UP CLOSE | The Investments Office’s diversity “smoke screen”


UP CLOSE | The Investments Office’s diversity “smoke screen”

How Yale and its peer institutions keep their assets under primarily white management

Published on April 4, 2023

In its public statements, Yale’s Office of the President often celebrates diversity. A quick look through recent statements turns up titles like, “Yale’s Steadfast Commitment to Diversity,” “Yale Will Continue to Foster a Diverse and Vibrant Educational Environment” and “An Excellent Faculty is a Diverse Faculty.” 

“By bringing people of different backgrounds, talents, and perspectives together, we best prepare our students for a complex and dynamic world,” one statement reads.

Yale was quick to take up rallying cries in support of race-conscious admissions when a nonprofit challenged the practice in lawsuits against Harvard University and the University of North Carolina at Chapel Hill in 2014.

Since then, Yale has joined 14 peer universities — including all six remaining members of the Ivy League — in a joint amicus curiae brief defending the use of affirmative action in college admissions. The brief, filed with the Supreme Court in August 2022, justifies ethnicity- and race-conscious admissions practices on the grounds that they are “crucial to achieving a richly diverse academic environment that enhances students’ educational experiences and maximizes their future success.”

But for all of Yale’s fervent advocacy in the public sphere, the University has been notably less enthusiastic about diversity in the private management of its $41.4 billion endowment. Despite ongoing calls for transparency, Yale and other elite universities continue to withhold data on the diversity of the managers who oversee their endowments. Although these universities often claim that they are working to improve asset manager diversity, experts in the field argue that data secrecy hinders institutional accountability.

The Yale Investment Office building at 55 Whitney Ave. (Tim Tai, Photography Editor)

These policies of nondisclosure come even as research finds that white- and male-owned firms continue to dominate the asset management industry.

Endowments and asset manager diversity

Most elite universities follow the so-called “Yale Model” when investing to grow their endowments. The Yale Model is a framework for institutional investing developed by long-time Yale Chief Investment Officer David Swensen, who managed the University’s endowment for 35 years until his death in 2021.

The Yale Model instructs broad asset diversification, allocating fewer assets to traditional U.S. equities and bonds and more to alternative investments like private equity, venture capital, hedge funds and real estate.

Because endowment offices are limited in staff capacity — and because alternative assets require specialized expertise — universities outsource much of their investing to third-party asset managers.

These external management firms oversee designated pieces of their clients’ portfolios. They are contracted by university endowment offices as fiduciaries, financial agents legally compelled to act in their clients’ best interests.

Minority- and women-owned asset management firms manage just 1.4 percent of U.S.-based assets, according to a 2021 study by the Knight Foundation, which funds journalism, arts and research in the areas of media and democracy. The Knight Foundation defines minority- and women-owned firms, also known as “diverse-owned firms,” as those whose ownership is held by at least 50 percent women or “racial/ethnic minorities.”

Nevertheless, these firms represent approximately 12.2 percent of U.S.-based asset managers. Evidently, such firms are grossly underrepresented in allocators’ portfolios; if they were perfectly represented, we would expect them to control the equivalent 12.2 percent, rather than a mere 1.4 percent, of assets under management. 

The Knight Foundation’s ongoing research series on asset manager diversity follows its decade-long effort to employ more diverse-owned firms in the management of its own multi-billion dollar endowment. Today, over a third of the Knight Foundation’s endowment, or approximately $1.07 billion, is overseen by diverse-owned managers, a list of which the Foundation publishes on its website.

There are two common, albeit debunked, arguments that asset allocators use to justify their disproportionate reliance on white- and male-owned firms: the performance justification and the pipeline justification.

Perceived performance tradeoff

The first line of reasoning boils down to performance. While asset allocators generally agree that diversity is important, most investment professionals — especially white ones — perceive a negative financial trade-off that comes with prioritizing diversity.

In a 2021 Morgan Stanley survey, 56 percent of asset owners agreed that “they must choose between financial gains and incorporating diversity into their investment decisions.” And there is a sizable opinion gap by race — 70 percent of white asset owners agreed, compared to just 35 percent of non-white owners.

