Only 18.1 percent of wealthy foundations’ assets invested by outside managers goes to firms run by women or people of color, according to a report released Thursday, up from 16.6 percent in 2021. Although that is low, the report indicates a growing effort by large grant makers to improve the diversity of their asset managers.
The annual report, the third of its kind commissioned by the Knight Foundation, drew information from 35 of the 55 wealthiest grant makers. It found that those foundations sent $14.28 billion to be invested by firms owned by women or people of color.
“An endowment is a foundation’s biggest asset,” says Ashley Zohn, vice president of learning and impact at the Knight Foundation. “And so how that endowment is managed is also an expression of that foundation’s values.”
The study began as an extension of the Knight Foundation’s own attempts to improve the diversity of its asset managers, says Zohn. In 2012, the Knight Foundation invested only $7.5 million of a $2 billion endowment with firms controlled by women or people of color. By 2022, those investments accounted for more than $1.1 billion, or 43.5 percent of its endowment.
Other grant makers, such as the Robert Wood Johnson and Kresge foundations, have also made significant progress in improving their diversity in recent years, says Zohn.
“Most of the foundations who are leading the way have been thinking and talking about this for a while,” says Zohn. Despite underrepresentation in the industry itself, many women and people of color work in asset-management roles, including many listed in Emerging Manager Monthly’s online directory of firms and the Knight Foundation’s own list of firms owned by women or people of color.
While the new report shows that foundations are slowly improving the diversity of their portfolio managers over past years, there’s far more work to be done, says Robert Raben, executive director of the Diverse Asset Managers Initiative, a coalition of finance-industry organizations and professionals aiming to raise awareness about the presence of women and people of color in the financial industry.
“You’re talking about going from terrible to bad,” says Raben. “You’re talking about massive exclusion for decades on trillions of dollars in assets — and there’s a lot of catching up to do.”
It’s no surprise that the strongest records in the survey belong to foundations that have spent years thinking about diversity. For a decade, the Silicon Valley Community Foundation has been working to improve the diversity of its asset managers, says Liz Carey, the grant maker’s executive vice president of finance and operations. In 2022, the foundation invested over 46 percent of its endowment in firms owned by women or people of color.
“I want to make sure folks know that when they set up a fund with us, we’re doing the work on both sides of the house,” says Carey. “It’s not just our grant making — it’s also that we care about the ecosystem we’re operating in. They can feel confident and comfortable that we are investing along with our mission.”
Measuring Diversity
While the number of large foundations participating in the study increased this year, several major foundations, including the Simons and Ford foundations, declined to participate in the study or provided only self-reported or partial data. Several grant makers expressed concerns that the report’s methodology may underrepresent the actual diversity of who manages investments.
In a note that accompanies the report, the California Endowment, which did participate in the study, explained its own doubts about the data.
“While understanding that there is no perfect approach for measurement,” it said, “the Endowment does not believe that the methodology used in the study leads to a complete representation of DEI within the Endowment’s investment portfolio.”
A spokesman for the Endowment noted that the study could benefit from a broadening of the report’s methodology. The report measures diversity by firm ownership — a relatively accessible measurement — but one that does not fully take into account the nuances of foundations’ investments, which include firms that are overseas or are publicly traded, and the large portion of foundation endowments that are managed internally.
Several foundations have also questioned whether measures showing the diversity of an investment company’s staff might be a better indicator than ownership. However, a previous report by the Knight Foundation found that asset management firms owned by women or people of color were much more likely to lead diverse teams.
For Raben, such methodology nuances are secondary to the much greater task of improving diversity. Not only would such improvements help correct entrenched disparities, he says, but foundations would also be helping to boost their endowments.
“Diversity of people improves performance,” he says. “Just like diversity of assets improves returns.”
