Diverse Manager Net Flows Expected to Remain Positive in 2023

With less than 2% of global assets invested with women or people of color, many asset owners are seeking to be more intentional about allocating with diverse managers, says Cambridge Associates research.

“Investors increasingly recognize that diversity, equity and inclusion can enhance decision making and performance.”

A strong statement by Chavon Sutton, senior investment director of sustainable and impact investing research at Cambridge Associates, in a recent video highlighting the importance of fostering a diverse field of managers.

“Historically, allocations to diverse managers have waned during periods of market stress, as these firms tend to be younger and have fewer assets under management, but today’s investors are becoming more purposeful in their efforts to diversify their manager rosters, while also codifying their walk in their investment policies.”

To prove the point, a recent Cambridge Associates survey showed that 15% of respondents have already made DEI objectives part of official policy, more than 10 times 2020’s figure. Of the respondents who have implemented diverse manager strategies, 95% indicated they have increased allocations over the last five years, while 92% anticipate increasing their allocations even further over the next five years.

“U.S. public pension plans have long been investors with diverse fund managers. In recent years, this focus has expanded to family offices, corporate pensions, endowments and foundations,” wrote Jasmine Richards, head of diverse manager research, and Carolina Gómez, associate investment director of diverse manager research, in Cambridge Associates’ 2023 outlook. “While allocators’ journeys have varied, many have created diverse investing objectives and begun implementation. We expect allocators to continue driving capital to diverse managers in 2023.”

Given the specter of a recession in 2023, allocations to newly sourced diverse managers may be more unlikely, based on the assumed riskiness of association with newer firms that are unproven in multiple market cycles and scenarios, according to the study. Furthermore, Cambridge Associates highlighted that Despite these headwinds, Cambridge’s data indicated that institutional governance structure revisions instituted in the past few years will continue to support increased net flows to diverse managers.

The Cambridge data also depicted that capital raised by diverse U.S. private managers has increased substantially since 2010. As of 2016, the total amount raised by these managers eclipsed $10 billion annually, with 2018 delivering well more than $30 billion in by diverse managers.

Sutton summed up the outlook of diverse asset manager fundraising with the closing statement of the video: “In 2023, stronger, diversity-forward investment policies will continue to drive the earnest pursuit of meaningful change.”