NEPC Says Majority of Asset Owner Clients Now Invest With Diverse Managers

Almost 60 percent of clients use managers owned or led by underrepresented groups, up from 40 percent in 2020.

Illustration by II

Illustration by II

NEPC, an investment consultant with $1.4 trillion in assets under advisement, on Tuesday reported a sharp increase in asset owner clients who invest with diverse managers.

According to the consulting firm’s second annual diversity, equity, and inclusion progress report, 59 percent of NEPC clients used diverse managers in 2021. This is up from approximately 40 percent in 2020. The consulting firm defines diverse managers as firms that are either diverse-owned — that is, in which at least 50 percent of the firm is owned by an underrepresented group of people — or diverse-led, which is defined as a firm that is 33 to 50 percent owned by an underrepresented group.

In total, NEPC said $40.7 billion in client assets were allocated to diverse firms.

The report follows the launch of NEPC’s Diverse Manager Policy 2.0 in 2019. The policy outlined specific goals — such as a 10 percent increase in the number of diverse firms on NEPC’s focused placement list for public markets by the end of 2021 — that are designed to increase the firm’s engagement with and exposure to diverse managers. According to the 2021 report, NEPC exceeded its 10 percent goal, increasing the number of diverse firms on the public markets placement list by 11 percent by the end of 2021.

Because of its accomplishments in 2021, NEPC said it is extending the goals for its diverse manager policy. According to the 2021 report, NEPC is targeting a 15 percent increase in the number of diverse firms on its public markets placement list by 2024.

In addition to tracking data on diverse managers, NEPC’s report also documented its progress on increasing its own staff diversity.

In 2021, the firm made significant progress in its hiring of gender-diverse candidates. In the 2020 report, 31 percent of new hires in 2020 were female. In 2021, that figure jumped to 37 percent. However, the percentage of racially diverse hires in 2021 decreased from 2020 numbers. In 2020, 42 percent of new hires at NEPC were racially diverse. A year later, that number had dropped to 35 percent.

In total, 58 percent of all new hires came from diverse — that is, from one or more of the gender, ethnicity, or race categories — backgrounds in 2021, the same percentage as 2020.

In the 2021 report, NEPC broke down the racial and ethnic diversity profiles of new hires. In 2020, 42 percent of new hires identified as either Asian, Black, or Hispanic, while 58 percent identified as white (non-Hispanic). In 2021, white-identifying hires rose to 65 percent, a seven percentage point increase over 2020, while the percentage of new hires that identified as Asian, Black, or Hispanic dropped to 36 percent.

Despite the drop in racially diverse hires in 2021, NEPC’s demographics are impressive when compared with the wider industry. Specifically, while 65 percent of 2021 hires at NEPC were white, 78 percent of new hires in the broader industry were white, according to data in the report from the Bureau of Labor and Statistics. Also, while 36 percent of NEPC’s new hires identified as Asian, Black, or Hispanic in 2021, the wider industry saw only 27 percent of new hires who identified as such in 2021.

NEPC has also seen significant progress in diverse ownership over the past decade. From 2012 to 2022, the percentage of diverse partners (that is, those who fall into one or more of the race, ethnicity, and gender categories) with interest in the firm increased from 14 percent to 30 percent.

“Our DEI efforts are focused on three aspects: building greater representation in our employee base, becoming a more inclusive culture, and expanding our knowledge and use of diverse managers,” Mike Manning, a managing partner at NEPC, said in a statement.