“The survey … does not take long to point out that this is a perception issue,” Daniel Villao, CEO of Intelligent Partnerships, Inc. and former chair of the National Board of Directors for the Association of Latino Professionals for America, told the News. “The fact that the existing cadre of leading minds is uncomfortable with change really drives the status quo and means that the lack of opportunity to demonstrate otherwise continues to ensure the 1.4 percent does not change.”

The preponderance of research — including by the Knight Foundation — continues to find, however, that diverse-owned firms perform at a level comparable to or exceeding that of their predominantly white- and male-owned peer companies.

A recent meta-analysis of 56 performance studies using 50 years of data arrived at a “clear consensus” that there is no trade-off between diversity and investment performance.

Jason Lamin, the founder and CEO of Lenox Park Solutions, a financial technology company specializing in DEI — Diversity, Equity and Inclusion — data aggregation, thinks we have begun “to overstudy the problem.”

“The research that comes out of any major academic institution or think tank is pretty empirical at this point: diverse teams outperform,” Lamin said. “They mitigate risk, they are more innovative and creative. … There’s a part of me that is candidly tired of talking about it.”

Pipeline issues 

Robert Raben, executive director of the Diverse Asset Managers Initiative and president of the Raben Group.

The second rationale is a pipeline argument; some allocators say there just aren’t enough diverse-owned firms out there to muster a diverse portfolio. Considering that only 12.2 percent of management firms are diverse-owned, this justification may initially seem compelling.

But some industry leaders, including Robert Raben, consider the pipeline argument unpersuasive. Raben serves as executive director of the Diverse Asset Managers Initiative and president of the Raben Group, a progressive public policy firm. He also served as Assistant Attorney General at the Department of Justice under former President Bill Clinton.

Raben thinks that asset allocators claim there are too few diverse-owned management firms to conceal their deep-seated hesitations about allocating assets away from white- and male-owned firms.

While Raben says that he would like to see more women and people of color enter the asset management industry, there are already “plenty” of diverse-owned firms for any single institution — like Yale — to improve its managerial diversity.

“[Many asset allocators say] that there aren’t enough minority asset managers,” Raben said. “We believe that’s a smoke screen. We don’t have a supply problem. We have a demand problem.”

“[Many asset allocators say] that there aren’t enough minority asset managers. We believe that’s a smoke screen. We don’t have a supply problem. We have a demand problem.”

—Robert Raben

Raben said that for every financial institution to significantly improve its manager diversity, “we’d need a lot more managers of color, yes.” But Raben emphasized that the industry is not yet close to a point where individual firms aiming to improve their diversity will run into a capacity problem.

Raben used Yale as an example. 

“I don’t know how many managers Yale has on contract — let’s say 70 firms at a time,” Raben said. “There are hundreds and hundreds of Black- and Latino-owned asset management firms.” 

The National Association of Investment Companies, or NAIC, is the country’s largest network of diverse-owned alternative asset managers, consisting of over 180 firms representing over $325 billion in assets under management.

Raben argues that the “best proof” for the strength of the existing pipeline is actually the other allocators, including the Knight Foundation and academic institutions like Duke University and the University of California system, which Raben says have “easily achieved extremely significant women/minority representation in their management numbers with the current supply.” 

In 2022 alone, UC Investments’ allocation to diverse-owned partners increased by roughly 10 percent, from 36 to 40 percent of its managers. In 2022, Duke’s share of diverse-owned managers reached a record-high 44 percent.

University transparency

How does Yale compare? 

Frankly, nobody knows. Duke and the University of California are in the small minority of universities that make their manager diversity numbers public.

Yale, by contrast, is in the majority that chooses not to release these statistics.   

“By being transparent, we hold ourselves accountable,” UC Investments CIO Jagdeep Bachher told the News. “Compiling reliable data gives us a way to easily track our own progress and that of our partners.”

“By being transparent, we hold ourselves accountable.Compiling reliable data gives us a way to easily track our own progress and that of our partners.”

—Jagdeep Bachher

When the Knight Foundation asked the nation’s 50 wealthiest colleges and universities to participate in its research in 2022, 34 institutions, including Yale, declined to share data.

However, some of Yale’s peers with large endowments — including Duke, Harvard University, Stanford University and Princeton University — did choose to share data for the study.

