do we think about these topics with regard to fund managers that we back. I mean, when I arrived at the firm about 18 months ago, I had to substantially rebuild the team, and we were very, very conscious about trying to introduce different aspects of diversity, gender, ethnicity, socioeconomic, cognitive diversity of all sorts.

Tilly:

So for example, one thing that we did was undertake psychometric testing, and we were specifically looking for people with different psychometric profiles. So, if people were too similar then that would count against me regarding that particular individual to the team. So, that's one thing I think, as Colin said, that we were very conscious about doing, and we've also undertaken unconscious bias training as well, which was extremely helpful, and it's shocking to me to uncover some of the biases that I personally had, because I tend to think of myself as being a reasonably unbiased individual.

Tilly:

But, all of us have unconscious biases, and I think until you actually test yourself and undergo training it's very, very difficult to identify them, and you have to keep these things front and center all the time.

Tilly:

When we interview fund managers now, we do systematically track the composition of their teams. We ask them about what they're doing to address any absences of diversity that there may be, which there very frequently are. And, we also try to provide support to our managers because a lot of times we invest with fund managers that might have small teams. They might not have a ton of resources, so for example, we can introduce them to organizations, both in the UK and elsewhere, who are aiming to introduce different types of candidates.

Tilly:

So here, for example, we have 100 Black Interns. It's been running an internship program for black students. We have Gain which does a similar program for female and undergraduate students. So, there's lots of resources that the fund managers can tap into that we can help them with.

Tilly:

And then, on an annual basis, we actually survey the entire manager roster so that we can actually produce statistics across the endowment about, what is the composition of the teams that we're backing across, all the different axes of diversity, so those are some of the things that we're doing right now.

Colin Meadows:

Henning, I might add on to the comment that Tilly made as well. It does feel like, in terms of progress in the last year in particular, there's certainly, at least in the US been a renewed interest among asset owners in really tackling the broader diversity and inclusion topic, both from a representation standpoint within their organizations, but also just from a capitalist standpoint, in terms of directing dollars to underrepresented communities.

Colin Meadows:

And so, one of the things that Invesco has participated in is something called the Corporate Call to Action, which was really sponsored by the CIO and treasurer of the state of Connecticut. But, essentially he brought together all of the asset managers that serve the state, which is basically all the big ones, and there's something like 21 trillion of combined AUM that's represented as part of this coalition.

Colin Meadows:

And the real focus is on both looking internally in terms of, what are we doing to be more diverse, to be more representative, to be more inclusive within our own firms. And then looking externally, making sure that from an asset allocation standpoint, that we're addressing these issues as well. And, I think that's not something that I'd frankly seen before in my career. It's not something that I would have expected to ever occur, but it's happening now, and I think that there's real energy behind this topic, honestly, that's in many ways unprecedented.

Henning Stein:

That's wonderful. [crosstalk 00:10:20]

Tilly:

No, I totally agree, and [inaudible 00:10:21] and just this morning I got an email from an asset manager that we work with who had an all male team, who's just told me that they've been really focusing on trying to increase gender diversity. And they're just in the process of a late-stage interview with a female investment analyst. There's no magic bullet. I think it's just on the ground, a bit piece by piece, person by person. You have to make these changes.

Henning Stein:

And do you think, I often hear about diversity of thought, and we talk a lot about this at Invesco, right. Do you think that's linked to all of these other diversity forms, gender diversity, ethnic diversity, or do you think there's something separate like, diversity of experience, for example, is different from gender diversity say maybe, Colin

Colin Meadows:

So look, I do think diversity of thought as a catch-all for the importance of diversity, I think is helpful. I don't think it can be... I think sometimes it's often used as an excuse for why there isn't more diversity from various groups, but I think if taken authentically, I think it can actually be helpful, because that's the ultimate goal, right?

Colin Meadows:

So the point of both gender and ethnic diversity and ensuring that you have representation in the rooms of decision-makers when decisions are being made, the reason that anyone does that is, they bring different experiences, right? Which presumably helps to create better answers, right?

