UK pension funds warn diversity will count when choosing asset managers


Financial services updates

Asset managers have been put on notice to tackle the lack of diversity in their workforce or risk losing clients by a group of UK pension funds and investment consultants that collectively oversee more than £1tn in assets.

The group, which includes UK workplace pension scheme Nest and the Church of England Pension Board, have signed up to a new charter that commits them to including factors such as gender and ethnic mix in their decisions about which fund managers win contracts to manage money.

The move comes as the fund industry struggles to tackle the lack of women and non-white people in the sector, especially in investment functions. Although asset managers have been outspoken about the need for companies they invest in to increase diversity and have campaigned to end all-male boards, the sector itself has repeatedly been dubbed “pale, male and stale”.

Data from Morningstar shows there are more funds in the UK run by men called Dave than by women. The Investment Association, the UK trade body for asset managers, found in separate research that fewer than 1 per cent of UK investment managers are black.

“Progress in the investment industry has been very slow. Despite numerous initiatives, we are still seeing a lack of diversity,” said Helen Price, stewardship manager at Brunel Pension Partnership and a key figure behind the charter.

Guy Opperman, minister for pensions and financial inclusion, welcomed the charter, adding that asset managers needed to be “more representative” of savers.

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The charter has been devised by several of the largest pension schemes in the UK, including RPMI Railpen, West Midlands Pension Fund and Lothian Pension Fund. It has also been backed by several investment consultants, which advise pension funds and other clients on where to invest their money.

Under the charter, diversity questions will form part of the overall assessment score for each fund manager when they are bidding to win a new contract, or mandate, to manage money. This means they will have to disclose information about the diversity of their workforce, something many have been reluctant to do in the past.

Price said the “events of the past year”, in particular the killing of George Floyd in the US, have meant diversity was “front and centre” at many pension funds.

She added that information about race, age, ethnicity, sexuality and socio-economic backgrounds are “not being consistently collected in a way that equips the industry to identify barriers and make meaningful progress”.

“We expect fund managers to manage diversity as a material investment issue, but we question how well they’re doing this if they’re doing little to address it in their own organisations,” she added.

Research last year by Willis Towers Watson, the investment consultancy, looking at more than 2,400 individual investment teams around the world, found that diverse groups outperformed those with no gender or ethnic minority employees by 20 basis points a year on average.

Diandra Soobiah, head of responsible investment at Nest, said: “Having a diverse range of skills, backgrounds and experience will lead to better investment decisions and financial outcomes for our members in the long term.”

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The charter has developed a questionnaire signatories can use. This currently focuses on ethnicity and gender diversity, but will be extended to include other metrics such as socio-economic background.

Signatories also commit to including diversity as part of continuous monitoring of investment managers.



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