“We’ve done this research, for one, to ensure that this is a part of the conversation,” said Ashley Zohn, vice president of the Knight Foundation’s Learning and Impact program. “We hope that more foundations and universities will be transparent. And ultimately, we hope that this will lead to more use of diverse-owned firms.”

The Knight Foundation is performing its higher education research in partnership with the Center for Business and Human Rights at New York University’s Stern School of Business.

The researchers have only published an interim release so far and are waiting on more schools to share data before publishing a final report.

“Universities are promoting DEI in how they present their institutional values, in the admissions process and in various other aspects of campus life,” Center for Business and Human Rights Senior Associate Director Kerin McCauley told the News. “We saw these initiatives around DEI, but we weren’t seeing the same kind of urgency related to where they were investing.”

The News contacted the Yale Investments Office in November for comment on its non-participation in the study. When the News initially reached out for comment, the Investment Office’s team page displayed the names and photographs of 22 upper-level financial staff, a group that appeared to skew white and male.

Within two hours of the request, the page was updated to display the names and photographs of 39 staff members, including administrative assistants and legal staff whose names or photographs did not appear before. On the new page, white men no longer appeared to make up a majority of depicted staffers.

Although these were internal office staff members and not external asset managers, the website change prompted some, including Raben, to wonder what the incident revealed about the Office’s general approach to matters of diversity.

“In other areas of university life — student enrollment, faculty composition — the universities are clear and sometimes assertive with granular detail about the presence or absence of women and people of color,” Raben said. “But what must be going on in the management of $40 billion for very, very talented and bright people to go through Herculean gymnastics to avoid answering the basic questions: Do you work with women or not? Do you work with Black people or not?”

Raben thinks Yale probably does care about the issue, but he said this episode is “Exhibit A” of the University’s lack of “internal skills, tools and experiences” to address it appropriately. 

In response to the News’s November article regarding Yale’s decision not to participate in the Knight Foundation study, Raben and the Diverse Asset Manager Initiative — or DAMI — sent a public letter to University President Peter Salovey and CIO Matthew Mendelsohn urging Yale “to avail itself of the transparency that has so benefited the rest of the institution.” 

Raben told the News that Yale’s leadership should seek help from expert groups like DAMI that have the proper toolset and experience to address these issues. He has met several times with University leaders to discuss manager diversity and said that the Yale Investments Office initially delegated the diversity issue to one white woman, Lisa Howie, who served as a YIO director.

When Howie left Yale to become CIO of Smith College in April 2021, Yale redelegated diversity, equity and inclusion work to Sohail Ramirez. Ramirez’s profile on the YIO website says that he “is a member of YIO’s legal team and focuses on the venture capital portfolio, regulatory matters, and YIO’s DEI efforts.”

Across all 41 current YIO staff profiles, only Ramirez’s mentions DEI responsibilities.

“A classic example of doing this poorly is to put the burden of diversity on the shoulders of the few diverse people in your office, who have day jobs,” Raben said. “They’re there to manage money.”

Samantha Katz, a board member of IDiF — the Center of Innovation for Diversity, Equity, and Inclusion in Finance — told the News that institutional transparency is a critical first step for driving change. 

IDiF aims to bring together trustees, donors, CIOs, public pensions, allocators, asset owners and entrepreneurs from across the industry to source solutions for the underrepresentation of diverse-owned firms in asset management.

“Silence and opacity around this data allows for the perpetuation of the status quo,” Katz told the News. “Transparency will help investors identify what leadership in this market looks like and enable accountability.”

The Endowment Transparency Act

In the wake of lackluster university participation in the Knight Foundation’s study of America’s largest university endowments, Missouri Rep. Emanuel Cleaver II introduced the Endowment Transparency Act of 2022

The Endowment Transparency Act would amend the Higher Education Act of 1965 to mandate annual reporting on the ownership of asset management firms contracted by university endowments. The act would also require the data to be disaggregated by race and gender.

“In the year 2022, it is simply unacceptable that nearly 99 percent of assets controlled by the $82 trillion asset management industry … are overseen by White men, when we know that there are qualified women- and minority-owned firms that can fulfill these duties to the same, or even better, degree,” Representative Cleaver wrote in a press release.

University endowments currently have no legal obligation to report data on their use of diverse-owned management firms, and, as Cleaver writes, “anecdotal reporting has been less than favorable.”

