The Colour of (Who Manages Our) Money

Endowed foundations always have to consider two things – time and money.  How much income they’ll have, over what time period, and how their endowment will be maintained to help tackle future needs – assuming they intend to continue to exist indefinitely.

The current Covid-19 crisis makes the time factor more urgent.   At this time of immense need and change caused by the pandemic – should we increase our spending to respond to unprecedented demand and to help create a better “new normal”?

But at this particular moment in time, foundations are being asked to account for themselves in ways and on issues we’ve never had to before.  As the demand for racial justice is being voiced louder than ever – should we use much more of our foundations’ money and other resources to change an unjust system rather than continue to allocate small amounts that deal, at best, with symptoms?

As explored here, in formulating our responses to these questions many trusts & foundations will be considering three things:

  • our own likely income reduction due to falling investment capital values and returns;
  • a desire to spend as much as we can to support people, communities and organisations suddenly in need right now – while also being able to honour existing funding commitments;
  • maintaining the value of our endowment so we can continue to help people, communities and organisations in future times.

But our endowment itself raises a whole other set of questions for us to confront and answer:

  • Where did it come from?
  • How was the personal wealth or company profit that created it earned?
  • How does the way it’s invested ignore, worsen or improve racial justice?

Some of these issues are explored by people within the foundation field such as Vu Le in his blog and Edgar Villanueva in his book “Decolonising Wealth”.

If any of us think about the answer to that third question, we tend to think in terms of the companies, governments and other asset classes our endowment is invested in.  We rarely consider it in relation to our choices about who manages our endowment.

A foundation I volunteer with is currently reflecting on this point.  We currently use 2 of the leading charity investment management firms.  Looking at the people they list on their websites:

Investment Management Firm A:

  • Executive Committee:  5 Members – none of whom appear to be People of Colour.
  • Main contacts:  18 members – none of whom appears to be a Person of Colour.

Investment Management Firm B:

  • Board:  27 members – 1 of whom appears to be a Person of Colour.
  • Executive Committee:  5 members – one of whom appears to be a Person of Colour.
  • Asset management:  33 members – 3 of whom appear to be People of Colour.
  • Client Team:  46 members – 1 of whom appears to be a Person of Colour.

It’s possible that People of Colour and people from other minority ethnic communities are more represented lower down in the organisations.  Even if that’s so, it’s both revealing and problematic.

Firm A publishes its Board Diversity Policy and its Staff Diversity & Inclusion policy in its accounts and states “over the long term, we are committed to developing performance potential and working with external organisations in broadening the diversity of our talent pipeline”.

Firm B makes no statements on diversity in its accounts and says on its website “Everyone has a stake in creating a sustainable future. We value our employees as individuals and believe that diversity strengthens us.  We take care that our recruitment and employment processes are fair, inclusive and take unconscious bias into account.”

As UK foundations become increasingly interested in how we use all our assets to achieve our mission and, hopefully, on issues of racial justice, who we choose to pay to provide services to us should include questions about the values and actions of those firms.  At the very least, not considering these issues is a reputational risk for us.

The foundation I volunteer with is considering using the approach developed by the Joseph Rowntree Charitable Foundation and its “Expectations of Investment Managers” to set out our expectations of the investment management firms we use – focusing on gender, race and other equalities issues.  This is likely to be part of an enhanced ethical investment policy which will focus as much on “the who and the how of our investments” as on “what we invest in”.

Some of the things it might cover are:

  • Who our investment managers employee and at what level.
  • Who they appoint to their Board.
  • How our investment managers include Diversity, Equity and Inclusion (and specifically racial justice) in their screens.
  • How our investment managers choose the topics for their training events.
  • How our investment managers select the events they choose to sponsor or speak at (eg having “no white only panels” conditions).

There are steps being taken to address the lack of People of Colour and people from other minority ethnic communities in the investment management world.  In the social investment sector, The Diversity Forum provides really useful tools and resources to help that part of the investment sector to diversify.  And the CFA UK (the membership body for investment professionals) says it aims to help diversify the investment profession.

But, for the foreseeable future, for “traditional” investors the market place for investment managers is largely restricted to a group of private profit-making organisations led by white – usually male – partners or directors.  So, as investors, we are subject to “provider capture” as we have little choice about where else to take our business.

The Association of Charitable Foundation’s forthcoming Intentional Investing report is likely to include Diversity, Equity and Inclusion aspects of investment issues – as well as about how to align our investments with our mission.

But, for the foreseeable future, foundations should consider what we can do individually and collectively – perhaps through organisations like ShareAction – to encourage our existing investment managers to change.

Many UK foundations have a long way to go to set our own houses in order when it comes to issues of racial justice.  That shouldn’t stop us also looking for opportunities to advance it elsewhere too.

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