How One Allocator Embraced Racial Equity in Asset Management and Beyond

Illustration by II; Bigstock

Illustration by II; Bigstock

Inside Trinity Church Wall Street’s push for diversity and inclusion in the year following the death of George Floyd.

About a year ago, the deaths of George Floyd and Breonna Taylor galvanized a response from institutions across the investment value chain, from corporations like Google to underwriters like Bank of America and from asset managers like State Street to asset owners like Trinity Church Wall Street.

Trinity’s immediate response included awarding nearly $7 million in grants to 57 organizations dedicated to ending systemic racism in New York City for projects including fighting to end the racist practice of cash bail, reimagining the city’s approach to affordable housing, and lowering the number of households experiencing housing insecurity.

Trinity is a growing and vibrant Episcopal community in lower Manhattan with the core values of faith, integrity, inclusiveness, compassion, social justice, and stewardship. In 1705, Queen Anne granted Trinity 212 acres of land, and today our investment team manages a $6 billion asset pool, approximately half of which is in real estate, primarily in the Hudson Square neighborhood of lower Manhattan. Since Trinity began building an internal investment team in April 2016, this team has selected managers that reflect some measure of sustainability and inclusion. However, despite consistent good intentions, the portfolio’s diversity and inclusion profile has room for improvement. One year ago, the investment team committed to a more deliberate and systematic approach.

Over the past year, Trinity’s investment team has developed and implemented a three-pronged strategy to better construct a portfolio of managers that are leaders in sustainability and inclusion.

First, we established a responsible-investing baseline for managers based on a bespoke and systematic three-pillar framework, which we use to better understand our current portfolio and underwrite prospective managers.

Second, we strengthened and supported manager transitions toward sustainability and inclusion. Trinity’s investment office views the dialogue between asset owners and asset managers as the fulcrum of the investment value chain. We believe that by working closely with our managers and our peers, we can help drive systemic change over time.

Third, we have widened our scope beyond diversity and inclusion in investment management to include advancing racial justice by demonstrating and doing. This involves select direct strategic engagement on issues in underlying holdings with deep alignment with Trinity’s mission, providing proxy-voting guidelines on issues that concern the prison-industrial complex, and excluding U.S.-based companies with core business activities that run counter to Trinity’s mission.

Measuring What Matters

The linchpin of Trinity’s responsible-investing strategy work is our responsible investing tool. The responsible-investing manager baseline allows us to systematically gauge the sustainability and inclusion status and momentum of the portfolio and of each manager. Having this information at our fingertips helps the investment team develop inclusion expertise. This in turn helps the team highlight managers’ strengths and identify development areas to support as a thought partner and resource. Trinity’s investment team is on a journey with managers and peers. Indeed, the investment value chain as a whole is working and learning together.

Although much remains to be done, numerous managers in Trinity’s portfolio differentiate themselves by promoting diversity, equity, and inclusion in their portfolios. Two of the venture capital managers in our portfolio have added the George Floyd and Breonna Taylor rider to their term sheets, codifying founder and general partner best efforts to diversify capitalization tables. One buyout manager tracks the hiring of diverse leaders and team members by its portfolio companies and links investment team compensation to their efficacy in driving diversity within portfolio companies. Another buyout manager in the portfolio institutes executive-compensation metrics at portfolio companies based on diversity. One venture capital manager and one fixed-income manager train portfolio companies in diversity and inclusion. A number of the managers in our portfolio include diversity and inclusion due diligence in their investment processes and track portfolio-level DEI statistics and set portfolio-level DEI goals. In addition, some managers have chief talent officers or operating partners who are focused on recruiting and retaining diverse talent.

Other managers in our portfolio differentiate themselves by building a diverse talent pipeline. Some expose minority high school students to the financial services industry through internships. Others provide summer internships to underrepresented college students when they are rising sophomores, preparing them for the summer internships as rising seniors that lead to full-time job offers. One of the hedge funds in our portfolio established a continuous series of online internships for underprivileged minorities from underrepresented schools.

These examples represent milestones on the long road toward achieving a diverse, equal, and inclusive investment value chain.

As part of the responsible-investing manager baseline, Trinity has conducted responsible investing deep dives, in which the investment team discusses a select set of sustainability and inclusion topics with double materiality with each manager in our portfolio. Double materiality describes issues that are material from both financial and nonfinancial perspectives. The team distills the notes from the deep dives and from prior management discussions, as well as the publicly available and privately distributed information about the manager, into our bespoke and systematic responsible investing tool. Part of this analysis focuses on diversity and inclusion — more specifically, on team diversity, portfolio diversity, and service provider diversity.