The act, which has not yet made it onto the congressional docket, builds on Cleaver’s prior work requesting diversity disclosures from elite universities, including Yale, Harvard, Princeton and Stanford. 

On July 10, 2020, Cleaver and then-Massachusetts Rep. Joseph Kennedy III sent a letter to 25 colleges and universities requesting information about the diversity of the asset management firms overseeing their endowments. The letter cited the most recent Knight Foundation report at the time, which found that firms owned by women and minorities managed just 1.3 percent of U.S.-based assets under management.

“Some colleges and universities have resisted repeated calls to be more transparent with such information,” Cleaver and Kennedy wrote in the letter. “The response of colleges and universities has only heightened suspicions.” 

They also pointed out that most university endowments “have never spent a dollar with a minority [asset management] firm in the history of their institution,” a fact first described in a June 2019 hearing of the House Financial Services Committee

Of the 25 audited institutions, 24 submitted responses. Very few, however, broke down the data by race or gender ownership; instead, each institution provided an aggregate share of “diverse” or “diverse-owned” managers. Raben said that only Duke, the University of California and Georgetown University provided “meaningful data.”

In a reply letter to Cleaver and Kennedy, Yale wrote that “a preliminary assessment indicates that 50 percent of Yale’s assets that are managed by U.S.-based managers are managed by diverse-led firms.” 

In a footnote at the bottom of the page, Yale defines diverse-led firms as “those [firms] where women or people of color make a material contribution to a firm’s investment leadership and decision-making.” 

The letter does not explain what constitutes a “material contribution.” 

“‘Diverse’ is not a term of art,” Raben said. “It can mean veterans, it can mean LGBTQ, it can mean managers in Hong Kong. You have no idea what is behind that number. … They gave a number to Congress that is absurdly large. They imply that 50 percent of their domestically managed money is diverse. That’s not happening.”

To complement its asset manager diversity work, the Investments Office, according to the letter, “has stepped up efforts to focus on diversity and inclusion among its own staff.” At the time of the letter’s writing, women and people of color made up 38 percent of YIO staff and 30 percent of senior staff.

Nevertheless, YIO’s demographic diversity falls short of the diversity of Yale’s student body. According to Yale’s 2022-23 Common Data Set, which provides student demographics by race and gender, approximately 50 percent of Yale College students are female and 60 percent are people of color. If one assumes that approximately 50 percent of people of color in Yale College are women, women and people of color together represent about 80 percent of Yale’s undergraduate student body — more than double both of the YIO figures.

A stubborn status quo

There are some legitimate obstacles that universities face in hiring diverse-owned managers and reporting manager diversity statistics.

For one, these changes take time. 

On its website, the Yale Investments Office writes, “Our team actively searches for partners who are focused on establishing long-term partnerships and building sustainable organizations. We have partnered with many of our managers for more than ten years, and several partnerships span more than 20 years.” 

Tim Tai, Photography Editor

(Tim Tai, Photography Editor)

Yale has spent decades building strong, long-term partnerships with its managers, and, according to Raben, University leaders probably don’t want to sever those partnerships overnight.

And because Yale’s investment returns over the past several years have been best-in-class, switching managers might not improve performance. Amid this year’s turbulent markets, Yale was the only school in the Ivy League to report a positive return on its endowment holdings.

Although diverse-owned firms generally perform as well as or better than white- and male-owned firms, some individual white- or male-owned firms are inevitably still capable of outperforming their peers.

Even UC Investments, which leads the endowment space in manager diversity and transparency, maintains unequivocally that performance is its number one criterion in choosing managers. 

“We hire very few external managers, but when we do we look for the best people, potential long-term partners whose values are aligned with our own and who have a record of high performance,” UC Investments CIO Jagdeep Bachher told the News. “We are in the business of making money for the University of California, so we will not sacrifice returns for anybody. We are not a charity.”

Just as asset managers act as fiduciaries for endowments, endowment offices act as fiduciaries for their respective institutions. 

Lenox Park Solutions CEO Jason Lamin, whose firm supports DEI benchmarking and reporting for 1,800 organizations managing over $4 trillion in assets, says that diversity for its own sake can be a tough sell.

