Beyond investment performance: Diversity, equity and inclusion in the investment management industry

TITLE: Beyond investment management: Diversity, equity and inclusion in the investment management industry

Hosted by:

Jennifer Chandler, Head of Philanthropic Solutions, Bank of America Private Bank

Moderated by:

William Jarvis, Philanthropic Executive, Bank of America Private Bank

Panelists:

·         Bethany Johnson-Javois, President & CEO, Deaconess Foundation

·         Matthew Oldani, Vice President Operations, Deaconess Foundation

·         Anna Snider, Head of Due Diligence, Chief Investment Office, Merrill and Bank of America Private Bank

JENNIFER CHANDLER: Thank you for joining us today. I'm Jennifer Chandler, Head of Philanthropic Solutions for Bank of America Private Bank. We're so pleased you could join us today for this important conversation. Whether you're a donor, or a nonprofit leader, or, in some cases, both, you're making an impact and a positive difference, and we thank you. In the same way you live your life with impact and purpose, we at Bank of America are also focused on a social mission. At Bank of America Corporation, through our grants and our strategies, we're supporting jobs, housing, small business, and the environment. And as I hope you already heard, we've committed $1.25 billion over five years to advance racial equity and economic mobility. At Bank of America Private Bank, we've been serving philanthropic clients for over 150 years. And as one of the longest established fiduciary investment management firms in the industry, we oversee approximately 40 billion in discretionary outsourced chief investment office assets for nonprofits just like yours and more than 77 billion in additional philanthropic assets, as of June 30th, 2022. In addition, through the trust we administer, Bank of America's Private Bank is one of the largest grant makers in the country. We distributed 498 million in 2020 alone. And when combined, we believe these experiences give us a unique ability to anticipate and address the distinct needs of both donors and the charitable organizations they support. Today's conversation will explore goals that extend beyond the investment performance. We'll take a deep dive into the importance of diversity, equity, and inclusion in the investment management process and industry. And more importantly, how this can be implemented within your portfolios.

Today, we are so honored to have Bethany Johnson-Javois and Matt Oldani from the Deaconess Foundation. We also have our own Anna Snider from our Head Chief Investment Office with Due Diligence and our Chief Investment Office for Bank of America Private Bank and Merrill. And last but not least, we have our very own Bill Jarvis. Bill leads our Strategic Thought Leadership for the Bank of America Private Bank Philanthropic Practice. Bill will moderate our discussion to make sure we hit all the key topics that are timely and important to you. So without further ado, I'll turn it over to Bill.

BILL JARVIS: Well, thanks very much, Jennifer, and thanks to all of you who are joining us today. And thank you to Matt and to Bethany. We'd like to open our conversation appropriately with Bethany. We're excited to hear from you about Deaconess. Can you provide us with an overview of the foundation, please?

BETHANY JOHNSON-JAVOIS: Sure, Bill, excited to be here with you. Deaconess Foundation is actually a ministry of the United Church of Christ, or UCC, working to improve the health of the Eastern Missouri and Southern Illinois communities. For 130 years, the Deaconess Mission has served generation upon generation. And we began, first, as a healthcare provider. And today, we are both known as a grant maker and advocate. The grant-making era began in 1998 and focused on the health and well-being of children and youth, and the systems that support them, and sometimes the systems that make them unwell. Understanding that young people are impacted and influenced by the people, the families, and the environment that surrounds them.

BILL JARVIS: Thank you very much for that quick overview. And of course, tied to that history, from your point of view as the CEO, we'd be very grateful if you could share, in turn, your view of Deaconess' mission in this day and age.

