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[Sabrina Bowens-Richard]: Bringing diversity into a portfolio is becoming a social and business imperative. This lack of demand for diverse investment offerings is largely stemmed by structural biases that, frankly, exist within our business, and so it's costing our clients access to a universe of managers that can really bring value to portfolios.
[Elizabeth Jennings]: Diverse teams offer a much better opportunity to come at any investment question from a 360-degree perspective. And if you have people with different life experiences, different backgrounds, different educational backgrounds, different ethnicities, it can allow them to understand the other side of the question better.
[Armond Reese]: At Truist, we have done an amazing job identifying a set of core values when seeking diverse managers. Personally, I believe these values are a blueprint for all leaders to consider. You know, the primary core value is one, performance always matters, but in addition to that, it's a recognition that clients should be able to express their values through their portfolios.
[Host]: Welcome back to the Truist Nonprofit Insights Podcast Series! Diversity, equity, and inclusion (DEI) matters. And now more than ever, diverse teams can lead to better financial returns. In fact, a recent study found that people invested with diverse-owned firms at a higher rate than the asset management industry. By prioritizing DEI, organizations can offer more well-rounded perspectives, ideas and solutions that reflect the unique needs of their clients.
Today, we’ll be talking to three industry experts about DEI. Sabrina Bowens-Richard is a senior investment solutions and diverse asset managers specialist, senior vice president at Truist Wealth. With two decades of experience, she has developed investment solutions for over 200 clients in mainly foundation and endowments assets. Armond Reese is a managing director and one of the regional practice leaders at Truist , offering institutional clients more than 20 years of investment management experience. In his current role, he’s a leader within the Foundations and Endowments Specialty Practice and offers OCIO services to a wide range of not-for-profit entities in Georgia, Alabama, and South Carolina. Elizabeth Jennings is another managing director and regional practice leader for the Truist Foundations and Endowments Specialty Practice. Over the decades, she’s held leading investment positions and now provides outsourced chief investment officer services and ancillary administrative support for not-for-profit pools of assets across the entire Truist footprint, with a focus on the mid-Atlantic region. We start by asking Sabrina, Armond, and Elizabeth to explain why DEI is important for portfolio management.
[Sabrina Bowens-Richard]: Historically, as an industry, we've thought about portfolio management by prioritizing diversification by asset class, differences in investment strategy and sectors, et cetera, but we have not typically used differences in manager background and experiences as part of the manager selection criteria. So, we believe that additive opportunities do exist by having diverse viewpoints around the table.
[Armond Reese]: As a fiduciary, it is prudent to build a portfolio that considers all sources of performance to support the portfolio into perpetuity. We believe that a lack of diversity undermines the fiduciary responsibility to generate the highest returns, because it reflects a failure to fully consider the range of options for generating the best risk-adjusted returns.
[Elizabeth Jennings]: The reason that it's additive really goes to the root cause of investment success. And that's that successful investors have a variant perspective on a security, on an asset class, on any particular issue, and they're able to identify opportunities in the marketplace that aren't widely recognized because they have that variant perspective.
[Host]: Turning to active management can also help clients work with a diverse team to build a successful portfolio. Sabrina shares the kind of opportunity this strategy might provide.
[Sabrina Bowens-Richard]: Identifying new and unique areas of opportunity will be necessary to help generate some additional return potential and diversification. And these diverse and often emerging managers tend to largely play in that active management space.
[Sabrina Bowens-Richard]: What I think is also important to note is that these diverse approaches lead to teams looking at risk differently. So, what one person may see as a risk, given their perspective and view of the world, you know, someone else on that team may see it as an opportunity.
[Host]: How can leaders find and retain diverse managers? There are two approaches: bottom-up is more intentional while top-down has specific guidelines, says Elizabeth. She dives deeper.
[Elizabeth Jennings]: So these two approaches: one, bottom-up, more organic, more being intentional in the search process, the other, top-down, being more aspirational in setting specific targets. Those will meet different institutional needs and the use of those will vary based on the needs of the specific organization.
[Sabrina Bowens-Richard]: In sourcing our diverse asset manager pipeline, we found ways to screen for those firms who are owned or who have strategy principals who consist of diverse individuals. And we further build out that rich pipeline of finding these managers through industry connections, diverse, equity, and inclusion-linked partnerships and really expanding our presence at conferences with a diverse and emerging manager focus.
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[Host]: Even though prioritizing DEI offers many benefits, leaders may struggle with integrating the initiative. Sabrina and Armond share common obstacles and how organizations can overcome them.
[Sabrina Bowens-Richard]: I think one of the first obstacles is not having the full support of your leadership team. You know, the company has to foster a culture that embraces inclusiveness throughout all levels of the organization. And you see this taking place at Truist. This really enables investment teams to bring so much more intentionality behind their work and commit to finding the best managers for clients, even if they don't fit that traditional mold. I think the second obstacle is in just saying that it's hard to do. You know, "I can't find quality diverse and emerging firms," or, "We don't have the resources or the depth of our manager teams to identify."
