Reflecting on DEI in Our Investment Practices

This post, by RBF Executive Vice President for Finance and Operations Geraldine Watson, was originally published by the Knight Foundation to mark the release of its new report, Diversity of Asset Managers in Philanthropy.

Since its founding in 1940, the staff and trustees of the Rockefeller Brothers Fund have increasingly recognized how our philanthropic efforts have influence beyond just grant dollars. The RBF, therefore, has taken the position that all its activities and resources must be utilized for meaningful progress toward its mission to advance social change, which contributes to a more just, sustainable, and peaceful world.

Over the last decade, we have sought to align the RBF’s investment capital and practices with this mission. Our Mission-Aligned Investment efforts include divestment from fossil fuels; impact investments; screening for environmental, social, and governance (ESG) criteria; and leveraging shareholder voting rights. We now recognize the need to further align our investments with our institutional mission by increasing opportunities for investment with firms led by women and people of color that have been historically underrepresented in the U.S. investment sector.

RBF trustees and staff acknowledge a moral obligation to do our part to address past and current injustices to groups that have been socially, politically, and economically marginalized. In 2010, we adopted a Diversity, Equity, and Inclusion Statement shaped by our values, our work, and the philanthropic traditions of the Rockefeller family. Although progress has been made, we acknowledge much more is still needed.

Racially diverse and female-owned firms account for only 1.3 percent of the financial industry’s $69.1 trillion assets under management. There is no performance gap that accounts for the paucity of capital allocations to those funds: research shows that investment return performance, in general, is statistically indistinguishable between funds led by people of color and/or women and funds led by others. As with divestment and impact investing, foundations have an important role to play in advancing diversity, equity, and inclusion (DEI) in the investment space. We can pioneer new metrics and new models of investment. We can send signals to the market. We can plant aspirational flags for investors to rally around.

The question is, where do we start? Over the past two years, the RBF has embarked on efforts to assess the current level of diversity among the managers in its own endowment holdings; sought to identify any bias in our investment processes; and explored how to increase the gender, racial and ethnic diversity of the investment managers in the portfolio. We are now developing a path to begin to remedy the shortfalls we may identify. A set of key framing questions underlie our internal discussions and thought processes to date:

  • What do we mean when we speak of “advancing diversity, equity, and inclusion in the investment world”?
  • Who is underrepresented and at what levels within the U.S. investment sector?
  • Are we investing in firms that are diverse on paper but are “snowcapped” by an all-white C-Suite?
  • How do we weigh employment versus retention? Are we investing in firms that hire diverse staff but can’t retain them?
  • How can we incentivize investment firms to foster environments where talented women and/or people of color can progress into senior investment leadership roles?
  • What language should we use to focus our efforts in advancing meaningful representation?

This is just the beginning of the Rockefeller Brothers Fund’s journey to integrate a meaningful DEI lens to its investing practices. We recognize that this will be a gradual process—it’s not going to happen overnight. Yet difficulty is no excuse for inaction when it comes to advancing our values.