As a national leader in the movement to increase racial equity in investing, a founder of the Racial Equity Access Lab (REAL), and CEO of Rhia Ventures, Erika Seth Davies counts decades of experience leading efforts to address systemic racism in asset management.
Recently, Davies spoke with Glenmede about the dearth of diversity in asset management—as well as ways to address the problem.
Bringing Justice to Capital
Davies launched REAL in 2018 to address systemic racism in investment institutions by “challenging and disrupting the policies, practices and cultural norms upholding and perpetuating systems of advantage and disadvantage.” Through its Racial Equity Assessment Framework, REAL evaluates organizational processes across a four-stage continuum ranging from “color-blind” to “equity focused,” Put together, these valuations can help form a baseline for planning and action.
In 2021, Davies became CEO of Rhia Ventures, which invests in early- and growth-stage companies targeting improvements in equity as well as access to and outcomes in reproductive and maternal health.
Fighting Inequity with Education
Davies highlights that the industry has a long way to go toward promoting real diversity in asset management. For example, when the Knight Foundation studied a sample of $82 trillion in assets under management, the organization found that companies with diverse ownership managed just 1.4% of those assets as of September 2021—and that figure actually represented a minimal increase from 1% in 2016.
Reversing this trend requires that investors and institutions understand the systemic forces within their own organizations creating and perpetuating racial inequity, according to Davies. To that end, REAL’s framework aims to help investment decision-makers examine their processes through a racial equity lens and understand how far along they are on a spectrum of equity.
Davies notes the systemic nature of racial inequity and points out the danger of inaction: “We don’t need bad actors for structural racism to exist,” she says. “We just need people to do nothing.”
Fostering a Growing Movement
Davies is part of a growing movement to increase racial equity and diversity in asset management. As one example, the Due Diligence 2.0 Commitment was introduced in 2020 by a group of wealth managers, asset managers, and racial equity investing advocates including Davies. Signed by 60 financial advisory firms, foundations, and investment funds, it presents nine steps aimed at addressing racial diversity.
Offering Steps for Investors
Davies also points to actions investors can take to hire more diverse asset managers:
- Collect data on who manages resources across asset classes and within portfolios. She recommends seeking out ownership with at least 50% women or people of color as the standard.
- Account for structural barriers as part of the due diligence process. This includes revising criteria, such as assets under management minimum, that have previously presented obstacles to diversity.
- Seek out diverse asset managers. Davies suggests attending industry events that diverse pools of potential candidates are likely to attend. And, she says, “Make your search public so managers can find you.”
Dispelling Myths with Data
Davies’ work dovetails efforts by others, including Nwamaka Agbo’s movement for restorative economics and pushes by shareholders to improve racial equity. Yet the hard truth, according to Davies, is that investors looking to break down equity barriers continue to face skepticism about performance.
The best ammunition for fighting those misconceptions can be found in recent research. In 2021, the Knight Foundation found “no statistically significant differences in performance between diverse and non-diverse-owned funds across asset classes.” Other research has shown that diverse private equity funds generated higher returns compared with other firms.
“Starting with data can dispel some of the myths,” she says.