Observations on Diverse Manager Selection Across Asset Classes

July 29, 2020 |
2 minute read
|

At Commonfund, we believe diverse managers offer clients access to investment talent and valuable investment opportunities and therefore should be explored and invested in. Overlooking the merits of these managers is a lost opportunity for clients, their portfolios and the missions they serve.

Notwithstanding their demonstrable merits, over the course of our searches for diverse managers across equity, fixed income and hedge funds, we noticed divergences in the relative availability of these managers as compared to their associated broader investment groups. Using the eVestment database, which primarily covers equity, fixed income and hedge fund manager listings, we identified 268 investment firms with 25 percent or greater women or minority ownership. These firms manage 1,094 investment products, a dismayingly small subset of the total universe of 4,437 firms and 24,870 funds.

Not surprisingly, many of these managers are clustered around the traditional asset classes, and within those asset classes, they appear to invest in strategies with the highest perceived demand.

img-chart-Diverse-Mgrs-Across-Asset-Classes

For example, of the 61 percent of managers focused on equities, 59 percent isolate their investments to U.S. equities. And indeed, this percentage is not far off the broader eVestment universe where 52 percent of equity managers invest in U.S. equities. Likewise, for fixed income, within 22 percent of the diverse manager universe, 79 percent of managers focus on investment grade or core strategies. Staying close to the locus of the strongest sources of U.S. investor demand makes logical sense, particularly given the difficulty diverse managers tend to experience in raising capital.

The flip side to this is that the distribution of diverse managers away from the core strategies and investment styles is thin, with few managers to choose from on both an absolute and relative basis. This is especially pronounced when it comes to hedge funds, where these managers are significantly under-represented. One oft-sighted reason is higher barriers to entry to launch hedge funds. For diverse managers, these barriers start with the investment industry’s broad under-investment in women and minority investment talent and mentorship. This under-investment leads to fewer women and minorities developing the necessary skill sets to launch their own funds, especially strategies which require higher levels of expertise. Other barriers include access to capital, with many minorities not having access to significant savings or friends and family financial backing. And these barriers are in addition to the usual track record, regulatory and operational hurdles to launching and running a successful hedge fund.

We are however, encouraged by what appears to be a steadily increasing flow of news and industry coverage on these managers, including the recent SEC Asset Management Advisory Committee webcast. As industry leaders become more attuned to the talent gap within their organizations and investor awareness of the benefits of investing in diverse managers rises, we hope that not only will the assets invested in diverse managers increase but that diverse managers with specialized skill sets will rise to meet this new and much deserved demand with the launch of more investment options.

Jason Casey

Author

Jason Casey

Associate Director

Jason Casey

Author

Caroline Greer

Managing Director

Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. 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. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

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 Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund 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 or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.

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Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. 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. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

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 Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund 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 or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.