Two national foundations have teamed up to systematically champion a more diverse, equitable and inclusive investment industry. The Kresge Foundation and the John D. and Catherine T. MacArthur Foundation, based in metro-Detroit and Chicago, respectively, have partnered with financial technology firm Lenox Park Solutions to survey and assess the racial and gender diversity makeup of the U.S. asset management firms that invest a combined $10.8 billion on their behalf.

The financial services industry, and specifically the investment field, has been contemplating its lack of diversity for decades. A host of reports, however, indicate that women and people of color continue to be significantly underrepresented, especially in leadership positions.

Nationwide, asset management firms manage more than $250 billion on behalf of the top 50 foundations in the United States, yet a 2017 Knight Foundation study found that women and diverse-owned firms manage just 1.1% of the $71 trillion total assets under management.

“We know that diversity of thought, background and beliefs leads to better investment decisions and returns. So dismantling barriers that impede opportunity is not only the right thing to do, it’s the smart way to work,” said Kresge Vice President and Chief Investment Officer Robert J. Manilla. “We are early in this journey, but one thing has become glaringly apparent: talent is spread evenly across the investment industry, but opportunity is not,” Manilla said.

“MacArthur is actively examining our approach to achieving impact with our investment assets, including increasing the diversity of our asset managers,” said Susan E. Manske, MacArthur’s Vice President and Chief Investment Officer. “Through this partnership, asset managers also have the opportunity to assess and advance the diversity of their staffs to distinguish themselves among their competitors. Ultimately, we seek to expand racial, ethnic, and gender diversity in the financial services industry and consistently reflect our values as a mission-driven organization with our investments.”

Lenox Park is a leader in centralizing demographic data within the investment industry. It fosters greater transparency and standards for diversity, equity, and inclusion (DEI) by combining its experience in the DEI space with tech-enabled data aggregation and analytics tools. Lenox Park has developed a comprehensive diversity assessment that maintains the importance of diverse firm ownership while capturing other metrics like leadership and staff demographics, hiring, attrition and board representation. The assessment provides a more complete picture of a firm’s culture of inclusion and invites others – regardless of their diverse ownership status – to engage in the industry’s DEI discussion.

To encourage broad survey participation and increase data transparency, Kresge and MacArthur are actively recruiting other nonprofit investment offices such as those at community, private and family foundations; university endowments; and pension boards to use the standardized Lenox Park survey solution.

“Asset management firms report receiving multiple, disparate diversity surveys from their customers on an ongoing basis,” said Lenox Park Founder and CEO Jason Lamin. “Our proprietary data aggregation tool was designed to minimize this ‘survey fatigue’ by using various elements of technology to standardize survey questions, and provide a single, user-friendly interface where managers can self-report and fulfill multiple client requests. The platform also allows managers to easily update their data on a real-time basis to reflect internal demographic changes outside of limited partner inquiries.”

As limited partners push toward more gender and racial diversity, the investment industry has much to gain. A McKinsey report indicates that companies in the top quartile of racial and ethnic diversity were 35 percent more likely to have financial returns above their national industry median.

“All the research we’ve seen supports that firms with greater diversity and cultures of inclusion perform better; they are also better at minimizing staff attrition and at mitigating risk. The challenge has been how to more sustainably incorporate these factors into investment practices. Our experience is that limited partners who are intentional and consistent in assessing the DEI of their managers are able to do this by establishing clear accountability measures, and then following up to guide their partners toward improvement,” says Lamin.