Some of the UK’s largest pension schemes have created a group to push for greater diversity in fund management. Andrew Holt reports.
Some of the UK’s largest pension schemes are working together to improve diversity in the fund management industry.
The Church of England and various local government pension schemes are just some of those collectively managing more than £1trn of retirement assets to commit to a diversity charter to tackle the issue head on.
Signatories to the Asset Owner Diversity Charter are committing to consider diversity and inclusion when appointing fund managers.
The charter is being managed by the Asset Owner Diversity Working Group, which has been formed by Nest, Railpen, the pension schemes of the West Midlands and Lothian as well as London CIV and Brunel Pension Partnership.
It is co-chaired by Helen Price, stewardship manager at Brunel, and David Hickey, portfolio manager at Lothian.
Diversity questions will form part of the selection process – meaning that fund managers wanting to work with these asset owners will have to disclose information on, and demonstrate their commitment to, tackling diversity and inclusion within their workforce.
Signatories also commit to include diversity as part of ongoing manager monitoring with a questionnaire provided to managers annually for completion. A key aim of the group is to create standardisation to improve disclosure.
The questionnaire goes beyond asking about the strategic approach by identifying how managers look at diversity and inclusion across five areas: industry perception, recruitment, culture, promotion and leadership.
This initiative has been launched as the Financial Conduct Authority opened a consultation to push for greater diversity in listed firms.
Setting out the rationale for the commitment, Brunel’s Price said that diversity continues to be a problem for the financial industry. “Information on race, age, ethnicity, sexuality and socio-economic backgrounds are not being consistently collected in a way that equips the industry to identify barriers and make meaningful progress.
“We expect fund managers to manage diversity as a material investment issue, but we question how well they are doing this if they are doing little to address it in their own organisations.”
Price added that progress in this area has been slow. “By asking for this information fund managers will have to confront poor performance and begin taking much needed action on diversity.”
The idea is that as the world’s top 10 fund managers are responsible for $40trn (£29trn) in assets, if they promote diversity, this could have a big impact on the issue globally.
Diandra Soobiah, head of responsible investment at Nest, said a conciliatory approach between asset owners and fund managers was vital to achieve success on the diversity issue.
“As asset owners we want to work with fund managers to encourage diversity balance at all levels of their company and help build a fairer and more equitable investment industry that better represents our members,” Soobiah said. “Having a diverse range of skills, backgrounds and experience will lead to better investment decisions and financial outcomes for our members in the long term.”
Soobiah fires a warning that any fund manager unwilling to disclose such information should be a serious red flag for investors.
David Hickey at Lothian added he thought it reasonable for pension scheme members to expect their money to be run by a cross section of investment managers that reflect the diversity in the scheme. “At the moment this is not the case across pension schemes in the UK,” he said.
Hickey added that there existed a problem with hiring and an overall business culture in the investment industry. “Fund management front offices are currently dominated by white men, and we are not benefitting from the talent pools available in the population – the dominance of a single group suggests a problem with hiring and with culture.”
The new charter has the government’s support. Guy Opperman, minister for pensions and financial inclusion, said: “It is good to see pension schemes taking a lead in developing this charter and committing to work with the wider investment industry to improve diversity. I encourage all pension schemes to sign up.”
Those that have already signed include Avon Pension Fund, Coal Pension Trustees Investment, Cornwall Pension Fund, Environment Agency Pension Fund, LGPS Central and Local Pensions Partnership Investments.
The charter is a multi-year project; the questionnaire will be refined over time to include the findings of initiatives such as the Socio-Economic Taskforce. A progress report will be produced in a year to highlight developing best practice and to equip signatories with ongoing engagement.