BETHANY JOHNSON-JAVOIS: Yes, absolutely. With an equity lens, we envision a community that values the health and wellbeing of all, with tools and resources readily available for their success and priority attention is given to the most impacted. We also believe that this community only thrives if the allocation of power and distribution of resources, its benefits, its opportunities, and burdens are not predictable by, nor predicated on race. We do that by focusing on increasing our community's capacity, civic infrastructure, and power to advance child wellbeing through racial equity, public policy, and advocacy. We are deeply committed to resourcing citizens of this region to improve their lives by working to change at all levels, local, state, and federal policies with a racial equity lens. Our community investments aim to shift the landscapes so that youth and child advocates are better positioned to move those same systems that affect them. And our goals are not temporary nor transactional, but designed for lasting and impactful change. And because we always partner, we partner in community, we partner with community, we work for community, we must pass that microphone, amplify the community's voice, and censor our work around their asks, needs, and demands. We also believe in doing this work in partnership. We openly invite the philanthropic sector, businesses, individuals, nonprofits, social sector, and more to join us in this movement and in this work. From the investment point of view, we are committed to preserving capital and also to attracting new funding streams. We believe that maximizing our investment dollars will sustain this work for generations to come up to that 100-year mark commitment. Our practices are rooted in deep listening and trust building, something we call "radical listening" and "radical hospitality." And my colleague, Matt Oldani, who's with us will talk to you in a few minutes about how we carry out these mission-related goals in context of the foundation's investment portfolio.

BILL JARVIS: Thanks very much, Bethany. Very helpful and very powerful. Anna, turning to you, as we listened to Bethany describe so eloquently the mission and the work of Deaconess Foundation, I know these words must resonate with you. Can you give us an insight into how you and your team implement Bank of America's Diversity, Equity, and Inclusion Goals among the investment management firms on our asset management platform?

ANNA SNIDER: Sure, so we'd been looking for diverse-owned managers to meet our clients' asks of us, like Deaconess Foundation, for many years.

But in 2020, after a number of years of research, we also started looking at diversity, equity, and inclusion across our entire platform of asset managers.

So, we have three objectives for our program.

First, we want to decrease hurdles for people of diverse backgrounds to succeed in this industry.

The second, we want to meet client demand for reflecting diverse investment opportunities while growing their portfolios.

And the third, and this is what Jennifer mentioned at the top of the call, we want to reflect our own Bank of America's Commitment to Diversity, Equity, and Inclusion in the managers to which we entrust client assets.

BETHANY JOHNSON-JAVOIS: Anna, I want to thank you for sharing that. And particularly, I want to really focus on the part where you mentioned "decreasing hurdles for people." We believe it's important to remember that the actions of Wall Street reverberate on Main Street. Most of the wealth in this country resides with the privileged few. And a strict focus on financial returns has historically harmed poor communities. One thing to note, many people in communities that look like me have a very complex, emotional relationship with money. We are often shamed. We often don't have the same tools and resources. We need help to demystify money. And so, partnerships that do that, that pull back that veil, that help us to understand and reflect our communities is so critical moving forward.

ANNA SNIDER: And that resonates really well if you look at the statistics. So, there's a Knight Foundation Report, Knight Foundation does a study every year looking at the percent of assets that are managed by people... women and diverse managers. In the asset management industry in the United States, that's 1.4%. And it hasn't moved that much. So, Bethany, it's no wonder that there is this disconnect between people's... people's relation to money and the asset management industry, in particular. And so, the first leg of our stool is to look for diverse asset managers, right? We're looking for... to - to increase the number and the assets managed by diverse asset managers, so that our investment platform looks more like the communities that you and we serve with our clients. The second thing that we've done is... is not just look at the pool of diverse managers, but also look at how the asset management industry writ large is dealing with diversity, equity, and inclusion. And we are looking at that both at the organizational level to understand whether there's been a culture that's created by the asset management... by- by the asset manager, where you have the ability for people of all backgrounds, and - and... education, and experiences to participate in an investment decision-making process. And we want to make sure that from the top down, from the organizational view, that's supported. But also, that it's taking place within the investment teams and they're thinking about - the investment teams are thinking about these issues when they're deploying assets. And this is really important to us because, while certainly we have commitments and we believe in this, there is a huge investment thesis around this, which is a trove of academic and industry studies that say that diverse teams have a better ability to make effective decisions. And what are we doing in looking for investment managers that are going to meet or exceed their investment objective? We are looking, actually, for the efficacy of the investment decision-making processes and who we entrust our clients' assets to. And so, there is a... a direct and very material linkage between the success of the investment culture and the diversity that exists within that culture. And that's why, you know, from an investment standpoint, from a research standpoint, we embarked on looking, not only, again, at the diverse-managed teams, but also teams and their overall diversity, equity, and inclusion.

