How can fund managers increase their performance? One way is by increasing the diversity of their internal and external asset management teams.
This approach is beginning to take hold, though painfully slowly. The results of inaction are already apparent; what’s needed is decisive action. It’s a great example of doing well by doing good. Studies have consistently shown that diverse investment teams tend to outperform homogeneous teams, and companies with diverse leadership teams demonstrate greater innovation and resilience. Diverse teams bring a breadth of perspectives that allows them to see more opportunities and perceive associated risks.
A hallmark of pension plans is to deliver long-term growth through diverse investments, spreading investments across different industries to manage risks and maximize returns. How better to do that then by having a diverse team scouting and analyzing opportunities? Yet, according to a recent commentary in Pensions & Investments, only 1.4 per cent of the more than $80 trillion under management by financial firms in the U.S. is with firms owned by diverse fund managers.
The biases inevitable when a homogeneous group dominates decision-making means there is a “devastatingly destructive lack of capital for people of colour” in that country, according to this article. The author, Roy Swan, points to research by Bank of America, Citigroup, and McKinsey finding that if these race-based barriers were removed, the resulting opportunities would generate $5 trillion in the U.S. economy in just five years. The entire society would benefit.
Swan is Head of Mission Investments for the Ford Foundation – a $16-billion private U.S. foundation with the goal of advancing social justice through financial investment. According to the article, the Ford Foundation’s $1-billion impact investment endowment has allocated 65 per cent of its capital to diverse fund managers, creating a portfolio that generated annual returns of 28 per cent in its first five years – impressive results that clearly prove the point.
The situation is similar in Canada. A recent report by McKinsey & Company on diversity at private equity firms in both Canada and the US found men are still 2.75 times more likely than women to be promoted into senior, decision-making roles. Some firms are making strong progress on this front, with women starting to occupy C-suite roles.
The financial success of those firms clearly demonstrates the power of this move – both financially and culturally. The story is similar for those who identify as an ethnic or racial minority. When it comes to Indigenous representation, the financial investment industry remains mired in a colonial past. [Of the more than 19,000 Chartered Financial Analysts in Canada only five self-identify as Indigenous.]
Over a multi-decade finance and M&A career in both Canada and the U.S., I have met only a handful of peers in a decades-long career. We are in a time of economic reconciliation. With the recent adoption of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP), there is an unprecedented opportunity for pension plans, foundations, and other funds to collaborate with First Nations and support Indigenous-led initiatives. Yet, First Nations’ projects struggle to get funding and there are few Indigenous people working in the sector.
As we navigate the complexities of the reconciliation process, it becomes evident that meaningful and substantial change must be pursued across the breadth of Canada’s investment sector if we are to address the longstanding injustices faced by Indigenous peoples in our country. Finance is the lifeblood of most businesses and projects, necessary for economic development and self-determination as well as a key ingredient for long term self-reliance. Achieving this will require that funds employ Indigenous asset managers. They will bring a unique perspective to the table, a wealth of knowledge and experience that can help identify investment opportunities aligned with Indigenous values such as sustainability, community engagement, and land stewardship.
By incorporating Indigenous asset managers into investment strategies, funds can actively contribute to Indigenous economic development and empower communities. They can ensure the recognition of Indigenous peoples' right to free, prior, and informed consent, as well as their right to self-determination.
Of course, bringing Indigenous asset managers into investment funds is just one small part of the solution to advancing economic reconciliation in Canada. But it’s an important one. And, of course, the issue goes beyond Indigenous inclusion to all diversity. Funds will equally benefit from diverse hiring across all gender, ethnic, neurodivergence, and other spectrums.
The solution? Investment fund owners and managers responsible for hiring practices and investment decisions should consider two things – first, the importance of including Indigenous asset managers in investment strategies and, second, how they might embrace the opportunity presented by working in partnership with First Nations. Doing more on these fronts will both advance economic reconciliation and contribute to the long-term success of their funds.
Yes, it will mean taking the risk of bringing in new, first-time managers – but we were all new at one point in our careers, and with that new manager will come a new perspective. Before you can fix a problem, you have to acknowledge it.
Fred Di Blasio is a member of the Huron-Wendat Nation and the co-founder and CEO of Longhouse Capital Partners, an Indigenous alternative asset manager. He is the former EVP of Nch’ḵay̓ Development Corporation and has held executive roles AT&T, TELUS and INVIDI Technologies. He is a graduate of University of Cambridge.