Top Foundations Invest 13.5% of Assets Using Investment Firms Run by Women or Minorities

Investment firms run by women or minorities manage about $8.6 billion, or 13.5 percent, of the assets held by the nation’s top foundations, according to a new study.

The Knight Foundation, which commissioned the study and had the highest marks, invested 46 percent of its assets through diverse management firms in 2019.

Using a variety of data sources, the study looked at investment information for nearly $64 billion of assets under management at 26 of the nation’s 50 largest private, community, and operating foundations.

Over all, $6.8 billion, or 10.7 percent, of foundation assets were invested in women-owned firms, and $5.9 billion was invested in minority-owned firms in 2019. About half of the firms were both women and minority owned, so the sum of those figures is higher than the total of $8.6 billion identified in the study. The median foundation invested 13.5 percent in diversely owned firms, with nearly 11 percent managed by women-owned firms and nearly 8 percent in minority-owned firms.

The study, conducted by Global Economics Group, identified a firm as “diverse” if it is U.S.-based and was characterized as diverse by two investment data firms, Prequin and eVestment. Prequin defines a firm as diverse if it was founded or co-founded by a woman or a minority or if at least half of the firm’s e partners are women or minorities. eVestment provides a percentage breakdown of firm ownership by gender and ethnicity. Using those definitions as a guide, the report says it took the “most generous” definition possible to characterize firm ownership as diverse.

Trying to Do Better

With 17 percent of its assets managed by women- or minority-owned firms, the Mellon Foundation had a relatively high diversity measure. In comments it provided, the foundation noted that 10 of the 13 members of its internal investment team are women and four are underrepresented minorities, but it said that it was “not satisfied” with the diversity of its external fund managers.

While firm ownership is a good measure of diversity, Mellon said that it also looks at the number of senior professionals in a firm and the rate at which the firm is addressing diversity.

“We are encouraged by organizations that have made demonstrable progress in committing to add diverse talent to their ranks at all levels,” the foundation wrote.

At the Rockefeller Foundation, 14.2 percent of its assets are managed by firms that are women or minority owned.

The foundation expressed a few qualms about the study’s methods, saying the study failed to “capture the essence of economic ownership/control.” For instance, assets that a foundation deploys through a team of investment professionals in India or China is included in assets under U.S. management if the parent company of the international investment firm is located in the United States — a definition that could make a grant maker’s external investment personnel seem less diverse. And investment vehicles with a long time horizon, such as a venture-capital fund, should be treated differently, Rockefeller said, suggesting that a fund started in 2002, when there may have been different expectations for diversity, shouldn’t be placed in the same category as a 2019-vintage fund.

The Knight Foundation made diversifying its portfolio managers a priority when it discovered in 2010 that only $7 million of its assets were handled by a single minority-owned fund. Two years ago, nearly one-quarter of its assets were invested in firms with diverse ownership.

Other foundations have set goals for their portfolio managers. The Kresge Foundation has committed to a “25 percent by 2025″ effort to invest one-quarter of its assets in diverse-owned firms by 2025. It’s starting point when it announced the effort last year was 13.6 percent.

Methodology

Of the foundations that did not participate in the study, 16 declined because they had insufficient data available or contractual nondisclosure agreements with fund managers. Three foundations did not respond to requests to participate, and five had assets mostly or completely invested in art or a family office that did not fit the purpose of the study.

For instance, the Lilly Endowment, which historically has had almost all of its assets invested in the Eli Lilly and Company pharmaceutical firm, did not participate. Nor did the Woodruff Foundation, which is heavily invested in the Coca-Cola Company.

Woodruff said the grant maker favors a “passive” strategy that replicates stock-index allocations.