Provoking conversation on assessing diversity in endowment management

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On February 12, 2020, Knight Foundation released findings from a study that analyzed the diversity among asset managers for the nation’s top charitable foundations. Knight’s Sam Gill and Juan Martinez share insights below. View the full report here, and see the press release here.

In early 2010, we were publicly asked how much of Knight Foundation’s $2.1 billion endowment was invested by asset managers whose ownership included people of color or women. We had never been explicitly asked this question but, given our values and the size of our endowment, we assumed the number would be material. 

We were wrong. The answer then was $7.5 million, managed by a single firm. The answer today is $805 million, or over a third of our current endowment. 

Like many leading independent foundations, we have an explicit commitment to equity and inclusion in our grant-making program. But our program spending is just a percentage of the assets we manage. As with all foundations, it is our assets, mainly a privately managed endowment, that yield the resources to invest in our program. 

But even as foundations have become increasingly creative in the ways they put their endowments to work to do good and to grow, discussions about diversity and inclusion in who invests the endowment have only recently come to the fore. 

There are many ways to consider how values of diversity, equity and inclusion can manifest in the management of an endowment. They might range from how funds are invested to the construction of a management team. We believe the question of diverse ownership, while not the only way, is an important one. In finance, firm owners reap great dividends from the value they create, and it is owners who have the greatest influence on how the capital they manage is invested and the makeup of their investment teams. 

Finance is fundamentally about equity. That is, who owns the capital. And our values argued for a more equitable distribution of the equity, so we resolved to do that. 

In the past few years, we’ve published two reports on the level of women and minority owned firms across the entire asset management industry. They concluded that total assets under management by diversely-owned firms is painfully low: around 1% of its $69 trillion in total assets under management across the entire asset management industry. These studies also found that the performance of minority and women firms is not statistically different from the rest of the industry—so we have to ask why they have so few assets under management.

In time, we also asked how we were doing compared to others. What was the state of our field, and what could we learn? Those are questions we’ve frequently been asked by a variety of stakeholders. 

These are all difficult questions to answer. We’ve also noticed that, without clear answers, supposition has filled the void. 

In trying to provide answers, we have struggled to report on how foundations are doing. Foundations are not required to disclose their investment managers outside of the IRS-required disclosure, which accepts general reporting so that identification of specific managers is often impossible to determine. 

That’s one challenge. Another is that it’s difficult to understand the ownership structures of asset management firms. In this report, the economic firm we commissioned, Global Economics Group (GEG), relied on definitions provided through widely used commercial databases, although those definitions are open to reasonable contestation. 

We regret the lack of transparency. If we can’t agree on, much less describe, the state of the world, how can we hope to engage in discussion about how to move forward? 

Because we believe this conversation is so critical, we decided to pose the question nonetheless: What is the representation of diverse-owned asset managers among philanthropic endowments? In response, GEG designed a study to assess the representation of women and minorities among asset managers used by the country’s top 50 charitable endowments, which collectively represent endowment assets of $290.3 billion. 

The first piece of good news is that charitable endowments are outperforming the industry in the representation of diversely-owned managers: 

  • All but four foundations for whom data was available (or provided) are investing some portion of their assets with diversely owned firms; 
  • Over half invest more than 10% of their assets with such firms; and 
  • Two foundations invest more than 30% of their assets with diversely owned firms, with the maximum invested amount equal to 45.9%.

The second piece of good news is the positive reception we received from our counterparts. Many shared additional data beyond what was publicly available. Others shared our goal but disagreed with the approach. Each foundation had the opportunity to comment, and several provided how they measure diversity in their enterprises and in their endowments. Their comments, in full, are included in this report

We thank these foundations for their responses and applaud their efforts. 

The goal of this report is to provoke a conversation—one that we hope will serve to improve our collective understanding, to clarify how we assess diversity in endowment management, and to enhance the available data on the field. And that will lead to a more equitable distribution of the equity generated by private foundation endowments. 

Sam Gill is chief program officer and senior vice president at Knight Foundation. Follow him on Twitter at @thesamgill. Juan Martinez is chief financial officer at Knight Foundation. Follow him on Twitter at @kfjuan


Photo (top) by Ben Neale on Unsplash.