Can Institutions Walk the Talk When it Comes to Hiring and Manager Selection?

Only 27 percent of respondents said they are happy with the diversity at the managers in their platforms, according to a Chestnut Advisory survey.

Illustration by II

Illustration by II

When it comes to diversity, both allocators and asset managers are disappointed.

In a joint survey between Chestnut Advisory Group and Pensions & Investments, 32 percent of institutional investor respondents and only 8 percent of asset manager respondents said they were happy with the current level of diversity at their firms. The survey included over 450 responses from asset managers (both with and without OCIOs), investment consultants, registered investment advisors, wealth advisors, corporate and public pensions, endowments, foundations, family offices, and educational institutions.

The asset management industry has long talked about diversity, but on the whole it has gotten much more serious about these efforts since the pandemic. While there is plenty of disappointment, there are also bright spots. Almost 60 percent of NEPC clients use managers owned or led by underrepresented groups, up from 40 percent in 2020.

In the same survey, 22 percent of institutional investor participants said that diversity is not a priority for senior management, and 7 percent said their firm has had difficulty recruiting diverse talent.

In the accompanying report, authors Amanda Tepper, CEO, and Michele Brown, both of Chestnut, attribute the difficulty in recruiting diverse talent to using “traditional” hiring practices, which include personal networks — essentially, who you know.

“Managers seeking to increase diversity may need to recruit more creatively than they have in the past and/or expand their networks,” Tepper and Brown wrote. “For example, the Ontario Teachers’ Pension Plan has changed its recruiting strategy to include partnerships with community organizations such as #1000BlackInterns in the U.K. to reach a diverse group of candidates.”


At asset managers, 82.6 percent of senior executives, 75 percent of mid-level managers, and 68.2 percent of the total workforce are white.

According to another Chestnut survey, 43 percent of institutional investor and RIA respondents currently do not have a policy or specific targets in place for investing in diverse-owned asset managers. In fact, only 5 percent of institutions and RIAs said that they have an effective policy for hiring diverse managers.

Diverse managers are defined as asset management firms that are owned by women and minorities. Without clear DEI goals in the manager selection process, having a status as a diverse manager has little impact on asset flows. For instance, Chestnut surveyed managers who view themselves as diverse managers about the impact that this title has on their asset flows.

In theory, such status should encourage allocations to these firms, since the industry as a whole leans into DEI initiatives. But only 20 percent of respondents said that their status as diverse managers had a high impact on their asset flows; 42 percent said it had a modest impact, and 38 percent said the label had a low impact. “Our study confirms that being a diverse-owned manager in and of itself does not drive much in the way of asset flows,” Tepper and Brown wrote.

“There are a lot of government, state, and local funds that have programs for [hiring diverse managers],” Tepper told Institutional Investor. “Yet the managers themselves, who have put out a big, loud, fat sign [that says] ‘We are diverse-owned...hire us’ are not seeing the influx.”

Another barrier to putting more diverse managers into portfolios: Twenty-seven percent of institutional investor and RIA respondents said they are happy with the level of diversity demonstrated by the client-facing managers in their platforms.

To this point, Tepper and Brown warn asset managers not to “diversity-wash” their manager selection process. “Our best advice for most managers today is to be extremely clear about what you are doing about DEI, what you are thinking about doing, and who is doing that thinking,” they wrote. “Ultimately, we expect [that] all asset managers will need to develop a clear DEI policy with measurable goals whose implementation can be monitored.”