Foundations

How the Kellogg and Kresge Foundations, the University of California and Georgetown Invest their Portfolios in DCI

Although only 1.3% of the $ 69 trillion in assets under management in the United States are managed by women and under-represented minorities, institutional investors interested in diversity, equity and inclusion ( DEI) have both grounds for cautious optimism and peers worthy of emulation. What can investors looking to advance DCI learn from pioneer investors Kellogg Foundation, Kresge Foundation, University of California Investments, and Georgetown investment offices?

Foundations investing their portfolios in DEI

A study sponsored by the Knight Foundation and conducted by the Global Economics Group found that foundations are moving towards diversity in their investment portfolios. Specifically, 16.6% of the nearly $ 67 billion in assets analyzed by the study are invested in businesses owned by various companies, up from 13.5% in 2020. The study also noted higher participation. foundations and increased transparency of foundation investments compared to last year. The share of assets invested in businesses owned by various companies increases as foundations increase their commitment to DEI.

Best practices of two leaders in DCI: Kellogg Foundation and Kresge Foundation

WK Kellogg Foundation. Engaged in providing grants for racial equity since the 1940s and 1950s, the Kellogg Foundation seeks to increase diversity, racial equity and inclusion in the investment industry in four ways. First, providing grants to advance racial equity through strategic partnerships focused on expanding career paths for diverse talent and high-level decision makers in the industry. Second, since 2009, the Kellogg Foundation has focused its diversified $ 4.4 billion portfolio on investing in businesses and strategies where people of color and women have significant decision-making power (part of the portfolio is made up of ‘Kellogg shares). Over 26% of the Kellogg Foundation’s assets under management in the United States are invested in majority-owned companies. The Kellogg Foundation also focuses on diversity-led strategies for managers who are not owned by diverse groups: its belief is that the long-term growth of diverse managers begins with promoting more diverse people to leadership roles. senior decision making in all companies. Third, as one of the oldest and largest initiatives of its kind, the Kellogg Foundation has dedicated $ 100 million of its endowment to Mission Driven Investments. The portfolio includes Market Rate Mission Linked Investments (MRIs) and $ 50 million from its program budget to strategically fund below market rate Program Linked Investments (PRI). Specifically, these investment pools, managed by a dedicated team, aim to reduce racial inequalities of wealth by providing capital, shared knowledge, best practices and other resources to various managers who reach under markets. -penetrated. Fourth, in 2020, the Kellogg Foundation launched its Expanding Equity program to advance racial equity in American businesses. The program was initially piloted with five investment management companies representing more than $ 300 billion in assets under management. In 2021, the program has grown to support more than 60 participating companies, with 3.5 million employees combined, in industries such as consumer goods, banking, retail and others, including investment companies representing more than $ 2,000 billion in assets under management.

Kresge Foundation. The Kresge Foundation’s strategy for removing barriers to equality in the management of investments has three components. First, the Kresge Foundation improves decision making by purposefully creating a more diverse and inclusive team. Second, it improves return on investment by finding and partnering with businesses owned by various companies. In 2019, the Kresge Foundation pledged to invest 25% of its US assets under management in women-owned businesses and various corporations by 2025. Today, 16% of the $ 4.2 billion portfolio Kresge dollars are owned by various companies. Third, it promotes opportunities for companies belonging to diverse groups and candidates for diversity by advocating for diversity, equity and inclusion within the industry. Last year, the Kresge Foundation and the John D. and Catherine T. MacArthur Foundation partnered with financial technology firm Lenox Park Solutions to study and assess the racial and gender diversity of ownership, leadership and ownership. workforce of US asset management companies that invest a total of $ 10.8 billion on their behalf. The majority of the portfolio submitted responses and demonstrated transparency.

Endowment funds investing their portfolios in DEI

Outside of the world of foundations, a critical mass of the 25 largest university endowments publicly disclose data on the diversity of the managers of their portfolios, mainly at the request of Congress. The executive director and founder of the Diverse Asset Managers Initiative, Robert Raben, explains: “Analysis of the disclosures of university endowments reveals that virtually all of them lump racial, ethnic and gender identities into ‘diversity’, which makes it difficult to identify. knowledge of race, ethnicity and gender. breakdown of managers in their investment portfolios, or if the managers are based in the United States. The University of California and Georgetown stand out with their top-notch diversity data on their portfolio managers. Of course, reporting doesn’t necessarily equate to portfolio diversity, but it does mean a willingness to be held publicly accountable.

University of California. The California State Legislature has asked the University of California Investments (UC Investments) to publicly report on its diversity metrics for managers of its $ 168 billion one-year portfolio, and since then UC Investments has voluntarily posted on these and more. UC Investments’ second annual report, released last summer, is the most detailed examination of the gender, racial and ethnic makeup of a college or university to date. UC Investments also reports publicly to DEI at each of its investment committee meetings, which are broadcast live.

More generally, UC Investments sets DEI objectives for its managers, aiming to increase the share of diversified managers in its portfolio, the number of diverse talents in its team and, thanks to a collective commitment of the company in partnership with other investors, the level of diversity and integration into the companies in which it invests. Over the past year, UC Investments has invested in several new diversified managers, two of which have already generated outsized gains.

Georgetown University. Among university endowments, Georgetown’s was the first to voluntarily disclose statistics on the diversity of managers in its portfolio, and it did so ahead of Congress’ request. In the four years that the Georgetown investment office formally surveyed its managers on the diversity of their workforce, several dimensions of diversity in its portfolio have increased, including the number of managers belonging to various groups.

“Stop making promises. Performance report. And demand the same from the holding companies ”

Clara Miller, founder and former CEO of the NGO Nonprofit Finance Fund and former CEO of the FB Heron Foundation, would be delighted. She recommends, “Stop making promises. Report performance. And demand the same from portfolio companies.

Shareholders are asking companies to reveal gender and diversity data on their workforce, with at least ten shareholder proposals to publicly release data on gender, race and ethnicity of the workforce. work which they report to the Equal Employment Opportunities Commission during the last proxy season. The advantage of “EEO-1” data is that companies are already producing the data, which facilitates peer-to-peer and longitudinal comparisons.

IBM

IBM
and Union Pacific

UNP
shareholders overwhelmingly supported resolutions to disclose DCI data at their last annual meetings. At the other end of the spectrum, Moody’s

AGC
got the blessing of the U.S. Securities and Exchange Commission (SEC) last February not to include an EEO-1 proposal in its ballot, arguing that the data only covers one-third of its global employees who are found in the United States. In the middle of the spectrum, Nike and Walmart

WMT
pledged to publish EEO-1 and at the same time asked the SEC for permission to exclude diversity disclosure proposals from their ballots.

Start preparing now

With the SEC drafting human capital disclosure requirements that may include diversity data, publicly traded companies and investors may soon be required to publish diversity information. With asset owners increasingly asking their portfolio managers about diversity, equity and inclusion, even private investors may soon have to disclose diversity data to at least their investors, if not more widely. Issuers and investors alike would do well to start preparing now.