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due diligence
2.0

COMMITMENT

Traditional due-diligence and risk-assessment frameworks in the asset management industry have led to a system in which white, male asset managers control 98.6% of the investment industry’s over $80 trillion in assets under management. (1)

Traditional due-diligence and risk-assessment frameworks in the asset management industry have led to a system in which white, male asset managers control 98.6% of the investment industry’s over $80 trillion in assets under management.(1)

Given society’s pressing need to reduce systemic racial inequities in education, hiring, compensation, promotion, healthcare, environmental pollution, and mass incarceration, among many others, the asset owner’s and advisor’s most impactful potential contribution is to allocate more capital to BIPOC (Black and Indigenous people of color) managers, communities, entrepreneurs, and stakeholders. Furthermore, by not actively allocating to BIPOC managers, there may be a loss of potential financial returns. (2) Fiduciaries are expected to act with prudence, which means “acting with or showing care and thought for the future” (3) and “in the best interests of their clients(4).” Creating a substantially equivalent, but alternative due-diligence process that increases the flow of capital to BIPOC managers is consistent with the fiduciary responsibility of our organizations.

BIPOC asset managers consistently state that existing financial industry due diligence standards result in institutional assets continuing to be managed by the same firms, which are overwhelmingly white.(5) While asset allocators may have initial conversations with many BIPOC managers, they are notably missing from institutional portfolios. Often BIPOC managers are eliminated from the selection pool based on historical industry standards for due diligence that reinforce existing social inequities.

To catalyze movement of capital to BIPOC managers, the undersigned asset owners, consultants, and financial intermediaries, on behalf of asset owners who value BIPOC manager inclusion, commit to making the following shifts in our due diligence processes:

  1. Consider Track Record Alternatives
    For newer strategies or products, instead of insisting on a specific minimum track record for the product, we will evaluate members of the investment and leadership team based on past experience, investment sourcing capabilities, domain expertise, as well as assess prior track records in related or relevant work, possibly including redacted representative separate account performance rather than requiring cost-prohibitive third-party assessments, as well as each individual’s role in achieving previous results. To the extent the manager is using partner firms to complement their skillsets, the relevant experience and track records of said partners will be evaluated.

  2. Expand What it Means to Work Together
    Knowing that opportunities for individual investment managers to “work together” or “invest together” at existing asset management firms are few and far between for BIPOC managers, we will take into consideration the time individual investment managers have worked together while building the firm and in other organizations as substitutes to evaluate the stability of the partnership.

  3. Reassess Assets Under Management as a Risk Metric
    Instead of using manager assets under management as a proxy for the financial stability of a manager, we commit to evaluating a) the manager’s history of operating effectively with lower than industry-standard budgets, b) growth momentum in assets under management (AUM), c) AUM growth in previous position(s) at prior firm(s), and d) what happens to the underlying investments in the event of firm insolvency.

  4. Respect BIPOC Time
    Reports from BIPOC managers conclude that while they have committed extensive time to due diligence conversations and formulating written responses to questions, very little capital has actually moved. Recognizing that time is the most precious commodity for BIPOC managers attempting to create financial products that address society’s most intractable challenges, we will minimize requests for meeting time with managers and, if possible, convene group meetings in which managers can answer questions for multiple asset allocators at once. In addition, to relieve the often onerous time burden associated with submitting RFIs and RFPs, we will condense, standardize, and/or support managers in completing these documents.

  5. Contextualize Fees
    Rather than eliminating BIPOC managers due to higher fees, we will compare the services being provided to peer managers (e.g., Does the BIPOC manager require more staff or outsourced partnerships to collect data from impacted communities?). Additionally, because higher fees are often correlated with lower assets under management, we commit to working with BIPOC managers to allow for initial high fees predicated on a manager projection for future fee reductions tied to fundraising success.

  6. Include Historically Unrecognized Risks
    To the extent we consider market inefficiencies or underpriced risks in our investment philosophy, we will endeavor to evaluate the potential risks and costs of BIPOC under-capitalization in our analysis. This could include the costs of social unrest, climate migration, sickness and productivity losses, and reduced government revenues from economic underperformance, among others.

  7. Be Willing to Go First
    We will consider being an anchor/seed investor or part of a first close (or in the case of a mutual fund or exchange-traded fund, at/near fund inception) rather than insisting on being in later closes. This contributes to fundraising momentum, and we agree to not require special terms such as lower fees in order to take this position.

  8. Offer Transparency about Remaining Hurdles
    If after the aforementioned revisions to our due diligence process we still have specific minimum thresholds or deal-breakers, we will explicitly state these at the outset when circulating RFPs or RFIs to BIPOC managers.  This way, if the manager finds them overly burdensome, they have the opportunity to invest their time in other capital raising opportunities.

