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Why University Endowments Should Hire Investment Firms Owned By Women And Minorities – Forbes

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By 2050, a majority of people in the United States will be members of racial minority groups. Yet despite changing demographics, and decades of efforts to promote diversity and inclusion, U.S. businesses from Wall Street to Silicon Valley are struggling to build workforces that reflect the changing face of our society. The challenges for Black and Hispanic people are most obvious at the highest reaches of corporate management, including among investment firms.

Among Fortune 500 companies, only six CEOs are Black, and there have been only 19 Black CEOs in U.S. history. Hispanics are slightly better represented at the helm, but only 20 are now running these largest companies. The gap is particularly dramatic in the financial sector where only 2.4% of executive committee members, 1.4% of managing directors, and 1.4% of senior portfolio managers are Black.

Women have had far greater opportunities and have constituted a majority of college graduates since the 1980s. While many women with college degrees have ample opportunities to enter the job market, many still struggle to gain equal footing as their careers progress, especially at the upper reaches of big companies. Though they constitute more than 50% of the population, women lead only 32 of the Fortune 500 companies, a paltry 6.4%.

The investment sector has been one of the slowest to change. A December 2021 study commissioned by the Knight Foundation found that of more than $82 trillion of assets under management in the U.S., only 1.4 % is invested with firms owned by women or minorities. Tracking ownership of investment firms is a useful initial metric for assessing diversity within the financial sector. In a separate analysis of 204 firms, Knight and the research firm Global Economics Group found that diverse-owned firms are at least three times more likely to have a diverse portfolio management teams compared to firms owned by white men.

The wealthiest U.S. colleges and universities can help address the lack of diversity in the investment field. They provide leadership on environmental, public health and other key societal issues, and many schools have made real commitments to promote diversity, especially in their admission policies. The commitment to diversity aligns well with these institutions’ stated values and permeates other aspects of university life, including faculty hiring, procurement, and curriculum.

But universities generally have not extended this commitment to the management of their endowment funds. In recent decades, these funds have grown dramatically and now total more than $800 billion in the U.S.. The funds generate revenue that supports core university operations and underwrites scholarships. The resistance in university investment offices to considering a wider array of asset management firms apparently is based in part on fears that diverse-owned firms will generate lower returns and thus provide less support for essential university operations.

The evidence does not bear out this anxiety. The 2021 Knight Foundation financial industry study found no difference in performance between diverse-owned and white male-owned firms. Other recent research by the consulting firm McKinsey & Co. and the Harvard Business Review even offer evidence that firms with diverse leadership may outperform the types of asset management firms that have been the mainstay for university endowments.

Encouragingly, a growing number of universities have begun to engage in conversations about identifying and hiring diverse-owned firms that can deliver competitive returns. But there are limits on how productive these discussions will be without more data to help evaluate practices that are working and those that are not. As Pearson’s Law stipulates “When performance is measured, performance improves. When performance is measured and reported back, the rate of improvement accelerates.” Currently, too many schools are resisting disclosure of information about their investment firms, inhibiting the capacity to measure their performance.

Last month, the NYU Stern Center for Business and Human Rights, which I direct, and the Knight Foundation jointly published the interim results of a survey we conducted of how the 25 largest private and 25 largest public university endowments employ diverse-owned investment firms. We worked with Global Economics Group to verify detailed data from the schools, using ownership information available from third-party databases.

Regrettably, only 12 schools fully participated in our interim study, among them several with significant endowments, including Princeton, the University of Texas, Columbia, Duke and the University of California. Four other schools participated indirectly, applying our criteria but crunching the numbers themselves. Among the schools in this group were Harvard and Stanford. The institution where I teach, New York University, declined to participate. The 16 schools that did participate have endowment assets of $314 billion, or 54% of the total.

In the next phase of our work, we hope that many more schools will provide financial data and that diversity in investment management will become a more prominent issue publicly, including on campuses. We also are calling for more detailed data disaggregating the numbers relating to minority-owned firms, so that we can obtain more accurate racial and ethnic breakdowns. Based on Global Economics Group’s analysis of currently available data, Black owners control 11% and Hispanic owners control 5% of the relatively small amount of assets controlled by diverse owners.

A range of traditional industry practices and customs are inhibiting progress for women and people of color in the investment industry. One prominent example is the unconscious reliance on personal networks in which connections tend to share the same race, gender, social background, and school ties. Another is overly stringent requirements for assets under management that endowments impose on potential outside money managers. These standards unintentionally exclude diverse-owned firms whose leaders often have a harder time raising early rounds of funds from friends, family members or school classmates. As a result of failing to rethink their ways, too many universities and other institutional investors are missing out on great talent and future economic opportunities. Improving diversity is not only the right thing to do; it’s also a smart strategy for generating strong returns.