Colin Meadows:

And so, I do think that again, if taken authentically, right? That is a very noble thing to do, and it's why we would encourage that. I think again, firms have to be, and organization have to be quite conscious of ensuring that it actually happens. And not just that the folks in the room are diverse, but that they are being heard, that they're being encouraged to speak up, that their thoughts are being valued and reinforced, and that the folks who are managing, are ensuring that that happens. And I think when you do that, then that diversity of thought engine is actually really working as it's intended to in theory.

Henning Stein:

Right. Tilly, what's your experience with diversity of thought?

Tilly:

Yes, well there's a wonderful book that you guys probably have read. It's one of my favorite books called Rebel Ideas by Matthew Sayed, which draws some of the parallels, and also some of the distinctions between the more classic axis of diversity that we've talked about, and diversity of thought itself. And obviously the two are very closely linked, but also are distinct in their different ways.

Tilly:

I think in terms of the linkages, one of the reasons, or should we say excuses that I often hear for lack of diversity in teams in the industry is people say, "well, we want to hire candidates with a background in STEM, or science and maths, or engineering." Or, " we only hire people who have done two years investment banking."

Tilly:

And then if, for example, women are less represented in the STEM subjects, or they may be less represented in investment banking analyst classes then people say, "well, therefore we can't hire them because there aren't enough of them."

Tilly:

But, you have to ask yourself, well, why do we need to have graduates with a STEM background? Why do people have to have necessarily two years of investment banking experience? Why couldn't you hire a languages graduate or a geography graduate? I mean, I studied English literature, for example. I'm just one person, but it hasn't prevented me from working in a very quantitative field.

Tilly:

So, I think people just need to be a bit more creative and try to, again, unpick. They have to ask themselves why. Why are we doing this? Why can't we open the filter, as it were? Open the funnel, because I think until the funnel is more open, you're not going to get either diversity of thought or diversity of backgrounds.

Colin Meadows:

That's such a powerful idea because just in my own experience. So, I started my career at McKinsey like you did as well, Tilly and [crosstalk 00:14:07]

Tilly:

[crosstalk 00:14:07] diverse as it happens.

Colin Meadows:

It wasn't very diverse, but at the time that I joined, which was in the mid nineties, right? The profiles of consultants were pretty much the same, all MBAs from a certain set of schools. And, I think the firm concluded that they were only going to get so far in terms of growth if they kept such a narrow funnel. So they said, "listen, let's expand." Right?

Colin Meadows:

So folks who have their degree, but from non-traditional backgrounds, I myself and some of my peers at the time, I was a law school graduate, there were medical doctors, others, right? But it certainly challenged that ingoing ethos that says everyone has to come from the specific MBA program to say, look, we can find talent elsewhere and we can train them on the nuts and bolts of being a consultant, and that worked, right? I had a good career, and you can see others went on even further, certainly than I did.

Colin Meadows:

And, I think we can bring that same thing to asset management as well, not just challenging the places where we kind of recruit and hire from, but even as we're looking at those firms that looked to stand up and sponsor new managers and support them. Everyone doesn't have to come from the same three firms, right? Because, if you do that you're almost by definition going to have a very, very, very narrow and homogenous funnel. But if you can look for the core skills that are important, right, and that are being developed by other means, right? I do think that there's really an opportunity to open the aperture [crosstalk 00:15:34].

Tilly:

Yeah, and I think sometimes people who come from a slightly different route can actually be hungrier, or more hard working in a sense. I had a really interesting conversation with one fund manager a year or so ago, who's firm had traditionally recruited from a small number of schools in the US, and then they found it very difficult because they were competing with everybody else for those particular graduates.

Tilly:

And they said, "well, let's actually go to the next tier of schools." In terms of the ranking of those schools, but look for the top graduates in the next tier, because those people have worked harder and they're not necessarily getting called on by every single asset management firm in the land. So, if you haven't studied a subject, you need to teach yourself, so maybe you're more motivated to do that, or maybe you developed some insights along the way. So I think it's really interesting.

Henning Stein:

Yeah, and you mentioned at the beginning, Colin, the pure returns of emerging managers that you observed, maybe we can talk a little bit more about this meritocracy aspect here, and how to square basically diversity equity inclusion with returns, with meritocracy from an organization, from an asset management perspective, any ideas?

