Progress on diversity across the investment industry has been too slow, according to Willis Towers Watson, as it has warned it may downgrade asset managers who are not making an effort to improve.
Willis Towers Watson has found a positive link between diversity of investment management teams and performance outcomes, as outlined in a new research paper on the industry.
The company, which has implemented its own measures for improvement, has also said it keen to engage with asset managers who are working to increase their diversity. But those who fail to encourage greater gender and ethnic diversity or do not respond to growing asset owner expectations could face a rating downgrade, a measure previously taken by Willis Towers Watson.
The group has urged for a faster pace of change on diversity across the industry and laid out an action plan, promising better investment outcomes.
The new white paper has called for a number of measures, including greater transparency and disclosure, increased sourcing of diverse talent, deeper metrics for diversity, the removal of requirements that may exclude diverse funds or firms and progressive compensation structures and policies with flexible working arrangements.
It has also urged for a shift away from a “start portfolio manager model” to a team-based approach, as well as a focus to improve racism, sexism and other biases resulting from internal policies, training and networks.
Asset owners and investment consultants have also been called on to establish targets to increase the diversity in portfolios, with an expected associated improvement in performance to follow.
Chris Redmond, head of manager research at Willis Towers Watson said addressing the issue of poor diversity requires a “collective effort” and for many, a “fundamental change in mindset and culture”.
“Although some of these efforts will take time to bear fruit, as an industry we need to be challenging ourselves to do more now,” Mr Redmond said.
“Improving diversity is key to building a stronger investment industry, and our initial findings show that it is positively linked to performance outcomes.”
Willis Towers Watson has also set out to improve itself, having established actions to encourage the use of a more diverse set of asset managers in its clients’ portfolios, with an expectation that the measures will improve end-saver outcomes.
The company’s manager research team is targeting a rise of 20 per cent in discovery meetings (where it seeks to identify asset managers it doesn’t currently work with) with firms that have a diverse investment team.
It also has signalled it expects to increase its allocation to diverse investment teams within its delegated portfolios as it believes this will lead to better investment outcomes allowing for risk.
Angela Brown, senior investment consultant at Willis Towers Watson in Australia commented: “We recognise that businesses are at different points in their diversity journey today and these proposed actions are just the starting point upon which the industry can build.
“While we recognise the challenges that lie ahead, we strongly believe that by taking these steps, the investment industry can take a crucial leap forward in better reflecting our society and delivering better performance outcomes for savers.”
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].