New York City Comptroller Scott M. Stringer today announced at the Comptroller’s Annual Investment Manager Conference that the New York City Pension Funds may soon consider staff diversity as a criterion in evaluating and selecting managers.
Stringer says his office will begin administering surveys to determine whether the composition of managers’ boards and investment professionals show diversity, which will then determine which managers are most likely to achieve superior risk-adjusted returns for the pension funds, consistent with the Trustees’ fiduciary duties.
“Diversity is not merely a social value, it has strong economic value for our investments,” said Stringer at the conference. “We want the companies in which we invest to harness the economic and financial benefits of diversity. Now we’re going to ask the people who help us choose where to invest our money to show us that they walk the talk when it comes to diversity.”
As an industry, asset managers are failing on diversity. According to data calculated by the City Comptroller’s Bureau of Asset Management based on the U.S. Equal Employment Opportunity Commission 2013 National Aggregate Report, 83 percent of portfolio managers in the United States are white. A Strategic Consulting Group study found that white men own 97 percent of hedge funds. According to Bloomberg, across the 10 largest private equity firms, women account for an average of 10.9 percent of senior managers.
These figures are an even greater cause for concern because of the body of research which demonstrates the value of diversity in promoting long-term sustainable business practices and investment value and lowering risk:
- A 2015 McKinsey study found that companies in the top quartile of racial/ethnic and gender diversity were 35 percent more likely to have above median financial returns.
- A 2014 study published in the Proceedings of the National Academy of Sciences of the United States of America found that racially and ethnically diverse traders had a 58 percent greater ability to calculate accurate pricing and true value of stocks.
- A 2012 Credit Suisse Research Institute study found that companies with women on their boards delivered higher average returns on equity, lower leverage, better average growth and higher price/book value multiples.
The initiative announced today will create an additional category of investment managers to be known as Diversity Practitioners.
“The New York City Pension Funds intend to help set a standard and push the envelope for how pension funds and asset managers alike engage on diversity on a holistic level,” said Stringer. “As our society and economy become dramatically more diverse, so too must our investors and our investments.
“The opportunities of tomorrow won’t be captured using the business practices of yesterday. Diversity is a fiduciary duty, and these funds are poised to prove that.”