With respect to team diversity, Trinity will track the different dimensions of diversity for investment team leadership, non-investment team leadership, and the investment team broadly for each manager in its portfolio. Trinity then will use this information to generate summary statistics by asset class and for the total portfolio so we can shift the allocation of capital toward underrepresented groups, while also maintaining other investment objectives.

The investment office also discusses recruiting and retention practices and results with Trinity’s managers to better understand their mindset toward diversity.

In addition, the investment team gauges three facets of the diversity of our managers’ underlying holdings: the range of ways that our managers promote diversity at investees; the diversity status of portfolio companies, an indicator of a manager’s ability to source and screen for inclusive investments; and the momentum of manager efforts to promote diversity and inclusion at investees, as well as the diversity and inclusion momentum of the investees themselves.

Lastly, the investment team tracks primarily the diversity of manager service providers, like law firms and accountants, and secondarily manager intentions for service provider diversity.

Naturally, Trinity’s approach will evolve as we continue to learn from our asset owner peers and the managers in our portfolio, among others.

Helping Managers Pursue Inclusion

At Trinity, our investment team strives to meet managers where they are and serve as a thought partner and resource. We have found that four types of resources are helpful to our managers. These four distinct types of resources answer two main questions about diversity, equity, and inclusion.

Why? We help managers make the case for diversity, equity, and inclusion by sharing research, expert opinion, policy, and regulatory changes, among other things.

How? We provide three types of tools to our managers to help them advance diversity, equity, and inclusion. First, we share practical tools: research, expert opinion, and articles that focus on diversity and inclusion best practices and lessons learned. Second, we share diverse talent pipeline sources: information about nonprofits that source and develop entry-, mid-, and senior-level diverse investment professionals, as well as diverse-led and diverse-owned asset managers. Third, we share information about anti-bias and other DEI training resources and consultants.

Trinity’s investment team has been instrumental in founding Institutional Allocators for Diversity, Equity, & Inclusion, a consortium of asset owners, mostly endowments and foundations, that seeks to drive diversity, equity, and inclusion within institutional investment teams and portfolios and across the investment management industry, including directing capital toward diverse fund managers. IADEI first convened last fall at the initiative of Rob Rahbari and Stephanie Westen at the University of Rochester. Achieving a diverse, equal, and inclusive investment value chain is likely to be a long road, but by learning from longstanding diversity and inclusion experts who share their expertise with IADEI and collaborating with asset owner peers and with asset managers broadly, we at Trinity aim to better support our managers’ transitions toward inclusion.

Demonstrating and Doing

More broadly than working toward diversity and inclusion in investment management, Trinity as an institution is working to break the cycles of mass incarceration, mass homelessness, and housing instability in New York City. Because Trinity works to end mass incarceration — which involves racial bias and is ineffective, with a high recidivism rate — and opposes gun violence, which disproportionately affects people of color and amplifies inequities, the investment team aims to exclude from Trinity’s securities portfolio and tenant roster all U.S.-based companies with core business activities that run counter to those goals. The exclusion criteria apply across asset classes, as well as to tenants. The goal was to compile a list of businesses that are clearly in conflict with Trinity’s mission and would make sense to an objective viewer and are manageable to exclude.

At times, Trinity’s investment team pursues strategic engagement if other investors are productively strategically engaging with companies that would otherwise be on the exclusions list. This thinking builds on Trinity’s history of past strategic engagements with Walmart and Cabela’s to limit the sale of high-capacity assault rifles. Strategic engagement is also the most reliable form of sustainable investing for investors seeking impact, in the sense that it has been clearly demonstrated empirically. Probation services and electronic monitoring, facility surveillance, and bail and surety subsectors of the prison-industrial complex are other types of businesses that Trinity’s investment team has looked at in terms of strategic engagement. In these efforts, the team draws on the leadership of the Interfaith Center on Corporate Responsibility and other organizations with longstanding expertise in strategic engagement.

The investment team also provides managers with broad guidelines on issues commonly seen on ballots with potential for alignment with Trinity’s racial justice work, such as disclosure and limitation of business activity dependent on incarcerated populations.

This Is Only the Beginning

Trinity Church Wall Street’s investment team is inclusive in terms of gender, racial, and ethnic representation, including most of its leadership and its senior investment professionals. Our diverse team is systematically pursuing diversity and inclusion in our portfolio by aiming to increase the number of meetings with diverse managers and working to address and offset biases through training, reading, and discussion. Trinity’s approach will evolve as we learn more from and continue to collaborate with institutional investors that are trailblazers and nonprofits that are longstanding experts in diversity, equity, and inclusion. This is only the beginning.

Bhakti Mirchandani is director of responsible investing at Trinity Church Wall Street; is a co-founder of Institutional Allocators for Diversity, Equity, & Inclusion; and teaches an impact investing course in Columbia University’s Masters in Sustainability Management Program.