Asset Managers, Emerging Managers, Endowments/Foundations, ESG/SRI, Governance, Institutional Investors, Performance Measurement

Community Foundation Doubles Up on Diverse Managers

The $13.5 billion Silicon Valley Community Foundation (SVCF) has more than doubled the number of diverse managers it has been using, since 2013, from three up to 14, Senior Vice President of Investments Bert Feuss told Institutional Allocator. “My hope is that other institutional investors, particularly university endowments and pensions, will see that greater asset manager diversity is a prudent principle and in the best interest of their beneficiaries,” said Feuss. “We are a long way away from realizing a ‘level playing field’ in the industry—beneficiaries have to demand it from the boards that oversee the assets, and board members have to demand it from their consultants. The people managing the assets for the end beneficiaries should be as diverse as the beneficiaries themselves.”

Bert Feuss, SVCF

To date, SVCF has $202 million in capital deployed to diverse managers, Feuss said. The foundation and its consultant Colonial define a “diverse” manager as a woman- or minority-owned business. “With the support of our investment consultant, we are always sourcing new managers across the entire portfolio, and particularly in private assets to maintain vintage-year diversity,” Feuss continued. The foundation has no minimum assets under management (AUM) for managers it hires. “Some of our [diverse] managers are truly emerging and small, while others are well-established and sizeable,” added Feuss.

My hope is that other institutional investors, particularly university endowments and pensions, will see that greater asset manager diversity is a prudent principle and in the best interest of their beneficiaries.

The most recent [diverse] managers to be hired by the foundation include AltraVue Capital in April and HCAP Partners in August. “Altravue’s is a global, all-cap equity “go-anywhere” unconstrained strategy,” Feuss told IA. “HCAP is a provider of growth capital to lower-middle market companies throughout California and the Western U.S.,” he added. “HCAP provides mezzanine debt within private companies employing people from low- to moderate-income communities, mostly in California, with a sharp focus on creating quality jobs.” The firm, formerly named Huntington Capital, was founded in 2000 and is based in San Diego, California.

“Some institutional investors have been slow on the uptake of hiring diverse managers, possibly because they are more risk averse and take comfort in not straying from the pack, which has to do with safety in numbers and not taking on career risk by doing something that others are not,” noted Feuss. Another barrier for minority-owned managers looking to be hired is that some investors assume that an emerging and a diverse manager are the same thing, thus propagating the belief that diverse managers are small by nature, and possibly inexperienced, Feuss continued.

The people managing the assets for the end beneficiaries should be as diverse as the beneficiaries themselves.

Engaging diverse managers is an intelligent strategy for performance, according to Feuss. “First, some diverse managers are willing to cap their assets and are willing to negotiate on fees,” said Feuss. “Second, it doesn’t make sense that an all-white male investment team would give you the broadest points of view and diversity of ideas, especially with the globalization of institutional investments,” he said. “There is current research data that shows that returns from diverse managers are, at a minimum, no different, if not better than non-diverse managers.”

Below, find SVCF’s up-to-date manager list with their inception dates, which provide “various strategies across asset classes,” according to Feuss.

AltraVue Capital (4/1/18)
Ariel (1/31/08 & 1/31/14)
Boston Common (1/31/08)
Brightwood (3/31/15)
Garcia Hamilton (7/31/14)
Gobi (1/31/17)
Grain Capital (7/31/16)
HCAP Partners (8/1/2018)
Kabouter (6/30/16)
Lizard (4/30/15)
Sango (1/31/17)
Standard General (12/31/14)
Tybourne (6/30/17)
Weathergage (2/28/15)

In 2014, the foundation urged its advisor Colonial Consulting to seek out more women- and minority-owned asset managers. “Prior to engaging Colonial, we had just three managers who were women or people of color (POC), out of 50 total managers,” said Feuss. “We explained to Colonial that the core values of our organization are diversity, inclusion, accountability and transparency, which includes investment consultants and investment managers. We wanted to know if Colonial was finding diverse managers and their clients were not hiring them, or if they were not finding qualified managers and needed to search harder,” he added. “It took a couple of years to get it going, but Colonial upped the number of diverse managers they met with last year from 50 to 162.”

Angela Matheny, Colonial Consulting

“Our diverse managers are outperforming,” added Angela Matheny, head of diverse manager equity at Colonial. Matheny was hired by the firm in 2016 to find more diverse managers.

The foundation asked Colonial to report on the following metrics annually, Feuss told IA:

  1. Number of managers they [Colonial] met with and the portion that were diverse.
  2. Number of managers recommended across the firm’s client base and the portion that were diverse.
  3. Number of managers hired across the client base and the portion that were diverse.

Colonial, with $38 billion in assets under advisement, advises on six of the foundation’s portfolios, which total $1.5 billion in AUM. Colonial rejects 95% of the managers that they consider hiring, and the firm says that same standard applies to diverse firms. Colonial considers a manager “diverse” if 51% or more of the firm is composed of women and/or minorities, said Matheny. “The administrative staff being black or Hispanic doesn’t cut it,” she said. “We can’t get rid of implicit biases against diverse firms, but we do our best to manage them,” she said. “We didn’t think we had any biases, but back in 2013 when a client approached [Colonial] about the question of manager diversity, and we lacked considerably in this area, we actually were unintentionally being biased by not including diverse managers,” she continued. “We have considerably evolved in our process and more importantly, through diversity, we are building better portfolios.”

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