Evolving Our Definition of Diverse Managers

August 4, 2022 |
3 minute read

Investing in diverse managers has evolved considerably over the last five years, catapulted by client demand, broad social concern over events such as the murders of George Floyd, as well as a growing body of research on the breadth and quality of diverse managers and the benefits of diverse teams. 

Diversity in asset management is at a critical juncture.  While significant momentum exists with respect to the inclusion of women and People of Color in decision making roles, it is less clear how to define a minority or diverse manager.  Many definitions exist, from strict ownership percentages to explicit headcount requirements.  At Commonfund, we decided to be more flexible in our approach to widen the aperture of diversity as much as possible.  Our goal is to be more inclusive, not less. Yet, at the same time, we recognize the need to apply rigorous criteria to ensure that the portfolios that we construct embrace diversity thoughtfully and consistently.  This brief statement defines our goals and our process. 

— Mark Anson, Chief Executive Officer and Chief Investment Officer, Commonfund

Commonfund has a long history of investing with diverse managers, but in early 2017 we began to purposefully include them in the manager search process across asset classes.   

This focus led to a steady increase in diverse manager representation from 10 managers and approximately 1.8 percent of Commonfund client assets to 41 managers and approximately 8.3 percent of assets under management over the six years ending June 30, 2022. At the time, Commonfund defined diverse managers as “investment firms with 33% or more diverse ownership” and included “women, Black/African American, LatinX, Asian, and/or indigenous descent, veterans and/or people with disabilities, and other diverse persons potentially not captured in these categories.” 

Deciding what the best definition of diverse managers should be is not obvious. There is no single correct or even best answer.  Investor thresholds of diverse ownership vary widely from as low as 20 percent to as much as 100 percent, with a wide variety of categories of inclusion. Our initial choice to measure diversity according to 33 percent ownership was based on a combination of institutional investor emphasis on ownership, together with our own research on the available universe of diverse managers. However, even as we set that definition, we were aware of its shortcomings, primarily that as the sole measure of diversity, ownership overlooks other forms of leadership such as profit participation or membership in a firm’s executive ranks.  It also does not address the desperate need for a diverse investment talent pipeline, and as such the longer-term objective of increasing equity for diverse persons. Furthermore, it does not recognize the potential value of diverse teams in generating improved business outcomes.1 

Within the asset management industry, we have much greater awareness and understanding of the diverse manager landscape today than we did six or seven years ago. We have many more diverse managers, and we have more data on the benefits of diverse teams.2 We also now have multiple studies that show that distributions in performance of diverse managers are in line with their Caucasian male peers, regardless of asset class.3 

Thus, it should come as no surprise that our definition would evolve over time.  In the summer of 2021, Commonfund embarked on a plan to expand the diversity details we gather from all managers in client portfolios, and specifically the details we gather on the diversity of investment teams. This naturally led us to reconsider our own definition and gave us the opportunity to imagine a broader definition that aimed to overcome the shortcomings of ownership alone.   

This turned out to be no easy exercise. Our Diverse Manager Group (“DMG”) included members of every investment team at Commonfund, a total of 17 people, to make sure we had broad consensus across teams. Together, we researched the definitions of our investment peers and other institutions we consider thought leaders with respect to diversity.  We considered multiple different definitions with the objective of choosing one that captured those elements of diversity our clients value most and that could be communicated easily.  

The DMG agreed to make three key changes to the definition: 

  1. We broadened the emphasis on ownership to capture profit participation and executive leadership as well
  2. We added the additional requirement that at least 25 percent of the investment team be diverse.
  3. We reduced the leadership threshold to 25 percent to allow for the additional investment team requirement.

Why reduce the threshold for inclusion to 25 percent? This decision was an effort to balance the desire to encourage and reward managers with diverse teams, with the recognition that diverse teams continue to be rare. We wanted to avoid making the requirements for diverse investment so onerous that we would reduce the opportunity set for both our clients and the managers themselves. To borrow on Mark Anson’s words above, we want to widen the aperture and facilitate more diverse investment, not less.

As of July 1, 2022, Commonfund defines diverse managers as “investment firms with 25 percent or more diverse leadership, as measured by ownership, profit participation or executive leadership, and 25 percent or more investment team diversity, which may include members of the leadership team. Diverse managers include women, Black/African American, Latinos/Hispanic, Asian, people of indigenous descent, veterans and people with disabilities and other diverse persons potentially not captured in these categories.” 

Learn more about how we are incorporating diversity, equity and inclusion at  Commonfund.

  1. Robin J. Ely and David A. Thomas, “Getting Serious About Diversity: Enough with the Business Case Already,” Harvard Business Review November-December 2020.

  2. Josh Lerner, Rahat Dewan, Jake Ledbetter and Alex Billias, “Knight Diversity of Asset Managers Research Series: Industry”, 2021. P.2 

  3. Ibid., p.3.

Caroline Greer


Caroline Greer

Managing Director

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