For the third year in a row, the Knight Foundation has conducted a survey of the top 55 charitable foundations with the intent of measuring the diversity of those managing the assets. Of the 50 eligible to be measured, (five do not have funds under active management or engage in other approaches which don’t meet study criteria), 15 declined to provide a response to the survey.
Knight Foundation was disappointed in the lack of transparency. I had written about the problem of donor advised funds essentially sequestering charitable gifts with no obligation to to distribute them. Some of those on Knight Foundation’s list of non-responders are set up in this or similar arrangement.
Knight Foundation had examined their own practices about 12 years ago and appalled by what they found, set out to diversify the companies that handled their investments. Reading the report, you may be disappointed to learn that 81.9% of the top 50 charitable foundations funds are invested with firms primarily owned by white men. However, at 18.1% charitable foundations are veritable role models in the investment world at large where the industry average is 1.4% invested with diverse owned firms.
Knight Foundation isn’t simply pursuing this policy to provide a fairer distribution of assets under management to diverse owned firms. They have seen that diverse owned firms engage in more diverse investment strategies avoiding “group think” approaches which may result in unhealthy concentrations of assets in problematic companies and industries, but this investment approach by diverse owned firms is no more risky than non-diverse owned ones.
That study, and the two in the series that proceeded it, found no statistically significant difference in risk- adjusted returns between diverse-owned and non-diverse-owned asset management firms. Put another way, despite no performance advantage, firms primarily owned by white men manage 98.6% of the over $80 trillion under management in the United States. And that $80 trillion represents more than three times the entire GDP of the United States.