It's official: Diverse investment teams deliver outperformance, per WTW
Greater gender diversity in an investment team can add 45 basis points per year in net excess returns, analysis by Willis Towers Watson showed.
The consultant's new research paper, Diversity in the asset management industry: on the right track but at the wrong pace, analyzed investment strategies across equities, credit and real assets, and cover global, U.S. and other geographies.
Using diversity data as of Dec. 31, 2021, and net performance data as of Dec. 31, 2022, WTW looked at more than 1,500 strategies across managers. The location of the managers could not immediately be learned. Relative performance was against a manager's self-selected preferred benchmark or the 3-month Sterling Overnight Index Average interest-rate benchmark.
The analysis found that investment teams in the top quartile of gender diversity outperformed the bottom quartile by 45 basis points per annum. How the consultant defined gender diversity and set its criteria for anayiss was not immediately available.
By asset class, equity and credit strategies showed a gender diversity premium of 46 basis points and 14 basis points per annum, respectively. Performance for real assets strategies was not available.
WTW will, in future, provide additional insights into diversity data through its Diversity Index, which measures any strategy's diversity vs. where it could be in terms of broadly represented by all genders and ethnicities. Starting this year, WTW will track the index for the industry, the paper said.
The index will also allow WTW to monitor the diversity premium at a more granular level over time.
WTW also collated data from 407 money managers on diversity, equity and inclusion, finding that 42% of respondents currently have measurable objectives in their DEI policy. Almost half (49%) have no targeted initiatives to attract more senior diverse talent, the paper said.
However, 40% of managers said they were measuring the gender and ethnicity pay gap, and 38% are measuring the bonus gap — the difference in pay and bonus between men and women at certain levels. Further, 56% of managers are members of industry diversity initiatives.
There was also no meaningful relationship between the size of an organization and greater diversity across ownership or senior leadership, WTW said.
The consultant now wants money managers to firms to expand data collection to other inherent and acquired traits of diversity, beyond gender and ethnicity, to disability, sexual orientation, socioeconomic diversity and neurodiversity.
"There has undoubtedly been progress made on diversity by many asset managers in recent years, but the fact is that the pace of change at an industry level is still slow and disappointing," Chris Redmond, head of manager research at WTW, said in a news release accompanying the paper. "We are hopeful that the truly extraordinary investment performance benefits linked to superior diversity can serve as a catalyst for acceleration."
Mr. Redmond said that, while it is crucial to analyze data on an ongoing basis, it is also important to consider a qualitative view on DEI and culture, understanding how each money manager is progressing and how quickly a firm will reach its targets.
Further details on the analysis were not immediately available.