Applying the Endowment Model to Diversity and Inclusion

November 29, 2018 |
5 minute read

Commonfund recently launched a Diversity Office, a formal, cross departmental effort focused on diversity and inclusion. The mission of the Commonfund Diversity Office is to intentionally promote and foster institutional racial and gender equity through our investment processes, thought leadership, and professional and organizational development.

As a new Managing Director at the Commonfund Institute, and a member of the Diversity Office, I have been thinking about how our firm can effectively develop and implement strategies focused on fostering diversity and inclusion.

Many times when a group of people is trying to develop and implement something, they will use concepts they already know to aid them in constructing a new understanding. We explored the structure of the Commonfund investment philosophy, which has three components: Diversification, Equity Bias, and Liquidity Premium. This approach stems from the Endowment Model of investing, which Commonfund helped to create over the last 50 years.

We are adapting those Endowment Model concepts to develop a diversity and inclusion framework to guide our efforts as well as those of other organizations. First, we started with taking a closer look at the definition of an endowment.

In investing, an endowment represents money or other financial assets that are donated to nonprofits and are meant to be invested to grow the principal and provide income for future investing and expenditures. The endowment can contribute to the charitable mission of a nonprofit organization, ensuring its long-term success and sustainability.

Another definition of the word endowment is the quality or ability possessed or inherited by someone. Different people have different talents, backgrounds and experiences. We are all endowed with abilities and valuable perspectives that can help us contribute to the world. More specifically, different people with unique perspectives and abilities can contribute to the asset management industry as a whole, ensuring its long-term success and sustainability.

This definition of endowment, the quality or ability possessed by someone – recognizes and affirms that we all have something valuable to offer in the world, at work, and within the industry.

Then we examined the three components of the Commonfund Investment Philosophy as it relates to a Diversity and Inclusion framework.


In investing, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. A common path toward diversification is to reduce risk or volatility by investing in a variety of assets. Universally, asset managers understand diversification as a best practice, helping to manage risk and generate returns for investors.

In our diversity and inclusion efforts, we define diversity as including people who are different races, cultures, classes, genders, and abilities in a group, organization, or industry. Intuitively, we know that diversity matters, but research performed by McKinsey, Harvard and various other firms and institutions show that diversity actually increases financial, investment, operational, and organizational performance, contributes to increased job satisfaction amongst employees, and fosters more innovation and creativity.

With this definition and research to corroborate its importance, we define diversification as the process of recruiting, allocating, and retaining human capital in a way that increases exposure to new ideas, ways of thinking, people, cultures, and gender orientations, reducing the risk of group think.1 A common way to achieve firm and industry-wide diversification is for organizations to engage in a variety of partnerships and programs explicitly focused on increasing diversity and fostering inclusion.

Commonfund will be establishing and strengthening strategic partnerships with industry associations and organizations that work with diverse populations in the asset management industry like New America Alliance, Association of Black Foundation Executives, Toigo Foundation, and Girls Who Invest. These and other types of partnerships create pipelines to talented employment candidates, consultants, institutional board members, and fund managers while increasing accountability to staff, clients, and the industry.

As a firm we will focus on diversification because it is good for clients, performance, and the industry.

Equity Bias

Investors have a bias in favor of equities because they are a key component of generating returns and an integral part of a sound investment strategy. A bias is a disproportionate weight in favor of or against one thing, person, or group compared with another. In investing, we believe in an equity bias to capture the high return and long-term growth that they can provide.

Another definition of equity is the quality of being fair and impartial.

According to the United Nations Educational, Scientific, and Cultural Organization (UNESDOC), gender equity means fairness of treatment for women according to their respective needs. This may include equal treatment or treatment that is different, but which is considered equivalent in terms of rights, benefits, obligations, and opportunities.

Similarly, racial equity means addressing generations of structural racism (policies, practices, and cultural messages that have reinforced differential outcomes by race) and its consequences, the devastating impact on people of color within communities and institutions.

The Center for Social Inclusion has this to say about Racial Equity: “Racial equity is about applying justice and a little bit of common sense to a system that’s been out of balance. When a system is out of balance, people of color feel the impacts most acutely, but to be clear, an imbalanced system makes all of us pay.”