Colin Meadows:

Sure, Yeah. I think that it is squared, right? I think where people get troubled is where there's this, a belief or that if we focus on diversity, we won't get the best folks, and therefore this idea of meritocracy will go out the window.

Colin Meadows:

I fundamentally reject that because I don't think any serious person is talking about things like quotas and so forth, which I think do lead to un-meritocratic outcomes. I think what we're talking about here is ensuring that at every stage of the funnel or pipeline, that the diverse voices and representation is there.

Colin Meadows:

And so I think in particular with things like, if you're looking for diversity amongst your senior management ranks at an asset management firm, right, you've got to ensure that you're getting diverse candidates at the front end, that they are being given the same amount of training and mentoring as everyone else, that they're given the same promotion opportunities as everyone else. And in my view, if you do those things well the rest will ultimately take of itself, and you'll get outcomes on the backend that are by definition meritocratic.

Colin Meadows:

I think what also often happens is the hard work is not done on the front end, and then we look at the outcomes on the backend and say, "well, we haven't been able to be successful." And I think that's where we have to really challenge ourselves to ensure that the processes are very much there.

Colin Meadows:

And so certainly at Invesco, that's one of the things that we're focused on, particularly at those early stages, both at the recruiting standpoint, and at the early promotion standpoint. I do remember seeing something quite recently that suggested that there's, in many cases, they've broken wrong at the first stage of promotion for diverse young managers, and that because they are being passed over or missed for that first promotion, they never get to that second, third or fourth one. And so, I do think the intense focus around those types of things, I think can ultimately go a long way towards solving the problem.

Henning Stein:

And Tilly, would you agree with that declaration?

Tilly:

Yes. I definitely stand with Colin in terms of rejecting the idea that you can't have meritocracy and diversity equally and strongly. I think if you go back to one of the points I made at the very beginning, in terms of doing the maths though, I mean, if only 20% of applicants for the role are female, but we say, "well, we have to have gender parity in class intake." Then, of course you do have a problem because you're trying to get 50% of the class out of 20% of the applicants.

Tilly:

So, you need to go back a step further and say, "well, what is it about this industry that's failing to inform, or failing to inspire the population that we're trying to attract." You need to get the message out there. You need to send envoys into the colleges and the high schools, and get people excited about what you're doing at a young age, so that then they are going to apply. And then, eventually once you have parity in terms of the candidate pool, then you can just select the best candidates from that pool equally.

Tilly:

And, I totally agree with the point that then after that, you need to make sure that you're not just losing people, because there is a tendency that we all have to want to be with people who are like us, right? You have a lot of confirmation bias in interviews. You have confirmation bias in terms of evaluations, performance evaluations and the like.

Tilly:

So, another thing that we do on our own team, for example... And then McKinsey was good at doing this, I think. It's being very specific about the kind of behaviors and skills that professionals need to develop in order to progress. And then, really coming back to the facts and not letting whether that person is like us, or has the same interests as us, or a similar personality to us bias us in terms of how much time we want to spend with that individual, but looking at their skills, their attributes, and their experiences that they've developed during the course of their tenure in very factual way and providing the support that they might need if they haven't managed to develop those skills, because it might very well not be down to any omission on their part. It might just be that again, it might just be a self-reinforcing cycle that they haven't been invited onto the right projects. And we need to make sure all along the way that opportunities are being provided and then the results of those opportunities are being judged on the basis of the facts.

Henning Stein:

Right. And, and that's basically the inclusion part, right? To work on all [inaudible 00:21:16] diversity, and equity. And then you have to have that inclusive culture where everyone is heard, right?

Henning Stein:

I think we all agree progress is being made here, right? But more remains to be done, and looking ahead, Colin, maybe what should we be aiming for to achieve, and what's likely to be the biggest barrier for the foreseeable future?

Colin Meadows:

So a couple of thoughts I would share and then maybe reflect a little bit about some of the work that we've done at Invesco over the last couple of years. I think that the first is almost like an ethos, which is this idea of bringing our whole selves to work, which is in some ways kind of a radical idea, particularly in fairly homogenous industries like asset management, right?

