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How a $130 Billion Investment Office Tracks Diversity Metrics

In a new report, the University of California broke down diversity figures for its investment firms, business partners and staffers.

In 2020, the University of California’s investment office hired three new diverse investment firms to manage part of its $130 billion portfolio. 

This, along with other diversity metrics, was revealed in UC Investments’ second annual diversity report, released Friday, which surveyed U.S.-based investment partners across all asset classes covering about $102 billion or 78% of its AUM as of June 2020. Publishing this data is a part of the investment office’s “Diversified Returns” program.

“In 2020, UC Investments made significant progress in expanding and implementing our Diversified Returns program, which aims to increase our access to and inclusion of diverse talent when we invest, when we hire, and when we exercise our rights as a company shareholder,” wrote chief investment officer Jagdeep Singh Bachher in his introduction to the report.   

The university investment office’s decision to report diversity data on managers, internal staff, and portfolio companies is rare among school endowments, according to one diverse investing advocate. 

“The university is a true leader,” said Robert Raben, founder of the Diverse Asset Managers Initiative, in a statement. “The overwhelming majority of schools across the nation refuse to publicly release any data, let alone anything this comprehensive.” 

“Early indications are that at least two of the diverse-owned firms we partnered with this past fiscal year are outperforming; in fact, we have already increased our initial allocations to each of them by a combined 50 percent,” Bachher wrote.    

The investment office has set up a new manager selection process and tracking system, which involves tracking all manager inquiries and follow-up meetings with prospects. In June 2020, Bachher and Richard Sherman, UC’s Board of Regents Investments Committee chair, pledged to invest $2 billion with diverse investment firms over the next four years.   

Although there are more diverse managers in UC portfolio, they account for a lower percentage of assets under management – 16 percent of the portfolio was managed by investors with 25 percent or more diverse ownership, as compared to 19.6 percent in 2019.   

It’s important to note that year-over-year, UC passively managed assets under management grew by $13.4 billion to $102 billion in 2020. The fund’s managers also had personnel changes and inadvertently made omissions in 2019.   

In total, 18 of UC’s managers reported that half — or more — of their owners are diverse. Meanwhile, 28 said that between 25 and 50 percent of their owners are diverse, and 72 said that less than 25 percent of their owners are diverse. 

The investment office also surveyed its business partners, including consultants, data providers, and counsel. According to the report, 38 percent of the business partners were at least 25 percent diverse-owned.  

The investment office also used shareholder engagement to approach 16 U.S. companies in its portfolio. Ten of those boards disclosed their racial diversity data, six of them said at least 20 percent of their members are people of color, and four boards added female directors in 2020, the report said.   

In 2021, UC plans to ask some of its S&P 500 portfolio companies to disclose diversity data annually.   

The investment office also reported on the diversity of its team members. The investment team is made up of 53 people who collectively speak 21 languages including Tagalog, Cantonese, Portuguese, and Swahili.   

According to the report, 32 percent of UC Investments’ staff were women as of April 2020 — its latest available data for the stat. That is a decline from 35 percent in April of the prior year.  

Meanwhile, UC Investments’ number of Black staffers has been steadily rising since 2016, when it first tracked the data. That first year, 5 percent of the team were Black. As of April 2020, 12.7 percent of UC’s investment team were Black. The number of Latinx employees declined year-over-year, from 10 percent in April 2019 to 7.9 percent in April 2020. The remainder of UC’s investment staff makeup has remained relatively stable, with Asian employees accounting for the largest percentage — 38.1 percent.  

The investment office is on a hiring freeze due to the pandemic, but once it lifts, UC Investments will be using a new process to bring on potential employees. The team has set a rule to require candidate pools to be diverse before the hiring process advances, which means it will pull from new networks.

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