A new report from WTW has highlighted the significant impact that diversity has on investment outcomes.
The report found that investment teams with a greater level of diversity outperform those with lower diversity levels by 45 basis points per annum in terms of net excess returns.
WTW’s analysis of data from over 1,500 investment strategies also revealed that equity and credit display a gender diversity premium of 46 basis points and 14 basis points, respectively.
“There has undoubtedly been progress made on diversity by many asset managers in recent years, but the fact is that the pace of change at an industry level is still slow and disappointing,” commented WTW head of manager research, Chris Redmond.
“We are hopeful that the truly extraordinary investment performance benefits linked to superior diversity can serve as a catalyst for acceleration.”
In its report, WTW determined that many asset management firms are lagging in their efforts to increase diversity, equity, and inclusion (DEI).
Data from over 400 asset management firms showed that only 42 per cent currently have measurable objectives in their DEI policy, while almost half (49 per cent) have no targeted initiatives to attract more diverse talent to senior positions.
The report highlighted the need for firms to expand data collection across other inherent and acquired traits of diversity such as disability, sexual orientation, socioeconomic diversity and neurodiversity.
“The long-term success of DEI requires asset managers, investment consultants and asset owners to collectively commit to change,” said WTW head of manager research Australia, Simon James.
“Our research and portfolio management processes now explicitly consider DEI factors. We have leveraged years of DEI thought leadership from the Thinking Ahead Institute and our own research teams to set clear, implementable, universal standards for the asset management community.”
In response to the findings, WTW has announced plans to launch the WTW Diversity Index, which will allow investment strategies to measure and compare their diversity to peers and determine their optimal diversity level.
Meanwhile, the firm also found no significant relationship between organisational size and diversity across ownership or senior leadership, which it said indicates that larger firms are not always able to appoint specialist resources or implement more DEI policies and initiatives.