{"id":3888,"date":"2022-03-21T19:27:53","date_gmt":"2022-03-21T19:27:53","guid":{"rendered":"http:\/\/www.cambridgeassociates.com\/?p=3888"},"modified":"2023-12-01T16:18:11","modified_gmt":"2023-12-01T21:18:11","slug":"would-adoption-of-policies-like-the-rooney-rule-by-asset-allocators-encourage-greater-diversity-among-investment-managers","status":"publish","type":"post","link":"https:\/\/www.cambridgeassociates.com\/insight\/would-adoption-of-policies-like-the-rooney-rule-by-asset-allocators-encourage-greater-diversity-among-investment-managers\/","title":{"rendered":"Would Adoption of Policies Like the Rooney Rule by Asset Allocators Encourage Greater Diversity Among Investment Managers?"},"content":{"rendered":"

No. Adoption of policies like the Rooney Rule\u2014a requirement to interview at least one woman or person of color candidate for leadership positions by many companies and institutions\u2014has not substantially improved diversity among leadership ranks. Given this reality, we doubt such policies would encourage greater diversity among investment managers.<\/span> 1<\/a><\/sup> These policies are not created to give hiring preference to diverse candidates but to ensure a diverse pool, which increases the chances of diverse representation, however they can also present risks. One such risk is that diverse candidates lose faith in the selection process if they believe they are invited to interview only to meet an internal goal. Instead, we favor a comprehensive approach that addresses inequities throughout the manager selection process.<\/p>\n

In the asset management industry, some well-intentioned US institutional investors have adopted their own version of the Rooney Rule, requiring them to interview at least one asset management firm majority-owned by women or people of color when considering managers for their investment portfolios. The thinking is that given diverse managers demonstrate comparable performance to their white male counterparts,<\/span> 2<\/a><\/sup> they will be hired if they are included in searches. However, this outcome is not true if the selection process itself is unconsciously biased.<\/p>\n

For success in creating portfolios managed by a diverse group of managers, inclusive practices should be incorporated at three different levels.<\/p>\n

1. Build a Diverse Selection Team.<\/strong> Relationships and networks are influential in the manager selection process. Studies have shown that human beings gravitate toward homogenous networks, so it is fundamental that allocators be intentional about creating diverse teams. A diverse team will have a broader network for sourcing and referencing managers and a better lens to evaluate opportunities.<\/p>\n

2. Cultivate a Representative Universe.<\/strong> Diverse fund managers make up 8.6% of the industry and less than 2% of assets, demonstrating that these managers are underrepresented versus the general population<\/span> 3<\/a><\/sup> and underfunded versus their representation in the industry. To build a portfolio that is at least representative of the available investment universe, asset owners must do more than add a single diverse manager option. Multiple independent studies<\/span> 4<\/a><\/sup> highlighted the ineffectiveness of adding a single diverse candidate to selection processes, as there can be a perception of tokenism and inferiority for diverse candidates. Furthermore, diverse manager representation should ideally be on par with their representation in the broader population so that women and people of color are normalized as candidates.<\/p>\n

3. Correct Implicit Biases.<\/strong> While a challenging task, asset owners must deconstruct and reflect carefully on their own investment selection processes to correct for implicit biases. As an example, investors can:<\/p>\n