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WTW takes on fund managers over diversity

ESG

Progress on diversity across the whole investment industry has remained disappointingly slow, according to a paper from Willis Towers Watson (WTW), the global investment consulting, funds management, and insurance broking firm. It has decided on direct engagement with fund managers to pick up the pace.

In its paper published yesterday (October 26), entitled ‘Diversity in the Asset Management Industry’, WTW sets out an action plan to accelerate the rate of change, which it believes will lead to better investment outcomes. It is also suggesting changes for its own business, which already has about 45,000 employees and is about the merge with the Aon Group, another big global insurance broker.

WTW says it is insufficient to use a single metric for diversity, such as the proportion of women on boards or in senior management or as owners. The firm’s approach leverages the insights from new research into ‘inclusion and diversity’ issues among fund managers, including demographic information collected at both a firm and product level.

  • WTW has developed its own ‘diversity score’ to establish a baseline view on gender and ethnic diversity. This is supplemented with the more nuanced aspects of diversity, such as education and background, gleaned through its qualitative manager research. 

    WTW has also established actions to encourage the use of a more diverse set of asset managers in its clients’ portfolios, with an expectation that these measures will improve end-saver outcomes. Its manager research team is targeting an increase of 20 per cent in discovery meetings – where it seeks to identify best in class asset managers it doesn’t currently work with – with firms that have a diverse investment team.

    The investment consultant plans to dangle a carrot in front of fund managers by saying it expects to increase its allocation to diverse investment teams within its delegated portfolios as it believes this will lead to better investment outcomes allowing for risk. And, WTW will wield a stick. “Asset managers who fail to encourage greater diversity or do not respond to growing asset owner expectations, may face a downgrading of their rating – a measure which has been taken in the past,” the firm said in a statement. WTW aims to encourage:

    • Greater transparency and disclosure: high-level statistics to understand how diversity is reflected across different functions;
    •  Increased sourcing of diverse talents: for example, through graduate and returner programs;
    • Measurement of diversity of asset managers that goes beyond just equity ownership;
    • The removal of requirements that may unwittingly exclude diverse funds/firms;
    • Progressive compensation structures and policies around flexible working arrangements;
    • Shifting away from a star portfolio manager model to a team-based investment approach, with a strong focus on ensuring decision-making teams are diverse;
    • Pension funds and other asset owners and investment consultants to establish targets to significantly increase the diversity in portfolios, with the associated improvement in expected performance, and
    • A focus on internal policies, training, and networks designed to increase diversity and address the challenges of racism, sexism, and other unconscious biases.

    Chris Redmond, head of manager research in London, said: “Addressing the systemic issue of poor diversity in the asset management industry requires a collective effort, and in many cases a fundamental change in mindset and culture. Although some of these efforts will take time to bear fruit, as an industry we need to be challenging ourselves to do more now. Improving diversity is key to building a stronger investment industry, and our initial findings show that it is positively linked to performance outcomes.”

    Angela Brown, senior consultant in Australia said: “We recognise that businesses are at different points in their diversity journey today, and these proposed actions are just the starting point upon which the industry can build. While we recognise the challenges that lie ahead, we strongly believe that by taking these steps, the investment industry can take a crucial leap forward in better reflecting our society and delivering better performance outcomes for savers.”




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