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WTW research shows diverse investment teams outperform

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New analysis released by WTW has revealed that an investment team with a greater level of diversity leads to better investment outcomes. In the company’s new paper, Diversity in the asset management industry: on the right track but at the wrong pace, data shows that investment teams in the top quartile of gender diversity outperform the bottom quartile by 45bps per annum in terms of net excess returns.

The detailed diversity data, collated from over 1,500 investment strategies, has also been broken down by asset class. The findings show equity and credit displaying a gender diversity premium of 46bps and 14bps per annum respectively.

In future years, WTW writes that it will provide additional insights into diversity data through the WTW Diversity Index, which will allow an investment strategy to measure and compare its diversity to peers today, as well as its optimal diversity level. This will enable WTW to monitor the diversity premium at an even more granular level over time, the firm says.

Additional data collated this year from over 400 asset management firms on DEI (Diversity, Equity & Inclusion) shows that only 42 per cent of asset managers responding currently have any measurable objectives in their DEI policy, while nearly half (49 per cent) have no targeted initiatives to attract more senior diverse talent.

While the industry has largely focussed on gender and ethnicity to date, two of the largest underrepresented groups in absolute terms, WTW is also encouraging all firms to expand data collection across other inherent and acquired traits of diversity such as disability, sexual orientation, socioeconomic diversity and neurodiversity.

The results of WTW’s research furthermore found no meaningful relationship between organisational size and greater diversity across ownership or senior leadership, indicating that while there may be a perception that larger firms are able to appoint specialist resources and implement more DEI policies and initiatives, this does not always translate into increased overall diversity.

Chris Redmond, Head of Manager Research at WTW, says: “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.  We are hopeful that the truly extraordinary investment performance benefits linked to superior diversity can serve as a catalyst for acceleration. That is why we believe it is crucial to analyse the data on an ongoing basis to track where we are as an industry and to stimulate conversations. However, it is also important that we look beyond pure numbers to form a robust qualitative view on DEI and culture to really understand how each asset manager is progressing and how quickly it will take to reach their targets.”

Paula Robinson, Director, US Equity Manager Research at WTW, says: “We have integrated DEI across our research and portfolio management processes, compelling  us to engage with asset managers to improve and share best practice.  We have also built out a comprehensive DEI reporting toolkit for asset owners to set out, and set off, on their own DEI journey. The long term success of DEI requires asset managers, investment consultants and asset owners to collectively commit to change.”

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