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Willis Towers Watson: Diversity improves returns

fund management diversityAsset managers with more gender or other diversity aspects among their portfolio managers could stand to win more business from investment consultant Willis Towers Watson (WTW) in the future.

WTW said it expected better “end-saver outcomes” for clients that had a more diverse range of asset managers managing their portfolios.

WTW’s move comes as the firm publishes a report and said progress on diversity across the whole investment industry has remained “disappointingly slow”.

The firm said asset managers who fail to encourage greater diversity or do not respond to growing asset-owner expectations may face a downgrading of their rating – a measure WTW said it had already taken in the past.

WTW has established “clear actions” to encourage the use of a more diverse set of asset managers in its clients’ portfolios. For example, its manager research team is targeting an increase of 20% in “discovery meetings”, where best-in-class asset managers are found, and that it expected to “increase its allocation to diverse investment teams within its delegated portfolios as it believes this will lead to better investment outcomes allowing for risk”.

WTW’s ‘Diversity in the asset management industry’ paper sets out a wider action plan to accelerate change, including for asset owners and consultants and its own business.

The firm has researched diversity and inclusion at asset management firms, including at the product level. The data-led process “goes beyond a reliance on a single metric, such as minority or female ownership”, and instead uses a more broadly-based Willis Towers Watson Diversity Score to establish a baseline view on gender and ethnic diversity.

This is supplemented with the more nuanced aspects of diversity gleaned through its qualitative manager research process, WTW said. 

A “call to action” by the firm for D&I includes encouraging firms and asset owners to be transparent with their D&I figures; source more diversity at the graduate level; and shift away from a star portfolio manager model to a teams model with diversity reflected in decision making.

The firm also wants asset owners and investment consultants to establish targets to increase the diversity in portfolios, with the associated improvement in expected performance.

Chris Redmond, head of manager research WTW, said: “Improving diversity is key to building a stronger investment industry, and our initial findings show that it is positively linked to performance outcomes. We recognise that businesses are at different points in their diversity journey today, and these proposed actions are just the starting point upon which the industry can build.”

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