BILL JARVIS: So, thank you, Anna. Turning to Matt, having heard Anna's overview, I'd like you now to take this to the practical level and convey to us how you at Deaconess work to implement your investment strategy in alignment with this mission that we've heard described.

MATT OLDANI: Sure, Bill, I'd be happy to. At Deaconess, we want to use all of our assets with which we've been entrusted to fulfill our mission and vision and create meaningful impact and change in the world. This includes our human capital, our facility, and our investment portfolio. With our investment portfolio, we recognize two things. First is that our theory of change requires using more than just the sector's five to seven percent average spend rate each year. We want to use the other 93 to 95% of the portfolio for good. Second, we believe that our fiduciary responsibility does not end with maximizing financial return and minimizing risk. We believe that efforts to promote healthy children in communities and address issues of racial equity and social justice should be incorporated into our investment decision-making. As Bethany emphasized, this practice stems from our faith heritage as a ministry of the United Church of Christ. Our Board of Trustees developed an investment policy statement that includes a socially responsible investing plan that we ask our investment office to manage and periodically report back to the board on the plan. In fact, our monthly and quarterly reports include not only the performance of the portfolio and how it compares to the industry benchmark, but also, how it aligns with our socially responsible investing goals, as outlined in our Investment Policy Statement.

BILL JARVIS: So in this Investment Policy Statement, you've got not only socially responsible investing exclusions, environmental, social, and governance inclusions, but also, these specific things with respect to investment return and the kind of managers that you're using. So, could you describe, Matt, how that works in practice, please, from the Investment Policy Statement point of view?

MATT OLDANI: Absolutely, Bill. The Investment Policy Statement outlines the guidelines for constructing an investment portfolio that aligns and is consistent with the values of the Deaconess Foundation. Those values are justice, hope, service, identity, and faithfulness. Let me describe how it works from a practical standpoint though. We understand first that we are not perfect, and there are always opportunities to do better, and this a growing and evolving process. But we believe that some progress is better than no progress, and it is better to strive for excellence and to fall short than to do nothing. So, first, at the most basic level, we believe in doing no harm. To that end, our trustees have asked that all securities be screened, so that we do not invest in organizations that are engaged in the manufacture, sale, and distribution of weapons, tobacco, pornography, gaming, or alcoholic beverages. Second, we want our investment office to identify companies whose values align with ours regarding the treatment of employees and the commitment to the environment. Thus, we prioritize investment in corporations that showcase progressive and industry-leading policies related to human capital engagement and community development and environmental stewardship and sustainability, all with a proven historical performance record in relation to such policies. Third, like classic investment portfolio management theory, which recommends a diverse mixture of asset classes, we at Deaconess believe that the best outcomes come from diverse teams. Therefore, we have asked our investment office to direct a minimum, and I emphasize "minimum," of five percent of the foundation's assets to historically underfunded and undercapitalized firms led or owned by African Americans, Native American, or LatinX fund managers. With this request, we acknowledge these firms have historically faced challenges raising capital, which may lead to less competitive businesses, higher cost of capital, and a higher risk of bankruptcy. Investing in these asset managers helps these firms add investment capital and provide for operational longevity.

BILL JARVIS: Matt, so what you're doing here, this rests on these three pillars, doesn't it? You've got the socially responsible investing exclusions, the environmental, social, and governance leaning into, and then, of course, this over... over scrutiny or keen scrutiny of asset ownership and of the diverse managers to be sure you have diversity of thought, diversity of experience, and executing what you're trying to do. Very, very helpful, very interesting.

Anna, now turning back to you, could you comment on what Matt's laid out here from the point of view of your work at Bank of America?