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Tiger Global slows pace of investment with scaled-down fund – Financial Times

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Tiger Global is raising a private equity fund that will target $6bn in investment, less than half the amount raised for a prior fund, as the prominent technology investor slows its once-breakneck pace.

The fundraising began on Thursday, according to a letter sent to limited partners and obtained by the Financial Times. Chase Coleman, Tiger’s billionaire founder, has been seeking investors willing to buy into the technology downturn that has battered his group’s portfolio.

Tiger’s preceding private equity fund of $12.3bn closed in February. The $6bn private fund is below early targets of about $8bn, according to a person familiar with the situation.

People close to Tiger believe the new fund’s smaller scale of investments will match lower valuations after the market rout this year.

The group has promised it will invest less than half the fund in its first year, a more measured pace than the prior fund, which is already mostly invested. The size of Tiger’s typical investment has also been nearly halved to about $30mn.

The letter said Tiger would attempt to take advantage of opportunities such as secondary sales of private technology companies whose values have fallen in the financial market downturn.

The diminished fundraising and defensive approach come as the $63bn-in-assets Tiger confronts upheaval. Its flagship fund fell about 50 per cent this year to July, according to documents sent to limited partners, while it has marked down its more than $45bn portfolio of private technology investments each month this year, it recently told investors.

The fund group has also experienced turnover among investment staff. On Monday, Tiger announced that former partner John Curtius, who headed the firm’s software and business services private equity investments, would be leaving.

Curtius had been expected to temporarily stay on following the announcement to ensure an orderly handoff of his portfolio to others inside Tiger. “John will work closely with other investment team members over the coming months to transition his responsibilities,” Tiger said on Monday.

However, as of Thursday he was no longer an employee, said three people familiar with the situation. Curtius is planning to launch an investment firm called Cedar Investment Management, people with knowledge of the matter said.

Curtius had been one of Tiger’s most prolific investors, leading more than 100 venture capital investments, according to PitchBook data, including investments made as recently as September 27.

This week, Tiger Global fielded questions at meetings with limited partners who sought to get a better understanding of Curtius’s sudden departure, said two people directly involved with the matter.

Coleman and Scott Shleifer, head of Tiger’s private investment business, decided this summer that Curtius would leave the firm amid concerns over the autonomy he was seeking in managing an increasingly large portfolio, people close to Tiger said.

Internally and in discussions with limited partners, Tiger has described itself as a collaborative firm, with investors overseeing public and private investments in the US, Brazil, India and China working closely together to identify investments.

People close to Curtius painted a different picture. In recent months, he had been looking for the opportunity to start his own firm to capitalise on a dramatic reset in valuations across the industry, they said.

Tiger Global and Curtius declined to comment.

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South Korea’s Growing Investment Overseas Adding to Won’s Pain – BNN Bloomberg

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(Bloomberg) — South Korea’s growing direct overseas investment is among the factors piling pressure on the won amid its slide to its lowest levels since the aftermath of the global financial crisis.

While the Federal Reserve’s rapid policy tightening is the most obvious reason strengthening the dollar against a whole host of currencies across the globe, Korea’s foreign direct investment is a lesser-known long-term factor weighing on the won.

Foreign outflows are likely to keep increasing as Korean firms look to expand overseas given the slowing domestic market and pressure from the US to invest more in operations there.  

The nation plowed a net $89 billion into economies overseas via direct foreign investment and purchases of stocks and bonds in the 12 months to August, a nine-fold increase from a decade ago, according to the country’s balance of payments data. 

That has contributed to a depreciation in the South Korean currency. The won recently hit its weakest since March 2009, despite the Bank of Korea stepping in to help curb losses through repeated interventions. The won has been Asia’s worst performer after the yen this year.

The possibility of more outflows poses a challenge for a central bank that is increasingly concerned about a weaker won raising import prices and fueling inflation. The BOK meets next week and may need to return to larger rate increases to help support the currency by closing the gap with US rates.

“We used to be worried only about foreigners leaving, but now there’s a lot we have invested abroad and we plan to make the case that bringing it back is good for both investors and the national economy,” BOK Governor Rhee Chang-yong told lawmakers. “If our overseas investment is repatriated, it gives us more room to not raise rates.”

Rhee didn’t propose steps to encourage repatriation of investment during his comments. The Finance Ministry on Monday denied a Yonhap news agency report that the government was looking into tax breaks for investors who bring back money after selling shares abroad.

“If overseas investment increases continuously over the long term, excess demand for dollars piles up and eventually serves as a factor raising the currency rate,” said Min Kyunghee, a researcher at the Korea Chamber of Commerce and Industry in Seoul. “It seems unlikely the rate will drop sharply even if the Fed eases tightening later depending on economic situations.”

