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Asset managers have been informed to address the lack of diversity in their workforce, or to risk losing clients through a group of UK pension funds and investment consultants who jointly oversee more than £ 1 million in assets.
The group, which includes the UK pension scheme Nest and the Church of England Pension Board, has signed a new charter committing them to include factors such as gender and ethnic mix in their decisions on which fund managers win contracts to manage money.
The move comes as the fund industry struggles to lack of women and non-white people in the sector, especially in investment functions. Although asset managers do outspoken on the need for companies in which they invest to increase diversity and have campaigned for the termination of male boards, the sector itself is repeatedly mentioned “pale, masculine and old”.
Morningstar data shows there are more men in the UK calling men Dave than by women. The Investment Association, the UK’s asset management trading body, has found in separate research that less than 1 per cent of UK investment managers are black.
‘The progress in the investment industry has been very slow. Despite numerous initiatives, we still see a lack of diversity, ”says Helen Price, managing director at Brunel Pension Partnership and a key figure behind the charter.
Guy Opperman, Minister of Pensions and Financial Inclusion, welcomes the charter and adds that asset managers need to be ‘more representative’ of savers.
The charter was designed by several of the UK’s largest pension schemes, including RPMI Railpen, West Midlands Pension Fund and Lothian Pension Fund. It is also supported by various investment consultants, who advise pension funds and other clients on where to invest their money.
According to the charter, diversity questions will form part of the overall assessment statement for each fund manager when they want to win a new contract or mandate for money management. This means that they will have to disclose information about the diversity of their workforce, something that many have been reluctant to do in the past.
Price said the “events of the past year”, particularly the murder of George Floyd in the USA, meant that diversity in many pension funds was ‘before and in the middle’.
She added that information on race, age, ethnicity, sexuality and socio-economic backgrounds “is not consistently collected in a way that equips the industry to identify barriers and make significant progress”.
“We expect fund managers to manage diversity as a significant investment issue, but we question how well they do when they do little to address it in their own organizations,” she added.
Research last year by Willis Towers Watson, the investment advisory firm, and looking at more than 2,400 individual investment teams around the world, found that diverse groups performed better on average by 20 basis points per year than employees without gender or ethnic minority.
Diandra Soobiah, Head of Responsible Investment at Nest, said: “With a diverse range of skills, backgrounds and experience, it will lead to better investment decisions and financial outcomes for our members in the long run.”
The charter has developed a questionnaire that signatories can use. It currently focuses on ethnicity and gender diversity, but is being extended to other statistics such as socio-economic background.
Signatories also commit to the inclusion of diversity as part of the ongoing monitoring of investment managers.