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Asset Management's Trillion-Dollar Time Bomb

For the finance industry, a #metoo-style reckoning has yet to come — but when it does, it could be a trillion-dollar problem, experts say. Here's how to spot at-risk asset managers.

  • By Alicia McElhaney

Sexual harassment claims haven’t affected the investment industry in a major way so far — but they could potentially pose a trillion-dollar problem for the sector, a panel of industry experts said. 

Speaking at the latest Investment Management Due Diligence Association webinar earlier this week, a panel of asset management experts aimed to educate investors on the risks sexual harassment at financial services firms poses to their assets. Given the political climate and the ongoing #metoo campaign that aims to shine a light on sexual harassment in the workplace, Monica Monticello, an associate director at risk management firm Kroll, said the company expects to see more reporting of sexual harassment in the coming years. 

“In the past two years, we’ve seen more reporting than we used to,” Monticello said. “Investors should care because this creates risk.”

For the finance industry, a #metoo-style reckoning has yet to come. A few women have sued their companies, including Point72 and TCW, for sexual harassment, and biotech hedge fund firm OrbiMed faced allegations of sexual harassment against its founder, who has since retired, from five former employees. (OrbiMed declined to comment to Institutional Investor at the time.)

But the almost daily allegations that marred Hollywood and politicians earlier in 2018 have yet to hit the asset management industry. That doesn't mean they won't, panelists said.

“This is prevalent through every industry,” said Dan Schorr, managing director of investigations and disputes at Kroll. “The financial industry is not the best place for avoiding sexual harassment either.”

Schorr and Monticello shared details on the risks investors are now dealing with as a result. “If someone is suing a manager, they could sue the investor as well,” according to Schorr. In other words, an investor could be liable for workplace sexual harassment at a portfolio company. 

[II Deep Dive: A Battleground for Investors Worried About Sexual Harassment]

There are, however, ways to determine ahead of time whether a company has a culture that fosters workplace sexual harassment.

“You want to exhaust the public record,” Schorr said. This means looking for government filings, harassment suits, and social media, to start. The two added that they often ask a company about its general human resources policies and procedures. 

“If they signed a non-disclosure agreement, they cannot talk about it,” Schorr said. “Signing an NDA may allow an investor to learn more details about a manager’s policies, procedures, and history of complaints, but the manager still can’t reveal information protected by an existing NDA.“

He added, “They can also tell you how they'd deal with complaints, but they can’t tell you if they’ve had them.” 

If a company does have prior harassment complaints, all is not lost. 

“What was changed after a complaint?” Schorr asked. “Was the person responsible disciplined or removed? It’s important to know how a company has been reformed after misconduct.”

Monticello added that giving the company a chance to share how it has changed is an important step. 

“You have to take these allegations seriously, but you have to give the client the opportunity to fix it,” Monticello said. 

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