  9. Provide Detailed Feedback
    If we choose not to invest with a BIPOC manager who has engaged in our alternative due diligence process, given our commitment to mutual learning, we will provide clear, specific, and timely feedback regarding the reasons for rejection.

It is our sincere intention that these alternative means of evaluating BIPOC managers will contribute to advancing the investment management industry’s allocation of capital towards parity with national demographic representation.

(Endnotes below)

Signatories

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Due Diligence 2.0 Commitment

Asset Allocators & Advisors:

  • Abacus Wealth Partners

  • Nia Impact Capital

  • 45North Partners

  • NorthFork Financial

  • Natural Investments

  • Cornerstone Capital Group

  • Momentum Advisors LLC

  • Green Retirement, Inc.

  • Enso Wealth Management

  • Impact Investors

  • Align Impact

  • Cogent Consulting PBC

  • Crewcial Partners

  • Sonen Capital

  • Temescal Canyon Partners

  • Global Endowment Management

  • Marigold Capital

  • Health Gap Ventures

  • Syntrinsic Investment Counsel

  • Impact Engine

  • Reynders, McVeigh Capital Management LLC

  • Rally Assets

  • WestFuller Advisors

  • FIIND Impact

  • Arabella Advisors

  • Christopher Street Financial

  • Revalue

  • Good Capital Investment Group

  • Bay Street Capital Holdings

  • Corbin Capital Partners

  • Figure 8 Investment Strategies

  • Newground Social Investment

  • Avivar Capital LLC

  • Educate Global (EG)

  • MEDA

  • Veris Wealth Partners

  • New Summit Investments

  • First Affirmative Financial Network

  • Modern Assets

  • Ritholtz Wealth Management

  • Bivium Capital Partners, LLC

  • CNote

  • CapShift

  • GRID 202 Partners

  • North Berkeley Wealth Management

  • Uplifting Capital

  • Habash Wealth Management

  • Kind Wealth

  • Include Ventures

  • Sphere

  • Stakeholders Capital

  • Zenith Wealth Partners

  • Trillium Impact Partners

  • Humanize Wealth

  • Nubian Square Investment Advisors

  • San Francisco Foundation

  • Staro Insights

  • Noviscient Pte Ltd

  • Pana LCE (Low Carbon Economy)

  • Laird Norton Wetherby

Asset Owners:

  • Nathan Cummings Foundation

  • Tara Health Foundation

  • Compton Foundation

  • East Bay Community Foundation

  • AJL Foundation

  • Woodcock Foundation

  • A to Z Impact Foundation

  • Excelsior Impact Fund

  • The Grove Foundation

  • Seattle Foundation

  • Jessie Smith Noyes Foundation

  • World Education Services

  • Halloran Philanthropies

  • Common Future

  • Community Credit Lab

  • Halloran Philanthropies

  • Labiana Life Sciences

  • Amalgamated Charitable Foundation

  • Regional Foundation

  • SK2 Fund

  • Individual Investors (2)

  • Mary Reynolds Babcock Foundation

  • Tercero Solutions

  • Global Delta Capital

  • McConnell Foundation

Other:

  • Gratitude Railroad

  • Silicon Valley Social Venture Fund

  • Mission Driven Finance

  • The Sankofa Group

  • Toniic

  • Integrated Capital Investing

  • Francesco Collaborative

  • Impact Finance Center

  • New Power Labs

  • Diane Sabin

  • Amy Brakeman

  • Boston Impact Initiative

  • New Majority Capital

  • Elisaph PV Solar

  • Matinecock Capital LLC

  • New Majority Capital

  • ICA

  • Impact Charitable

  • Gratitude Railroad

  • Omarang Charity Acts and Mentorship

Sign the
Commitment

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Due Diligence 2.0 Commitment

Made in Collaboration.

This commitment was co-authored by Brent Kessel, Rachel J. Robasciotti, Tracy Gray, and Erika Seth Davies, with input and contributions from over a dozen BIPOC asset managers.

Tracy Gray

Founder & Managing Partner, the 22 Fund

Erika Seth Davies

Founder, Racial Equity Asset Lab

Brent Kessel

Co-Founder & CEO, Abacus Wealth Partners

Rachel J. Robasciotti

Founder & CEO, Adasina Social Capital

Endnotes

  1. Knight Foundation, “Knight Diversity of Asset Managers Research Series,” Knight Foundation Website (December 16, 2022).

  2. Lyons-Padilla, Sarah, et al. “Race Influences Professional Investors’ Financial Judgments,” Proceedings of the National Academy of Sciences of the United States of America (August 27, 2019).

  3. Oxford Dictionary, “Definition of Prudent,” Oxford University Press via Lexico.com. (October 23, 2020).

  4. Commission Interpretation Regarding Standard of Conduct for Investment Advisers,” United States Securities and Exchange Commission (July 12, 2019)

  5. Morris, David, “Investment management is overwhelmingly dominated by white men – and it’s costing you money,” Fortune (June 19, 2020).