Colin Meadows:

But it goes back to this idea that the whole is at its best when everyone is bringing their best to the job. And that's how you start to get this reinforcement from a diversity of thought standpoint. I think you have to have systems in place to ensure that. I think Tilly mentioned unconscious bias as being one of the blockers for that happening. One of things we've done at Invesco is mandated unconscious bias training for every manager, and the point of that is to ensure that you're not unconsciously stifling voices that frankly need to be heard. And on the flip side that you're actually actively seeking them out. And I, do think that there's real power in that, and that ultimately makes for a better firm. So that's around ensuring that it's okay to speak up.

Colin Meadows:

We've also, I think in making it okay, and frankly encouraged to challenge ourselves on diversity is important. And so I think frankly, the conversation that has been had certainly over the last a year, year and a half, I think has been healthy towards that as well.

Colin Meadows:

And so look, I do think that those things are important. Ultimately though, you do have to start to... We're managers, and so, you've got to measure things and then you've got to manage towards it.

Colin Meadows:

Again, I don't think we want to be to a place where we are kind of mandating outcomes, but I do think being really intentional about the inputs to the process, diversity interview panels, diverse candidates, slates, et cetera, I think are crucial tracking how diversity is occurring as people move through the organizational pipeline is frankly crucial. And ensuring that at that first rung of promotion, that if we aren't seeing the representation that we think should be there, that we're challenging ourselves as to why, not to force the outcome, but to understand what's happening and maybe steps leading up to it.

Colin Meadows:

And so look, I think those are the things that all organizations need to frankly, challenge themselves on. I think if we do that systematically, this will have a major impact.

Henning Stein:

Right, and Tilly, when we spoke previously, you mentioned the need to turn perceptions on their head. Can you tell us more about that?

Tilly:

Well, I do think yes, that the industry tends to throw it on the diverse populations to get their act together and apply to work in the industry. Actually, if the industry is kind of unappealing to certain populations, maybe it's the industry itself that needs to do something a bit differently.

Tilly:

So, I do think that that is beholden upon the asset management industry and all the participants to actually get to the bottom of, and if they do have very unrepresentative populations of candidates, for example, applying to actually challenge themselves and not just show it back on those populations to change their own behavior. It's the industry that blatantly needs to change because it is currently so un-diverse, and again, you can only do that one candidate at a time.

Tilly:

I mean, in terms of how will we know that we've succeeded, obviously the statistics will tell a story, but I think there's also a point that Colin sort of alluded to, which is that it's also no good having diverse populations if people don't feel empowered to actually speak up, because one of the benefits that you introduced this session with right at the very beginning, is the benefit of having different perspectives. But if diverse groups come together, but then for whatever reason, because they may feel intimidated or they don't feel empowered, don't feel they can actually speak up, disagree, dissent, offer their contrary opinion. Then the business benefit that we started off with will have been lost.

Tilly:

I mean, there were some famous studies that showed that in certain air crashes, copilots were so intimidated to speak up and disagree with the pilot that they'd almost rather that there was a crash then to dissent, which is really something that we can think of as quite a good analogy for investment decision-making, I think. So, we have to accept that sometimes it might be quite uncomfortable. If we're all disagreeing, it might not be as pleasant as all agreeing, but we're going to come to a better decision. We can have a better investment outcome if that's the case, as long as it's of course constructive.

Colin Meadows:

Right? If there's a psychological safety environment, right? [crosstalk 00:26:54].

Colin Meadows:

Tilly, Colin, thanks for joining me today, and for delivering this positive message about a crucial issue. I think one thing that's clear from that discussion, I just listened to is really, we have a real important part to play in advancing that cause, and we said [inaudible 00:27:11] Gain is obviously an initiative that deserves support. I know it has already had a great impact during the past few years, but as we've heard today, there's always more that can be done, and you can learn more about Gain by visiting the website, address it's on the screen now. Please check it out. Many thanks for watching Game Changers. We hope to see you again soon.