“Are my fiduciary responsibilities to make money or to employ a social agenda?” Lamin said. “I want to be clear. My view personally, at my firm, is that it’s the right thing to do. But as you know, there will be those that say, ‘It’s not my responsibility. I’m here to make returns.’” 

Nevertheless, every endowment — including a top-tier performer like Yale — must have managers performing in its bottom quartile.

According to Katz, it is much easier to renew a contract with an underperforming manager “than risk your job bringing new talent into the portfolio.” 

Raben argues, though, that “an important client can say to the manager, ‘I need to see women and people of color in senior positions on my team within two years.’” Yale is a large and important enough allocator, Raben says, that it can use its leverage to improve diversity without ditching its existing managers.

Reporting challenges

Even if an asset allocator has every intention of making its diversity data public, transparency can be difficult in practice.

For an asset allocator to report on the diversity of its asset managers, it must first ask each of its asset managers to report its own diversity numbers. 

“For those that are surveying managers, some of the asset managers choose to report and others simply don’t, even when the allocator requests the information,” Katz told the News. “Without fund managers reporting, the allocator has no way of knowing what demographics are represented in their portfolio.”

Katz says that enacting laws or policies — like the Endowment Transparency Act — could help. But real change, she says, might require a commitment from allocators to pull capital from managers that do not report or to allocate additional capital to those that do.

“If every allocator sends out a different DEI survey with different definitions of what it means to be diverse, then what can they really do with it?The managers are tired; they’re getting 50 or 60 surveys a year.”

—Jason Lamin

Because asset allocators generally conduct their own diversity surveys, managers can easily become overwhelmed when allocators want to report. At any given time, some asset managers are managing funds from dozens of allocators.

“If every allocator sends out a different DEI survey with different definitions of what it means to be diverse, then what can they really do with it?” Lamin said. “The managers are tired; they’re getting 50 or 60 surveys a year.”

This is the very issue that Lamin’s company, Lenox Park Solutions, aims to solve.

Lamin describes his platform as the “Common App” of manager diversity reporting. When allocators — which include pension funds, endowments, foundations and more — join the platform, they can use it to send standardized surveys to all their managers.

Jason Lamin, founder and CEO of Lenox Park Solutions, a financial technology company specializing in DEI data aggregation. (Courtesy of Lenox Park Solutions)

The platform then receives, aggregates and benchmarks data for the allocator.

“What we’ve done with our technology is continue to build and refine tools that just make it easier for people to report … [and] to measure and monitor over time how their asset managers are doing,” Lamin said.

Because the platform is so large — its thousands of users collectively manage over $4 trillion — the benchmarks it generates “actually mean something.”

Though reporting is far from perfect, Lamin says that there is “no question” that transparency and disclosure is improving across the industry. In 2019, just 59.9 percent of the managers that received surveys from Lamin’s platform responded with full, complete information. By 2022, that number had jumped to 81.1 percent. 

“There’s a feeling from the asset owners that, you know, ‘I don’t want to be troublesome for managers, and maybe I’m asking for information that’s too invasive in some way,’” Lamin said “And we remind them … just on our platform, there’s another $4 trillion of asset owners that are asking the same thing.” 

Diversity initiatives

Despite these constraints, the universities that have made concerted efforts to report on diversity  — like UC and Duke — have generally been able to do so. 

UC began reporting diversity numbers in 2019, and, in that first year, achieved a 92 percent manager response rate, representing 98 percent of assets surveyed. By 2022, the response rate had risen to 94 percent.

If Yale has also been regularly surveying its managers for diversity information, it has not said so openly.

In October 2020, however, Yale’s then-CIO David Swensen publicly instructed the firms that manage the University’s endowment to diversify their ranks.

Swensen asked managers to complete a diversity survey, writing that Yale is “interested in the numbers of diverse professionals on the investment team and in … support functions, at various levels of seniority.” Swensen asked Howie — who had not yet left for Smith — to coordinate the survey.

Yale has stayed almost completely silent on its progress since. Although Swensen told managers in the initial letter that he intended to ask for annual updates, it is unclear whether the efforts have been ongoing.

Rather than simply asking managers to improve their diversity, UC Investments has been intentional about “search[ing] widely” for diverse-owned firms with which to build new partnerships.

