Since he joined the Ford Foundation as its president in 2013, Darren Walker has never been afraid to shake things up. Now Walker is taking aim at the investment management industry: specifically, the fact that it’s overwhelmingly white and male.
The charismatic one-time banker has made it his mission to question how the 81-year-old Ford Foundation, and the not-for-profit sector at large, goes about its business of giving, analyzing everything from the focus of its grant programs to how the endowment that supports the foundation invests its money. Walker says he is disappointed by the lack of diversity not only within the investment management industry but with his own foundation’s portfolio.
Speaking on a panel earlier this week at the annual Milken Institute Global Conference in Los Angeles, Walker said, “It is discouraging to walk into a room of our asset managers and look around,” referring to the representatives of the investment firms that manage Ford’s $12 billion in assets. In qualifying his remarks, Walker explained that while he is extremely encouraged by the investment performance of those firms, he’s discouraged by the fact that approximately 98 percent of the people managing Ford’s money are still white men.
Part of the problem is a dearth of investing options. A report published today and commissioned by the John S. and James L. Knight Foundation reveals that while diverse asset management firms offer competitive returns, they are significantly underrepresented in every asset class. The study found that when compared with their peers, women- and minority-owned firms — which the study defines as firms in which women or minorities have ownership stakes of 25 percent or more — perform just as well as managers without such diversification. Despite being a much smaller percentage of the marketplace, women- and minority-owned firms make up well over 20 percent of top-quartile performers in various investment categories. In private equity, 33 percent of women-owned firms are among the top-quartile performers, while 28 percent of minority-owned hedge funds reported top-quartile numbers. In mutual funds, 25 percent of women-owned firms and 28 percent of minority-owned firms are in the top quartile of performance, on average.
The Knight Foundation report — coauthored by Harvard Business School Professor Josh Lerner and Ann Leamon, Meagan Madden, and Jake Ledbetter of Bella Research Group — finds that when it comes to private equity firms, “foundations and endowments are underrepresented among investors in women- and minority-owned firms, and public pensions are overrepresented in minority-owned firms, on average.” When it comes to mutual funds, however, foundations, along with other types of institutional investors and family offices, do represent a proportionally larger share of assets in these funds compared with non-diverse funds.
On the Milken panel, Walker was full of praise for his chief investment officer, Eric Doppstadt. “I have the best CIO at the Ford Foundation,” Walker said. “He also has a real sensibility on these issues.” Nonetheless, the foundation has struggled to achieve diversity among the backgrounds of the managers that invest its money.
Other speakers on the panel agreed with Walker that this is a challenge. Carnegie Corporation CIO Kim Lew, an African American woman, and Walker, an openly gay African American man, joked that she is “a unicorn” for being a woman of color in such a prominent investment role in the industry. Robert Wood Johnson Foundation CIO Brian O’Neil stressed the need to develop a pipeline of talent. He said that his foundation has been a supporter of Sponsors for Educational Opportunity (SEO), a not-for-profit organization that works to get under-served high school students through college. Other foundations on the panel have also given grants to SEO.
The discussion, while often light-hearted, came up in the context of a broader discussion on the subject of aligning foundations’ missions with their investing — currently a hot button issue among foundations. Still, the panelists expressed some hope that the industry is making progress with its diversity challenges. Shawn Wischmeier, CIO for the Margaret A. Cargill foundation, summed up its sense of optimism in his remarks when he said that in recent years the support networks for changing the makeup and views of the investment management industry has developed significantly. “I see the wave moving,” he said.
