Diversification isn’t a novel concept for investors. To protect your nest egg, it’s critical to spread long-term investments across industries and assets to help guard against financial loss and volatility. But what if you’re leaving money on the table by not considering another aspect of diversity?
Like other areas of corporate America, the wealth industry isn’t free from bias. Racial and gender inequities exist among financial advisors as well as in how client portfolios are managed.
“Typically, diversification applies to asset class and strategy, not the asset managers’ backgrounds,” says Sabrina Bowens-Richard, Truist’s senior investment solutions specialist, diverse asset managers. She believes wealth industry inequities are hindering innovation and performance when it comes to investor portfolios.
Bowens-Richard is part of an advisory group that provides thought leadership for wealth advisors. Her team’s goals are to examine investing through a wider lens and expand opportunities to invest in funds led by diverse teams.
An untapped resource
Diverse asset managers control only a fraction of U.S. investments despite performing as well as— or better than—less diverse managers.
Ongoing research by the Knight Foundation and Bella Private Markets has determined that women- and minority-owned firms control just 1.4% (about 0.7% each) of the $82.24 trillion in assets under management (AUM) reviewed in the study.1
Yet, they’re performing well. The Knight Foundation study showed that diverse-owned funds are overrepresented in the top-performing quartile of mutual funds, hedge funds, and private equity.2
What is a diverse asset manager? An asset management firm that is primarily owned— or whose strategies are controlled—by women, people of color, LGBTQ+ people, veterans, and those with disabilities.2
Gaining interest over the years
The existence of diverse asset managers isn’t particularly new. The firms themselves have been performing for decades. Women-owned investment firms have an established performance track record, on average, of 26 years, comparable to all firms, according to Bowens-Richard. Meanwhile, minority- led firms have an established performance history of 15 years, on average.
She partially attributes the new interest to emerging wealth: “A new generation of investors is coming in, and it’s highly diverse in terms of age, gender, and lifestyle.”
The new population of wealth coupled with the lasting effects of the COVID-19 pandemic has caused a spike in values-driven investing. Add to that the spotlight that’s been cast on racial inequities in the U.S., and it’s easy to see why investors are putting more money where their beliefs lie.
Client benefits of diverse asset managers
Truist believes there are benefits to investing in strategies owned by diverse firms or led by diverse teams, and provides opportunities for clients in nearly every asset class across the global landscape. Here’s what to know about diverse asset managers, whether you solely invest based on your beliefs or want to incorporate more of your values into your portfolio.
Diversity inherently fosters creativity of thought. Being comprised of various backgrounds and perspectives allows diverse asset managers to solve complex financial problems, which can be additive to client portfolios over time.
Diverse asset managers give clients an opportunity to support firms that reflect their own communities or interests (for example, supporting Black- or women-owned businesses). Similarly, diverse asset managers can uniquely relate to diverse clients, understanding their financial challenges and goals and how to manage them.
Diverse asset managers, in many cases, constitute a broad pool of untapped talent that has room to take on new clients. “Truist has more than 80 solutions across 30 different asset classes recognized as diverse,” Bowens-Richard explains. “Clients interested in diverse asset management can approach it from a total portfolio perspective if they are inclined.”
Traditional firms can sometimes be slow-moving in their decision making, whereas smaller firms can be more efficient and able to quickly tap into innovative ideas.
1 “Knight Diversity of Asset Managers Research Series: Industry,” Knight Foundation, December 7, 2021.
2 “Portfolio Perspective—Diverse managers can deliver positive outcomes in portfolios,” Truist, June 2, 2021.