“To find the best people, we intentionally search widely, often looking for firms we may have overlooked or who, for some reason, haven’t been on our radar,” Bachher told the News. “That was the impetus behind our recent initiative during which we met more than 100 firms who were new to us … But to be clear, that initiative was merely an accelerant. We routinely meet with many diverse firms throughout the year.”

UC Investments has partnered with trade organizations like NAIC to help source diverse-owned firms. 

In 2022, UC Investments met with approximately 333 diverse-owned managers, including 101 managers sourced through the NAIC partnership; these meetings increased in number by 43 percent compared to 2021.

Bachher said that the meetings allow UC Investments to “expand [its] networks, explore new opportunities, and in some cases, form new investment partnerships.” In 2022, six of UC Investments’ seven first-time investment partners were owned by women and people of color.

UC has effectively created its own pipeline for diverse-owned firms. 

And others have been doing the same thing. Crewcial Partners is a consulting firm that works with allocators to build effective portfolios and, for almost a decade, has been intentional about finding diverse talent for its clients.

“We’ve been investing with diverse managers since back in 2013 … and it’s really allowed us to build smarter portfolios,” said Angela Outlaw-Matheny, director of investment staff and diverse manager equity at Crewcial Partners. “You need to think about diversification in various ways; not just asset classes. What about geography, different life journeys, and backgrounds — ethnicity, gender, age? All of these things are risk-controlling factors when you’re building smart portfolios.” 

Outlaw-Matheny said that when she started in her role, she thought she could be a kind of “civil rights leader” in the field of asset management. 

Her mentor — Crewcial’s CIO Michael Miller — advised her that she needed to lead with performance, and social impact would follow.

“So it started with our need to exercise our fiduciary duty to build smart portfolios,” Outlaw-Matheny said. “That was, I think, the impetus for our work, and then it trickled over [to social impact].” 

Since starting to build its diverse manager pipeline in 2013, Outlaw-Matheny said that Crewcial has been able to avoid resorting to manager diversity quotas.

The pipeline of diverse-led firms has allowed Crewcial to improve returns and focus on “what’s the best fit in terms of portfolio construction.”

Looking forward

Yale’s endowment is overseen by the Investment Committee of the Yale Corporation, the University’s 16-member board of trustees.

The committee, which oversees the endowment in the review of asset allocation policies, endowment performance and strategies proposed by YIO staff, is almost entirely white and male. 

Raben argues that the root of higher education’s manager diversity issue is culture — especially at the level of institutional leadership.

“There’s a basic resentment of outsiders asking questions,” Raben said. “It is likely that Mr. Mendelsohn makes three to five times more than Mr. Salovey. So that tells you a lot. It’s like Bear Bryant at the University of Alabama: ‘Yeah, I’ve got this. And I really don’t want lots and lots of people questioning my strategy. My success allows you to have need-blind admissions.’”

“There’s a basic resentment of outsiders asking questions.”

—Robert Raben

Yale’s then-CIO Swensen received a salary of $4.7 million in 2017, making him the University’s highest paid employee. That same year, Salovey made $1.7 million.

Katz told the News that the attitude of an allocator’s leadership team, “which includes trustees, board members and chief investment officers,” greatly influences whether and to what extent that allocator invests with diverse-owned managers. 

Efforts to improve diversity benefit substantially when leadership “has a process internally that incentivizes change, such as emerging manager programs, the broadening of networks for sourcing, and setting concrete goals in portfolio construction.”

Raben believes that University leadership is probably trying to figure out how to improve manager diversity “as we speak.” However, he told the News that he “can’t think of another area of life where, when you want to try to solve a problem, you refuse to speak to the experts.”

The University has not responded to DAMI’s public letter and has denied Raben’s recent requests to meet with Yale officials.

When the News reached out to the Yale Investments Office for comment, they provided the statement below. 

“The Yale Investments Office is firmly committed to building a diverse team and increasing the diversity of our roster of investment partners by adding diverse new partners and supporting efforts by our existing partners to increase diversity within their organizations,” the Investments Office told the News. “Efforts are underway to advance toward these goals, and we plan to provide periodic updates via our website.”

In 2008, Yale alumni mounted an unsuccessful campaign to name one of the University’s new residential colleges “Swensen College” in honor of David Swensen.


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