We believe that there is no contradiction in wanting to maximize investment performance and championing investment manager diversity. While this belief is firmly rooted in our core values of diversity and inclusion, it is also driven by our fiduciary duty to maximize return by ensuring that we are not excluding qualified people of color and women managers due to hidden biases.
In 2014, SVCF challenged itself and its consultant, Colonial Consulting, to confront biases in our investment process and explore how to better engage more diverse-owned asset management firms across its investment portfolio. We also made a commitment to share our progress and experiences, and are pleased to do so here and in the resources listed in the margin.
Our goal in sharing this information is to encourage other foundations institutional investors to embrace the entirety of their fiduciary responsibilities, ask critical questions, confront biases and take action toward more inclusive investment practices.
Before we launched this effort in 2014, SVCF employed three minority- and/or women-owned asset management firms with whom we had invested $52 million. As of the end of 2017, we have deployed $179 million to twelve diverse-owned firms. This represents 19% of total non-cash assets advised by our investment consultant.
We define a minority- and/or woman-owned investment management firm as one in which ownership is 51% or more who are Asian, Black, Latino, Native American, Pacific Islander or female. Our focus is on seasoned, qualified managers with a track record of experience. We believe that calling seasoned managers with proven track records “emerging managers” because institutional racism has limited their assets under management to $2 billion or less should be seen for what it is: the hidden and perhaps not-so-hidden bias of racism.
As of 12/31/17, SVCF has deployed $179 million to twelve diverse managers across different minority groups and asset classes:
SVCF partners with its investment consultant, Colonial Consulting, to identify prospective minority-and women-owned firms. Between 2014 and 2016, Colonial met with a total 178 minority- and women-owned firms. In 2016, 26% of these were first-time meetings. Over time, Colonial has experienced a dramatic difference in its ability to identify and recommend diverse investment managers to its clients. In 2013, before Colonial became intentional in their efforts, only 11 diverse managers were recommended, of which seven were hired, for a 64% success rate. By 2016, 26 diverse managers where recommended and all 26 were hired for a 100% success rate. Collectively, these firms manage $887 million in assets, up 491% from three years prior.
Our measure of success is not a target number of managers or assets. Rather, it is confidence that talented diverse managers are not being overlooked or screened out, and when there is common knowledge in the industry of the existence of numerous high performing, diverse-owned asset management firms, and when they are valued and seamlessly considered by institutional investors.
Ask key questions - How many manager searches were conducted last year, how many were women and minority firms, and how many were hired?
If no people of color or women were recommended, then that is a red flag to be discussed with your consultant and/or staff. If no diverse managers were hired from those recommended, then that is a red flag to have a candid discussion about bias that may exist with the investment committee.
Engage - Address implicit biases by discussing the importance of diversity, inclusion, transparency and accountability with your trustees, staff and consultant.
Measure - Ask your investment consultant on an annual basis how many managers of color or women they have evaluated, recommended to their other clients, and how many were hired.
Report - Share your progress and experience with the field.