Outward Bound

While the more volatile swings of the larger portfolio investment flows typically gain more attention among market watchers, the steadier building up of FDI presents more of a structural weakening factor. 

Korea is investing more money overseas compared with many other nations. The country’s annual outward FDI as a proportion of gross domestic product is the highest among Asia-Pacific countries tracked by the Organization for Economic Co-operation and Development. Among the Group of 20 nations, it trails only the UK, Germany, Russia and Canada.

In an indication of the increase in operations abroad, sales by Korea’s overseas corporate units rose 71% to $368 billion in 2019 from $215 billion in 2010, with key products such as semiconductors, smartphones and cars accounting for almost two thirds of the gain, BOK researchers said.

The growing competition between the US and China is another factor pushing Korean firms to invest overseas, with companies such as Samsung Electronics Co. particularly vulnerable to US pressure because they rely heavily on American technology and equipment to produce semiconductors, batteries and other goods. 

Korea’s direct investment in the US amounted to a net $28.4 billion in the past year, a near five-fold increase from a decade ago, according to data from the Export-Import Bank of Korea. In the same period, investment in China rose two-fold to $7 billion, the data showed.

Even more Korean money may flow to the US as the administration of President Joe Biden expands efforts to reshore manufacturing. Korea’s high-tech firms are pivotal to the American effort to realign Asian supply chains to reduce reliance on China. 

In May, Biden visited a Samsung chipmaking plant in Korea and touted Hyundai Motor Co.’s pledge to invest more than $10 billion in the US. Last month when Korean President Yoon Suk Yeol visited the US, the chairman of SK Inc. Chey Tae-won said in Washington that his conglomerate plans to raise investment in the US to more than $50 billion by 2025.

“Direct investment has long-term, structural influence over capital flows,” said Choi Don-Seung, an economics professor at Andong National University in Korea. “How the US-China competition plays out will matter to the status of the dollar and how Korea positions itself will be important.”

©2022 Bloomberg L.P.

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Help clients navigate emotions when making investment decisions

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“We can’t say, ‘If you weren’t acting so emotionally, you would be able to make better financial decisions,’” she told attendees at the Investments and Wealth Forum in Toronto on Monday. “Everything we do, including financial decisions, requires emotions as an impetus. So we can’t ignore what’s going on in this deep region of our brain.”

This makes the role of an advisor — someone who can provide an objective, third-party perspective — that much more important. Similar to advisors managing a client’s risk, they may need to manage their emotions, Kramer said.

WallStreet Forex Robot 3.0

 

One example of emotions governing investment decisions is the correlations between seasonal affective disorder, investor behaviour and market performance — a phenomenon Kramer and her colleagues have studied for more than 20 years.

Kramer highlighted that traditionally, September and October are poorer-performing months for the market. The S&P 500 has seen a September decline of 7% or more 11 times going back to 1928, according to MarketWatch. While Octobers have performed better than Septembers, significant market crashes, like in 2008, 1987 and 1929, have occurred in October.

Both months are when days begin to shorten in the northern hemisphere, which can dampen moods among the general population. “We all just feel a little more despondent,” Kramer said. “The more depressed a person is, the more averse they are to risk, including financial risk.”

Kramer said her research has found that the riskiest categories of U.S. mutual funds tend to see large outflows during the fall and winter, when many investors experience increased risk aversion.

Conversely, she has found there tend to be large flows into the safest categories during these times.

Advisors who know about this tendency can educate their clients and help them avoid it.

“If investors act according to their emotions, if they sell risky assets in the fall and buy them back in the spring, they’re going to end up worse off. They’re leaving a lot of money on the table,” she said. “[You] don’t want people making investment decisions that is responsive to strong emotional urges.”

John Nersesian, head of advisor education with PIMCO, said during another session at the forum that advisors can help manage clients’ emotions by presenting them with historical data and evidence about how tumultuous markets in the past occurred and how investors who stayed invested rode the recovery wave.

Advisors should also show empathy to their clients, he said. As an example, advisors should consider revisiting the common phrase “stay the course.”

While advisors mean clients should remain invested and take a long-term approach, clients may interpret the phrase differently, Nersesian said.

After hearing the phrase, they may think: “I’m telling my advisor I’m in real pain right now. My portfolio is getting killed. Everything I’m reading suggests this may continue. My advisor doesn’t hear me; my advisor is hearing me, but they don’t care; [or] my advisor doesn’t have anything better to offer me.”

Nersesian suggested that instead of telling clients to “stay the course,” advisors can reiterate and clarify their clients’ concerns, tell the client they will examine potential options and reconnect with them in a week to discuss the best action plan. 

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