How University of Chicago, Howard, & Other Endowments Are Tackling Asset Management’s Big Problem

Investing in racial equity.

The University of Chicago campus. (Tim Boyle/Bloomberg)

The University of Chicago campus.

(Tim Boyle/Bloomberg)

In 2010, the University of Chicago had just five diverse managers in its portfolio, managing only $200 million of its $5.7 billion endowment. Ten years later, the endowment now works with 25 diverse managers, responsible for $1.24 billion — or 15 percent of the total portfolio.

The school’s efforts to increase the representation of female and minority managers in its portfolio over the last decade was among several success stories cited by the Intentional Endowments Network in its new guide on how college and university endowments can better invest in racial equity.

Other examples cited by the report include historically black college Howard University, where minority firms managed 14.9 percent of endowment assets and 16.6 percent of total assets as of June 30. To put these figures in context, women- and minority-owned asset management firms currently manage about 1.3 percent of all assets industry-wide, according to a 2019 study by the Bella Research Group and John S. and James L. Knight Foundation.

“The call to action outlined in the primer guides fiduciaries though the key steps to investing in racial equity from where they sit, regardless of where they are in the process,” IEN program manager and report contributor Kaede Kawauchi said in a statement. “Next steps can look different from institution to institution but the key focus is on doing something.”

The IEN report breaks down recommended actions for endowments into five stages: learning about racial equity and bias, building consensus with decision-makers, updating investment policy statements to reflect diversity and inclusion goals, investing in and engaging with diversity, and sharing strategies and progress publicly “to encourage transparency and accountability.”

Examples of suggested steps for investment offices included questioning investment consultants on how they include racially diverse firms in manager searchers and allocating to funds with an investment thesis focused on racial equity.

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According to the report, the University of Chicago launched its efforts to increase the diversity of its investment managers in 2008 by dedicating a section of the university’s Business Diversity Professional Services Symposium specifically to diverse asset managers. This helped the school to build a pipeline of women- and minority-owned managers for the investment office to evaluate and potentially allocate to.

At Howard, meanwhile, a commitment to actively searching for diverse-owned managers and service providers is outlined in the endowment’s investment policy statement. “Howard University plans to continue their search for more diverse managers to include in their roster, monitor and report on their progress, and strengthen institutional buy-in by engaging the board for supporting these managers,” IEN said in the report.

Warren Wilson College, a liberal arts school in North Carolina with a $52 million endowment, expanded beyond its consultant’s manager recommendations to access diverse firms. This included tapping the professional and social networks of minority-owned firms.

“Of the sixteen [external managers] the college investments with, three are managers of color, two managers are woman-owned, and another manager’s collective firm ownership is majority people of color and women,” the report stated. “Further, Warren Wilson look for investment firms of color in all asset classes.”

In the report, IEN argued that investing in racial equity helps endowments mitigate systemic risks — and potentially earn higher returns. The group cited the 2019 Knight Foundation study, which found that firms owned by women and people of color were overrepresented among top-quartile performers, despite managing a small fraction of industry assets.

“Fiduciaries have a responsibility to source the best talent and fund managers,” IEN said. “Embracing racial equity allows one to consider the whole field of options, and opens up a new pool of qualified employees, investment funds, and portfolio companies.”