[Sabrina Bowens-Richard]: And so, we've dealt with this by making sure that we do have those screens in place that I mentioned earlier, identifying firms when we participate at conferences that are focused on diverse and emerging managers and really just leveraging our industry connections in that regard.
[Armond Reese]: From a client perspective, the greatest obstacle I see is this notion that performance suffers when pursuing DEI within the portfolio or that diverse asset managers are classified under the social category within environmental social government screening. These thoughts are completely wrong. We believe education will overcome these obstacles and the recognition that by including diverse asset managers within your portfolio, you are literally identifying an additional source of returns within the portfolio to support the portfolio into perpetuity.
[Host]: So what can leaders do to implement diverse investment committees? Armond and Elizabeth walk us through the steps.
[Armond Reese]: Well, implementation comes in many forms, whether it is explicit language in the investment policy statement, the inclusion of targets or ranges, it's our recommendation that first, you screen your current managers to determine the level of diversity in your current portfolio and how much in fees are being allocated to those existing diverse firms or teams. Secondly, determine an asset range or percent of the portfolio the organization wants to allocate to diverse managers.
[Armond Reese]: Thirdly, and after your investment advisor has implemented the strategy, the investment committee should monitor it on an annual basis.
[Elizabeth Jennings]: What's important is that process be tailored to the needs of the organization and its implementation line lines up with the organization's goals and mission and values. So a long complex conversation that can require input from a number of constituents and building that kind of constituent consensus around these topics can be a really kind of transformation opportunity for an organization and have impacts that go, you know, beyond the investment portfolio, which is certainly one of the hopes.
[Host]: While implementation can vary by organization, there are still tips that can make the process easier. Armond and Elizabeth share some best practices.
[Armond Reese]: It's so easy for us to lean toward managers that are well-recognized in the industry, but that may not always be the appropriate strategy. It's important to make sure that we're being unbiased in our manager evaluation and that, when we're selecting managers for our clients' portfolio, we're making sure that we're pulling together best-in-class managers regardless of the name of that manager or that fund company.
[Elizabeth Jennings]: You still want to find managers that add value, that create alpha, that improve your investment outcome. So all the same tools and techniques that you would use to identify a successful manager, you would use in terms of identifying a diverse or female-owned manager that you want to include.
[Host]: To close out our episode, these three experts illustrate the value of incorporating diverse managers in portfolio management.
[Armond Reese]: We were fortunate enough to win an opportunity a couple months ago, and one of the defining decisions that was made was really our diverse manager platform, and that this organization that is really rooted within its community wanted to make sure that their portfolio was reflective of the community that it served.
[Armond Reese]: We're going to continue to face this as an industry. We're going to continue to see this within a lot of our RFPs, and we have to be prepared to meet the clients' needs and demands when it comes to ensuring that their portfolio is diverse and is representative of the communities that they serve.
[Elizabeth Jennings]: I'm thinking of one very large client who asked for our help, and this goes back about 18 or 19 months ago.
[Elizabeth Jennings]: We identified a manager who was very, very successful in a particular asset class, but it was an asset class that has fairly hard capacity constraints, in terms of portfolio size and number of clients, and so they were closed in the strategy where they had been very successful.
[Elizabeth Jennings]: However, we were able to identify the fact that they had a parallel strategy that reflected many of the same characteristics of the strategy that was closed in a kind of running side by side, in a slightly different asset class. And that parallel strategy was newer.
[Elizabeth Jennings]: And I'm happy to say that the performance of that newer strategy has been outstanding.
[Elizabeth Jennings]: So getting in on the ground floor, if you will, was a great move for this client because they have access to this great world class manager when I think their strategies will be closed to new investors very soon. So kind of a win-win all around for the portfolio and for the organization that wanted to bring this diversity to bear.
[Sabrina Bowens-Richard]: We still have a ways to go in terms of progress, but I would say that the institutional investment community is really starting to speak loudly and clearly about the importance of this work and looking for investment solutions that are in line with their own missions.
[Sabrina Bowens-Richard]: And I think what will start to happen is that you'll see the institutional investment community making decisions around who they want to manage their assets, depending on how that firm prioritizes diversity and inclusion.
[Host]: Thanks so much to Armond, Elizabeth, and Sabrina for being on the podcast today. For more information on how DEI can benefit your institutional portfolio, please speak with your Truist relationship manager or investment advisor or visit us online at Truist.com/foundationsandendowments.
This podcast was brought to you by the Truist Foundations and Endowments Specialty Practice, which has more than a century of experience working with not-for-profit organizations delivering comprehensive investment advisory, administration, planned giving, and trust and fiduciary services to over 700 not-for-profit organizations.
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