Inclusion and Diversity in Institutional Investment

Investing in Inclusion and Diversity

Inclusion and Diversity (I&D) is an important consideration in investment decisions.

We believe diversity cannot be measured by any single metric and prefer to build a richer picture of diversity across multiple traits and intersections, and across all levels of the firm, including education. Comprehensive data and regular engagement enable us to build a forward-looking view of inclusion, equity and diversity across firms and portfolios more broadly.

Greater diversity typically may beget diversity of thought (cognitive diversity) and wider perspectives. Greater diversity can also make teams more representative of the people on whose behalf they are taking decisions.

Leading research supports our belief that teams with more diversity typically make better decisions and produce better long-term outcomes. Our recent paper, "Diversity in the asset management industry: on the right track, but at the wrong pace”, also found that diverse investment teams generated higher excess returns than less-diverse peers.

Source: WTW Diversity in the asset management industry, 2019, McKinsey, Diversity Wins 2019, McKinsey, Diversity Matters 2015

WTW is evolving its approach to I&D to enable our clients to better understand their portfolios, using I&D frameworks and comprehensive reporting tools. We are also reflecting internally and regularly engaging with asset managers and investors on the topic. WTW is pushing for more data transparency and robust policies, both directly and via industry initiatives.

Inclusion and Diversity has historically sat under the umbrella of Sustainability, and can impact the success or failure of other ESG initiatives.

Our core I&D beliefs

Challenges for investors and end-savers

The Investment industry has historically lacked diversity and progress to date has been slow; investors and end-savers are demanding change.. Many investors are looking to integrate I&D into their decision-making and across all of their portfolio, but challenges remain:

• It’s hard to know where to start. There is no collective best practice and because I&D is a multidimensional issue, there is no cookie-cutter solution. An appropriate approach for one investor/sponsor may not be applicable or attractive to another, so we recommend every client starts with considering their own I&D beliefs and understanding their current position.
• The data available on diversity is limited today. As WTW and other industry participants push for more transparency and gather data, this is likely to increase materially and become more consistent in coming years.
• You have to engage with everyone, including the less diverse teams. Given the lack of diversity in the industry, meaningful implementation of an I&D strategy is difficult if you just chase teams that are already diverse. Alongside seeking diverse teams, we believe we need to engage with the whole industry, supporting some of the largest and longest standing asset managers to improve their I&D.
• It’s hard to define what good I&D looks like. WTW has researched I&D in-depth for a number of years and is able to share with clients our observations.
• Diverse ownership is not a complete solution. Many investors are focused on diverse-ownership of asset managers only. We believe this can represent part of the solution and WTW has a number of diverse-owned managers on our roster, in addition to proactive initiatives to source more diverse-owned strategies. This approach limits your efforts to a very small fraction of the industry, and usually a small portion of your portfolio, reducing its overall impact. It also fails to fully capture holistic cognitive diversity across a firm’s investment processes and decision making so may not reap the full benefits of diversity.

Integrating I&D across WTW’s Investment Processes

We ensure I&D is properly considered across everything we do in Investments.

I&D is a key input into our Manager Research ratings process, leveraging our diversity data, in-depth Culture Reviews, and regular I&D engagements.

We also have a number of tools to ensure our portfolio managers and our clients have a clear picture of diversity in their portfolios and can incorporate this into their decision-making, if desired. Beyond this, we want to effect change across the industry through our involvement in industry initiatives and thought leadership in this important area.