Investing for Change: Institutional Investors Push to Incorporate Diversity, Equity and Inclusion in Private Markets Portfolios
Evidence supporting the positive impact DEI has on private market performance is mounting. Mercer’s white paper, The Power of Change: The what, why and how of creating a diverse private market portfolio, addresses why incorporating DEI into private market portfolios could result in performance that outperforms benchmarks. For example, recent research suggests diverse teams make better decisions1 and are less likely to be influenced by unconscious biases. A 2019 study conducted by the
“The pandemic and growing demand for social change, coupled with market volatility, have made investors realize that change is here. There are many benefits to embracing DEI, as well as risk mitigation considerations. By creating a private markets DEI investment program, institutional investors can send a strong signal to asset managers that diversity is a priority. We are working with managers and asset owners to help them transform investment management through their portfolio investment choices,” said
To develop and implement an effective DEI investment program in private markets, it is essential to have a clear, consistent and quantifiable definition of what the term means in investment practice. Criteria that Mercer believes to have considerable influence on the success of a DEI program include fund manager ownership, investment team composition, investment committee composition, thresholds and alignment. In Mercer’s view,the investment committee composition is the most meaningful criteria when evaluating the levels of DEI at a private markets fund manager, as this is typically where final investment decisions happen.
“Not only are we encouraging our clients to focus on creating a diverse and inclusive culture and helping to ensure that shareholder value has the chance to grow through DEI, equitable benefits, social investment and pay equity, but also we are aiming to live this ourselves through our organization. We feel that success is measured by our financial and client engagement results, as well as how well we are attracting and retaining talent with diverse backgrounds and experiences,” said
“Specifically, we have made progress improving gender parity over the last five years within Mercer, and we are doing more to develop and retain women in leadership roles. Our diversity agenda also includes targets that will hold us accountable for increasing the representation of our racially and ethnically diverse colleagues. Additionally, we are using our own history of ESG investment strategies to advise and bring creative solutions to clients seeking to invest in under-represented segments of the private market universe, focusing on women, Black, LatinX, LGBTQ+ and other managers that may have historically faced systemic bias,” concluded Ridge.
Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of
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2 Examining the Returns, 2019, NAIC