Each year, The Gambrell Foundation team attends the annual meeting hosted by Philanthropy Southeast, formerly Southeastern Council of Foundations. My favorite sessions are usually the investment pre-conference and plenary speakers, and this year was no exception. In my recap, I would like to feature the investment panel comprised of three Fund Evaluation Group (“FEG”) female professionals, who advised on how to incorporate Diversity, Equity, and Inclusion (“DE&I”) into an investment strategy.

To begin, the panelists asked that foundations consider their intention to increase their allocation to diverse managers? Specifically, which type of diversity are you targeting, and what does success look like to you? These thought-provoking questions forced the audience to take a step back and think strategically. To set the stage, one speaker qualified the current environment by recalling that firms owned by women and people of color only control 1.1% of the $71.4 trillion U.S. asset management industry, according to a report commissioned by the John S. and James L. Knight Foundation.

Next, the panelists recommended the following tactical approaches for foundations to consider:

Set a minimum threshold for firm ownership diversity (e.g., FEG will not add a manager to their platform unless the firm ownership consists of at least 40% people of color).
Codify goals and definitions, and document in the foundation’s investment policy statement (“IPS”).
Proactively search for diverse investment managers. For example, FEG began tracking demographic information in January 2017 and shared that the breakdown of new full- and part-time employees comprises 49% female, 15% people of color, and 36% white male as of December 2020.
Establish a baseline by assessing the foundation’s current portfolio manager DE&I compositive and compare it to a benchmark, such as the MCSI All Country World Index.
Systematically utilize the Rooney Rule, meaning anytime there is an open position, the organization would interview at least one or more diverse candidates and maintain this approach going forward.
When evaluating an emerging diverse manager, consider previous performance records with a previous reputable firm in conjunction with current performance history at a newly established firm, representing the manager’s true overall performance history and investment capability.

Finally, the panelists closed their remarks by recommending two approaches for building DE&I into the portfolio:

  1. Long-term pool approach establishes a strategic target, such as 15%, that the portfolio will seek to achieve over the long run.
  2. Total portfolio alignment overlays a DE&I strategy across the entire portfolio.