Pulling Back the Curtain on UC Investments

The University of California system has made progress in diversifying its investment office and partners, according to a diversity, equity and inclusion report released last week.

The second annual report is the most detailed look at the gender, racial and ethnic makeup of a college or university investment team to date, said Robert Raben, founder of the Diverse Asset Managers Initiative.

“It’s best in class,” he said of the report, “but the class is terrible.”

College and university endowment managers are usually white and male. The Diverse Asset Managers Initiative has pushed institutions to diversify their investment offices and partner investment firms for years. The group partnered with several Democratic lawmakers and the Reverend Al Sharpton, a prominent civil rights activist, last summer and demanded that two dozen of the wealthiest colleges and universities release detailed information about the diversity of their endowment managers. The University of California system was among the colleges asked to release the information. All of the colleges complied except for the University of Norte Dame.

The University of California encompasses 10 institutions and employs 63 people in its investments office, which manages a $161 billion portfolio that includes endowment, retirement and cash assets. The system's investments workforce is more racially diverse than it was four years ago, the new report showed. About 38 percent of investments employees are Asian, 36.5 percent are white, 12.7 percent are Black, 7.9 percent are Latinx and 3.2 percent are two or more races, 2020 data showed. The percentage of Black employees has more than doubled since 2016, when it was 5 percent. Meanwhile, the percentage of Latinx employees has decreased in recent years, falling from 13.3 percent in 2017 to 7.9 percent in 2020.

Women have made up about one-third of the investments workforce in recent years. In 2019, the percentage of women employees peaked at 35 percent and later fell to 32 percent in 2020. These percentages lag behind overall female representation in the U.S. financial services industry, where women make up about 44 percent of employees, according to the report.

However, the University of California employs a higher percentage of people of color than the financial services industry as a whole. People of color make up 62 percent of investment employees at the university system and only 32 percent of employees in the financial services industry.

The system also surveyed its partner investment firms to determine which firms are owned by people from underrepresented demographic groups. The report calls such firms “diverse-owned” and defines them as firms owned by women; veterans; or Latinx, Native American, Black, Asian and Pacific Islander, LGBTQ, or disabled people.

Of the 123 surveyed investment partners, 18 are at least 50 percent or more diverse-owned, 28 are between 25 and 50 percent diverse-owned and 72 are less than 25 percent diverse-owned.

The university system partnered with five new investment firms in 2020: one that is Black men-owned, one that is Black women-owned, another that is white women-owned and two whose diverse ownership demographics are below 25 percent, according to the report.

The University of California’s report is noteworthy in part because colleges and universities are notoriously tight-lipped about who manages their millions. Chief investment officers at wealthy institutions typically earn more than the presidents of colleges, Raben said. These officers often avoid conversations about topics that could have an impact on their investment strategies, like climate change or apartheid.

CIOs also steer clear of conversations about race and diversity -- in part because racial discrimination is pervasive within the financial services industry, Raben said.

“A huge percentage of white men who run most of these endowments don’t believe that Puerto Rican and Mexican Americans and African Americans can manage money,” Raben said.

Greater transparency about the lack of diversity in college and university investment offices may also motivate institutions to improve diversity by moving investments out of firms that have managed the money for years.

“The money is always being managed by somebody, whether it’s Wells Fargo or Goldman Sachs or Larry down the street,” Raben said. “If you say, ‘I have to diversify,’ it means you have to take $50 million from Larry” and invest it somewhere else.

Jagdeep Singh Bachher, chief investment officer and vice president of investments at the University of California and author of the diversity and inclusion report, said he hopes the report will encourage other colleges and universities to be more transparent about their own investment offices.

“We believe that, by sharing this annual report, we can help inspire other influential institutional investors to do the same, to the good of our University of California beneficiaries and of the asset management industry,” he wrote in the introduction of the report. “While we are proud of the progress we made in 2020 we are mindful that there is much to learn -- and do -- on the journey ahead.”

Raben doesn’t believe the University of California report will inspire colleges and universities that are unwilling to disclose diversity information to open up. It may, however, provide a road map for institutions that are already looking to be more transparent about who manages their money.

“The University of California report is a crucial, crucial road map for at least explaining the data set, the problem and the practices it takes to try to fix the problem,” Raben said. “It’s a beautiful template.”