ANNA SNIDER: Sure, so we have, for about a decade now, developed a platform of solutions that meet different clients' objectives, both of a risk and return perspective but also their objectives, as Deaconess just laid out, around sustainable issues, whether that be environmental or social issues that they want to reflect in their mission or in the preferences... in their individual preferences. And we have... We do this in many ways, right? It is through... thought leadership, right? For instance, we just recently put out, for people interested in where we are in the energy transition and the risks and opportunities for our portfolio. We just put out a piece on that to sort of think about... both the short term and longer-term structural risks and opportunities of the energy transition. But we don't only do thought leadership. We also, ourselves, are engaged in research with industry partners. We've done research on... on the landscape of women-owned and women-led investments with the nonprofit community. We are obviously focused, as I've said, on creating a platform of diverse investment managers, but we're also interested in managers who are looking at the underlying portfolios and looking at issues of equity or inequity and... and- and creating and funding underlying companies, or issues, or portfolio companies. And really, we're able to do this more and more and the industry's able to do this more so there are more options because data and metrics around diversity, equity, and inclusion but also, obviously, around environmental sustainability have gotten better. We know more today. There's more research, proprietary, industry, and third-party research that we can avail ourselves of. And so, the ability, today, to meet investment objectives and risk objectives while also translating those objectives into sustainability, environmental, or social objectives is... is one and the same in many parts of a client's portfolio.

BILL JARVIS: And Anna, just circling back a bit to this question of "diverse ownership," we have some standards for that and the industry has also evolved. How do we define diverse ownership in an asset manager?

ANNA SNIDER: We have defined it as 51%. The Knight Foundation Study that I referenced before uses a 33% threshold, for instance. So 51% actually lowers the number of managers that qualify as diverse for us, but we really believe that, as Matt- totally agree with that Matt said, these are the managers that need operational and other capital to create a viable asset management, investment management business in addition to... you know, supporting really strong investment processes and investing in the communities around them. And so, certainly, we have the industry's evolving and the ways that people reflect diversity in portfolios. As I said, we're looking at the asset management industry at large to understand what diversity looks like across investment teams that we... that we invest in. And there are different thresholds that different clients want to... to explore in terms of portfolio management teams or asset managers that may be instituting best practices. But as a basis for our diverse managers, the way that we count, I suppose, for purposes of keeping track and making sure that we're growing intentionally in the way that we want to, it is 51%, a mathematical majority.

BILL JARVIS: Thanks very much, Anna. So we see this conversation springing from values, going through analytical metrics, and also in an environment which is fluid and evolving.

And turning back now to Matt, as we think about the people who have joined us on the call today, what do you want the nonprofit leaders, who are here today, viewing this broadcast, to take away from Deaconess and your foundation's story?

MATT OLDANI: Sure, Bill. We hope that other nonprofits and foundations can see and believe that we aren't sacrificing financial return nor the long-term future of the foundation. `In fact, we believe that the companies we invest in are better investments because they have a superior business model. These companies are the ones that are better positioned to be successful in the 21st century. Again, we do not pretend to know all the answers. Our philosophy explains how we are using our investment portfolio to align in practice with our mission and vision. And second, it explains how we measure progress, ethics, and accountability for ourselves and our partners.

BILL JARVIS: That's a great way of stating it, Matt. Thank you very much. Anna, can I ask you, since we've been talking about the future? Can you give us a look over the horizon at the future of your work in this area at Bank of America?

ANNA SNIDER: Sure, we have always, from the Chief Investment Office standpoint, seen sustainability, and diversity, and inclusion in investment portfolios and in investment management as a structural trend, not a temporal one. And so, we believe that there is a huge amount of investment opportunity happening at the intersection of sectoral transformation, economic transformation, technology and innovation that is reflective of the way that our clients want to move, both from an environmental or a social perspective. So, you know, we are looking always to add solutions that bring together the... good investment managers with... meeting our clients' preferences. And in many ways, the ability to look at environmental and social factors allow... we believe allows investment managers to make better holistic investment decisions and therefore, meet our clients' dual objectives of sustainability, diversity, equity, and inclusion, environmental sustainability, and financial risk and return.

BILL JARVIS: And that's a very great way of putting it, Anna and Matt. We really were in the same place. These values can lead to rigorous processes, which lead to financial returns that are not different from those that agnostic processes would deliver, and, in fact, can be complementary to them. So, I'm going to turn it back to Jennifer now to conclude with thanks to everyone.

JENNIFER CHANDLER: Thank you so much, Bill, and thank you to all of our panelists today, Bethany, Matt, and Anna. We hope you've all found this very informative and helpful. And I also want to emphasize that we're here to help you and your organizations to help you seek counsel on making informed investment decisions. Now I know we just scratched the surface today, but the great news is that we're here to continue the dialogue. Simply reach out to the colleague that invited you to the call today. Thank you again for joining us.

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