Allocator Collective, formerly known as Institutional Allocators for Diversity Equity and Inclusion (IADEI), has embarked on a transformative journey to redefine diversity within investment portfolios. Recognizing the increasing volatility and concentration within US markets, the organization, comprised of over 800 institutional asset allocators, champions a multidimensional approach to diversity, encompassing not only demographic factors but also investment style, sector specialization, and time horizon. This broader perspective aims to enhance portfolio performance by creating multiple avenues for success and mitigating risks associated with market fluctuations. Furthermore, this comprehensive approach reduces the potential for misinterpreting diversity initiatives as discriminatory practices.
The core of Allocator Collective’s revamped strategy rests on three pillars: dismantling barriers to capital allocation, facilitating access to diverse managers, and empowering allocators with the necessary resources and knowledge. To address the first pillar, the organization is dedicated to improving data transparency, providing resources for enhanced underwriting processes, and developing robust monitoring mechanisms. This ensures a level playing field for diverse managers seeking capital. The second pillar is addressed through the creation of a comprehensive, open-source database of diverse-owned and diverse-led asset management firms, developed in partnership with Clade, a pro bono technology partner. This database, coupled with organized pitch sessions categorized by asset class, connects allocators with a diverse pool of potential investment partners. Finally, the third pillar focuses on building allocator capacity through initiatives such as the Fellows and Forum program, providing access to a research library and publications, fostering collaboration with aligned organizations, and developing practical playbooks that guide allocators in constructing diversified portfolios.
A key aspect of Allocator Collective’s enhanced strategy is the introduction of new diversity metrics within its Manager Database. Driven by member demand for greater transparency and evolving regulatory landscapes, the revamped database empowers asset management firms to report a wider array of diversity metrics, including custom metrics, moving beyond traditional definitions. This allows firms to showcase the unique facets of their diversity, providing allocators with a richer understanding of their potential partners and enabling the construction of portfolios that genuinely reflect a diversity of thought. While firms are encouraged to disclose data on race/ethnicity and gender, both at the company and fund levels, the expanded metrics allow for a more nuanced and comprehensive representation of diversity. Firms that provide comprehensive disclosure on race and gender receive a badge, highlighting their commitment to transparency and making them more readily identifiable for allocators prioritizing these dimensions of diversity. The database also serves as a valuable resource for research into the complex interplay between diversity and investment performance.
Collaboration and accessibility are paramount to Allocator Collective’s mission. The organization actively encourages like-minded non-profits to utilize and contribute to the diverse manager database, which is offered free of charge to both allocators and managers. The flexibility of the database, allowing for customized reporting, ensures that firms can accurately represent their unique diversity profiles. Partnerships with organizations such as 100 Women in Finance and Institutional Investor further amplify the reach and impact of the database, bringing it to a wider audience and facilitating connections within the industry.
Central to Allocator Collective’s engagement strategy is its focus on convening institutional allocators, particularly through the Fellows and Forum Program designed for Chief Investment Officers (CIOs) and asset class heads. This program brings together leaders from prominent institutions, including large pension funds like CalPERS and CDPQ, and major endowments and foundations such as Dartmouth College and the MacArthur Foundation. With the Milken Institute serving as a key thought partner for content development, the program provides a platform for in-depth discussions and knowledge sharing, fostering a network of peers dedicated to advancing diversity within the investment landscape. The program aims to deepen awareness of diversity’s importance, provide practical strategies for increasing diversity within portfolios and teams, and build a community of practice.
The strategic direction of Allocator Collective is firmly grounded in academic research. Recent studies have demonstrated a positive correlation between team heterogeneity and investment performance. Research by Lu, Naik, and Teo indicates that hedge fund teams with diverse educational backgrounds, work experiences, genders, and races tend to outperform homogenous teams, attributing this success to a reduction in behavioral biases and downside risks. Similarly, research points to a link between diversity within private equity leadership teams and higher deal returns. These findings underscore the importance of moving beyond traditional definitions of diversity to embrace a multidimensional approach that considers a wider range of factors. Ongoing research initiatives, such as the partnership between the Diversity Project and London Business School Professor Alex Edmans, promise to further illuminate the relationship between cognitive diversity and investment team performance, providing valuable insights for institutional allocators.
Allocator Collective offers valuable resources and opportunities for institutional allocators seeking to enhance their sourcing and underwriting practices. The organization’s database provides access to a diverse pool of managers, while its resources offer insights into equitable underwriting strategies and talent sourcing. Furthermore, Allocator Collective actively fosters collaboration and encourages allocators, asset managers, and non-profits to contribute ideas and participate in its programs, fostering a dynamic ecosystem dedicated to advancing diversity within the investment management industry. Through this collective effort, Allocator Collective aims to create a more inclusive and dynamic investment landscape that benefits both investors and the broader economy.