The equity bias, when applied to diversity and inclusion, is a bias toward fairness, access, and opportunity because it is a high return proposition for individual firms and the industry. The concept of being weighted toward equity takes into account that historically and in the present day, women and people of color continue to be systemically undervalued, underpaid, and excluded from opportunities when compared to their white male counterparts. Equity has to be the overarching goal to balance the decades of discrimination and exclusion faced by women and people of color; prioritizing women and people of color in recruiting, retention, and sourcing efforts is how we can make a real difference in the industry.

As a firm we will exhibit a bias toward equity, with a focus on fairness, access, and opportunity. This equity bias informs our diversity and inclusion strategies because it is absolutely the right thing to do.

Inclusivity Premium

In investing, the liquidity premium represents the extra return demanded by investors when an investment cannot be easily converted into cash for its fair market value. The extra return comes over time, when the value of the investment is realized.

To be clear, diversity and inclusion are not the same. Diversity is the immediate investment made in getting people with different experiences, skills, and perspectives into the room, which takes effort, energy, and time. Inclusion requires creating systems that allow diverse people to bring even more of their skills, experiences, in essence, their full selves to work. This in turn allows firms, and the industry, to capitalize on, or fully realize, the value of diversity over time.

Similar to the liquidity premium, we define the inclusivity premium as the extra return on diversity investments that may not be readily valued, or immediately realized, in the short term; inclusion activates the added value diverse perspectives and experiences can bring to firms and to the industry over time, and creates systems to ensure that women and people of color are equally resourced, supported, and put in positions to be successful. These systems include firm-wide mentoring programs that connect women and people of color to each other and to senior staff, enhanced organizational practices that track promotion patterns to ensure that diverse candidates who are high performing are being considered and promoted, and sourcing and diligence procedures that reflect a culture of transparency and inclusion.

As a firm, and an industry, if we are strategic, intentional, and committed to both diversity and inclusion, we will experience the tremendous additional value to be gained. In summary, this Endowment model offers the Commonfund Diversity Office a framework that can guide our diversity and inclusion efforts.

Commonfund is moving this work forward in the following ways:

  • Sourcing and placing diverse managers within Client portfolios;
  • Promoting thought leadership focused on the importance of diversity and inclusion;
  • Serving as a resource and clearinghouse of information for diversity in the asset management industry, and;
  • Providing firm-wide opportunities for professional and organizational development.

Our goal is to intentionally embark on a journey to foster gender and racial diversity and inclusion within our firm and increase opportunities through our platforms. We realize this work is hard, and as a firm, we have a lot to learn as we develop and implement our approach. We are committed to it, and look forward to sharing what we learn with the field and collaborating with our clients and industry partners dedicated to this work.

Finally, we encourage other firms to use this model to think about fostering racial and gender diversity in the field and build systems that not only bring these diverse people and perspectives to the table, but fully include, engage, and support them.

Visit our Commonfund website today to learn more about responsible investing. 

Group think-the practice of thinking or making decisions as a group in a way that discourages creativity, individual responsibility, and potentially perpetuates a bias toward another group (i.e., Us and Them).


Harvard Business Review 2018, The Other Diversity Dividend:

Harvard Business Review 2017, Diversity Doesn’t stick without Inclusion:

McKinsey and Company, Why Diversity Matters:

McKinsey and Company, Women in the Workplace 2018:



Stay connected with the Insights Blog

Popular Blog Posts

Market Commentary | Insights Blog

Chart of the Month | The Surprising Relationship Between Money Supply and Inflation

The potential for rising inflation is becoming a top concern for many investors and consumers. Many believe that inflation is already here as evidenced by price increases in commodities, homes,...
Perspectives | Insights Blog

In Remembrance: Verne O. Sedlacek

A Gentle Giant The Commonfund community was shocked and saddened this week by the news of the sudden passing of our former President and CEO, Verne Sedlacek at the age of 67.
Investment Strategy | Insights Blog

What is an OCIO?

Outsourced investment management, once primarily a solution for small institutions with limited resources, is now used by a broad range of long-term investors. When properly implemented, outsourcing...


Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.