An investment team with a greater level of diversity leads to better investment outcomes, according to WTW.
WTW’s new paper, Diversity in the asset management industry: on the right track but at the wrong pace, data shows that investment teams in the top quartile of gender diversity outperform the bottom quartile by 45bps per annum in terms of net excess returns.
The diversity data, gathered from more than 1,500 investment strategies, has also been segmented by asset class. The research reveals that equity and credit both exhibit gender diversity premiums of 46 basis points and 14 basis points annually, respectively.
The WTW Diversity Index, which will enable an investment strategy to assess and compare its diversity to peers now as well as to determine its ideal diversity level, will be released by WTW in future years and will offer more insights into diversity statistics. As a result, WTW will be able to track the diversity premium with greater accuracy over time.
Additionally, WTW is urging all businesses to broaden their data collection efforts to include additional innate and learned diversity characteristics like neurodiversity, socioeconomic diversity, sexual orientation, and disability.
The findings of WTW’s study also showed no conclusive link between organisational size and greater diversity in ownership or senior leadership, suggesting that while there may be a perception that larger businesses can hire more specialised staff and put in place more DEI policies and initiatives, this does not always translate into greater overall diversity.
WTW head of manager research Chris Redmond says: “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. We are hopeful that the truly extraordinary investment performance benefits linked to superior diversity can serve as a catalyst for acceleration.
“That is why we believe it is crucial to analyse the data on an ongoing basis to track where we are as an industry and to stimulate conversations. However, it is also important that we look beyond pure numbers to form a robust qualitative view on DEI and culture to really understand how each asset manager is progressing and how quickly it will take to reach their targets.”
WTW Director US equity manager research Paula Robinson says: “We have integrated DEI across our research and portfolio management processes, compelling us to engage with asset managers to improve and share best practice. We have also built out a comprehensive DEI reporting toolkit for asset owners to set out, and set off, on their own DEI journey. The long term success of DEI requires asset managers, investment consultants and asset owners to collectively commit to change.”