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Driving diversity in alternative investments

Driving diversity in alternative investments

The conversation around diversity in alternative investments is changing.

When we look back at KPMG's annual Women in Alternative Investments Report in 2014, it was an uphill battle to convince firms to discuss the role that diversity plays in organizational success. Responses, and the associated pushback, became all too familiar: firms were meritocracies, we were told, and pursuing diversity or targets for gender balance should not be considered as it took the focus off what was important, and that was investment performance.

Over time, it has been demonstrated that, contrary to popular belief, the push for greater diversity is not a distraction from business imperatives, but rather directly contributes to higher investment performance and overall profitability. In one recent study conducted across eight countries, researchers found that not only was there a “statistically significant relationship between diversity and innovation outcomes in all countries examined,” but that the more diverse firms “had both 19 percentage points higher innovation revenues and 9 percentage points higher EBIT margins, on average.” Other studies, as well as anecdotal evidence, confirm and reinforce these findings.

Pursuit of workforce diversity is now a business imperative. Across the industry, it has become more widely recognized that diversity of thought and opinion is critical to making better business decisions. This diversity can only be achieved by attracting, hiring and retaining a broader range of people across gender, race, sexuality, physical ability, and other areas. As a result, the conversation is now shifting from why diversity is important to how organizations can attract and retain a more diverse workforce.

Addressing challenges and barriers

While the value of workforce diversity has become more widely accepted, progress toward achieving a more equitable gender balance in asset management has nonetheless been slow. KPMG professionals do see greater female participation in the alternative investments space; however, many of these women work in support and other non-investment roles. It is especially positive to see an increase in the number of women in senior leadership roles, though these women are more likely to work as the Chief Marketing Officer or Chief Financial Officer rather than a Portfolio Manager or Chief Investment Officer.

Speaking to women, there are a number of factors that affect organizations' ability to attract and retain female employees. Some challenges exist in the entry stage of women's careers, especially the cultural and societal expectations that play a large role in directing women's choices in education and early job opportunities.

For some women, alternative investments was not an area that they heard about as a viable career option, pointing to the need to continue programs to raise university-level awareness of potential roles in asset management. For others, there is a perception – regardless of its accuracy – that asset management is a 'boys' club' where women are not welcome or will face an especially challenging road to success. In the longer term, many women expressed concerns regarding the difficulty of managing a work/life balance with an asset management firm. These latter issues point to the need for a shift in workplace culture in some instances, and measures to better dispel the myths in others.

Creating inclusivity from the top down

Though the recent shift in the conversation around diversity is a strong positive sign for change, we have to recognize that there is no quick fix for an imbalance stemming from decades of structural inequity. Greater inclusion, and the creation of an industry that actively attracts and more importantly retains a wide variety of people and backgrounds, will require time.

For individual organizations, change has to come from the top. Leaders not only set the tone but can also create the specific programs, goals and measurements that are required to create meaningful change. Successful approaches seen to date include setting measurable targets for diversity hiring and retention, as well as tying diversity to compensation and rewards, creating both a carrot and a stick for forward progress. Having women on the Board of Directors is another significant step that can have cascading effects not only in the composition of the executive team but also throughout the organization as a whole.

When it comes to hiring and promotion, leaders need to push to see a diverse slate of candidates, especially for leadership roles. For example, if an organization is launching a new vehicle or fund, it should ensure that female and other diverse candidates are considered. Ensuring that diverse candidates are considered for internal promotions also helps ensure that an inclusive mix of individuals within the organization are given opportunities to excel.

Understandably, organizations that have made the greatest progress to date tend to be those that publicly champion or otherwise make a commitment to gender diversity. Not only are those that are participating in the discussion more likely to make advances, but those that have put a stake in the sand have a standard against which their progress can be publicly measured.

Individual actions for change

Even 5 years ago, women's voices were the ones pushing for greater gender diversity and inclusion. Now there are more men talking about the importance of a more balanced gender split, the necessity for an inclusive office culture and the uncomfortable truth that female co-workers may not have access to the same workplace opportunities. One important action that men are taking is helping support female talent in their organizations through sponsorships. Beyond mentorship, a sponsor can actively speak out on behalf of an individual in conversations surrounding promotion and advancement.

From the investment side, more investors are actively looking to invest in diverse organizations. Both male and female investors in pension funds, sovereigns and large endowments are starting to ask hard questions about organizational diversity as part of their investment making decisions. In some situations, no longer is it enough for funds to show diversity in their investments; they must also demonstrate diversity in their organizations. If this trend continues, firms' increasing awareness that investment opportunities are being lost due to lack of organizational diversity will provide an external motivator and competitive pressure for change.

Searching for solutions

As the business case for greater diversity and inclusion in the asset management space has already been made, the conversation can move on to more complex topics. In our upcoming Women in Alternative Investments Report, we turn the attention from why an organization should pursue greater diversity to the thorny question of how firms can best create an inclusive work environment that attracts and retains diverse talent.

The alternative investments sector is a fast-paced, challenging and fiercely competitive part of the financial industry – but in the pursuit of greater organizational diversity we are all working together. Through collaboration, mentorships and the sharing of ideas, together we can create a more profitable future where all can benefit.

For further reading on how you can encourage more diversity at the senior levels of your organization, please take a look at Bia Bedri, our Cyber Security Lead for Global Banking & Capital Markets tells her story and shares how the financial services industry can foster diversity in Diversity in Financial Services.

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