Companies That Take Care of Their Employees Perform Better. Schroders and CalPERS Want to Capitalize on That.

The asset manager and pension fund, along with the University of Oxford, have teamed up to develop a new framework to quantify how human capital management contributes to financial returns.


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Asset manager Schroders has set its sights on a new source of alpha: how companies manage their people.

In a research paper expected to be published on Wednesday, Schroders outlined a new approach for assessing human capital management systems, which it has found to be closely tied to companies’ financial performance. Schroders partnered with the California Public Employees’ Retirement System for the research project, which also received academic support from the Saïd Business School at University of Oxford.

”I think it resonated with CalPERS because they are, on the one hand, looking for more sustainable investment, but on the other hand — like every pension client we have — are laser-focused on risk and return,” said Marina Severinovsky, head of sustainability for North America at Schroders. She added that CalPERS is particularly interested in finding out what characteristics may contribute to a company’s financial performance.

An effective human capital strategy “is almost directly tied to better alpha and better company performance,” according to Severinovsky. In the paper, the researchers defined a good human capital management system as one that can optimize the return on investments in talent. They found that companies with higher human-capital ROI offer higher excess returns over benchmarks across different sectors and time horizons.

“As the corporate landscape evolves in a more volatile market, a company’s workforce is integral to its performance,” Severinovsky said. “However, the market has lacked distinct, quantitative ways to analyze these factors as tangible assets. This research allows us to identify companies that are leaders and laggards in human capital management to make informed allocation and engagement decisions.”

The effectiveness of talent systems can be “intangible and hard to measure,” Severinovsky said. That’s why the researchers started with metrics like human-capital ROI, which can be derived from data that already exist in corporate financial statements, such as employee compensation and operating expenses. “We wanted to be using metrics that are readily available . . . and just look at them through a different lens,” she said.


Schroders isn’t the first asset management firm to try to quantify the impact of talent management on financial performance. In early 2022, J.P. Morgan Asset Management analyzed the Human Capital Factor developed by the Pennsylvania-based investment research firm Irrational Capital and concluded that the HCF is a proficient predictor of financial performance. Unlike Schroders’ approach, which collects data from financial statements, the HCF approach gathers information from corporate employee surveys and company review sites like Glassdoor.

According to Schroders, looking at how companies manage their employees isn’t just useful for determining which companies to invest in. The approach can also help it engage with companies in its existing portfolio, Severinovsky said. “You can have a richer and more sensible conversation with the company from an engagement standpoint . . . whether it’s culture and inclusion or training and development,” she said. “That’s what CalPERS was attracted to.”