Cambridge Conversations: Jasmine Richards, Head of Diverse Manager Research
In February, Jasmine Richards joined CEO David Druley at a roundtable on diversity & inclusion to discuss ways the industry at large can take more meaningful steps to uncover the best investment ideas.
David: I was delighted when you decided to join the firm a couple of years ago, but let’s rewind a little. Tell me about your background before you joined Cambridge Associates.
Jasmine: Before Cambridge Associates I was at FIS Group in Philadelphia, a fund-of-funds that manages emerging manager portfolios for about 22 different state pensions. My work with emerging manager programs overlapped a lot with diverse managers. Through this work I noticed that Cambridge was also investing in many of the managers I was tracking.
D: It’s great to hear that you were familiar with our firm before working here. I must admit, when a business mentor of mine suggested I talk to Cambridge many years back, at the time I had no idea what Cambridge was or what the company did.
J: Yes, I knew about the firm before then, and that is what really made me excited about coming here. It was encouraging to know that diverse manager work was already being done here and that the firm understood its importance. So I didn’t have to come in and serve as an evangelist for a diverse manager program; the culture of Cambridge gave me a smooth transition into a company that “got it” and gave me runway to add more deliberate resources to that effort.
D: At Cambridge, we’ve been defining diversity along ethnicity and gender lines, looking at firms that are either owned, led, or managed by diverse individuals in the pursuit of adding different funds, teams, and strategies to the portfolios of our clients. There’s a lot there to keep you busy.
J: Yes there is, and I am grateful for that! I think about the work we do in three different buckets: researching, educating, and underwriting.
An immense amount of research is required before we get to the underwriting stage. A big barrier for investing in diverse managers is the availability of data. That’s where I think Cambridge has a big advantage in this area. As a global investment firm, we have amassed a wealth of data on the investment landscape and have built the networks to uncover the best investment ideas.
Our primary goal is to find managers who can deliver excess returns. One of the areas where Cambridge has been most successful in doing that is identifying and investing in first, second, third-time funds. That dovetails perfectly with what the diverse manager universe looks like at this point, with many diverse firms tending to be newer and smaller. This is a way for us to keep the pipeline of ideas in our portfolios fresh and allows us to get into opportunities early and continue to grow with managers over time.
Then there’s the work we’re doing to educate our clients and the industry on these ideas.
D: The educational component is so important, and we take our role as advocates in the industry very seriously. And you also spend much of your time educating our clients as well.
J: Yes, we’re collaborating with clients to help educate them on how to best implement those diverse managers into their customized portfolios. There is still a misperception that while investing in firms or strategies led by women or people of color is the right thing to do, it also equates to concessionary returns. But the research debunks that. In fact, 39 percent of diverse managers are in the top quartile of performance, so there’s no demonstrable trade-off in returns.
D: Where do you think this misperception comes from?
J: Part of what might be feeding into this misperception is the utilization of the Rooney Rule within asset management. The rule was adapted from the NFL and requires that for any new investment idea, it’s mandatory to include a diverse firm in those considerations. While well intended, we believe that the implementation, long term, can lead to confirmation bias.
While this is something many of our competitors are employing, it’s not a method Cambridge Associates espouses. At the end of the day, the goal is to deliver outperformance. Regardless of manager demographic, selection should be done because of the quality of ideas and potential for generating alpha.
That means we focus on getting the right managers within our investment pipeline and applying an equitable underwriting process. If we can get the top of the funnel correct, then the strongest investors will become apparent versus someone forcing inclusion of a certain manager, which then can confirm biases.
D: We talked a bit at the roundtable about how lack of diversity can cause an asset manager to lose out on an RFP. On the flip side, do you think these misperceptions about returns are also affecting funding for diverse managers?
J: Absolutely. Despite having the exact same performance, diverse managers have a fraction of the assets of their peers. Of $70 trillion managed by asset management firms registered in the US, less than two percent are managed by firms led by women or people of color, according to a 2017 report from the US Government Accountability Office. That’s not necessarily because of a lack of such firms — in that same report, the GAO found 186 minority- and women-owned asset management firms around the country, and we have more than 500 diverse managers in our network.
D: That can a detriment not just to the managers, but to the investors who are overlooking strong funds.
J: It certainly can be. And it isn’t necessarily just due to the misperceptions either. There are other barriers that limit LPs from investing in diverse managers.
For example, track record. Investors typically require funds to have an extensive, long-term track record, ostensibly to weed out “riskier,” unproven fund managers by examining performance in different market environments. But consider that that we are currently 10 years into a bull market and one of the oldest African American-owned asset managers in the country is just over 35 years old. That means that the requirement of a 10-year track record can not only be insufficient, but also unrealistic.
D: One of the ways we’ve been talking to clients about this is learning to balance a desire to invest with proven managers with the fact that much of the diverse manager universe consists of more nascent funds.
J: Exactly. Using contextual research metrics. Continuing along with this example, we often look at track records of the managers themselves versus the age of individual firms. Here at Cambridge, we’re able to use our network and data to follow an individual manager over the course of his or her career to understand and evaluate their experience and success with specific strategies. This can help us make the same conclusions that the 10-year rule was meant to establish, and potentially uncover new talent that we might have otherwise missed.
D: This is another example where the access to data and information is key.
J: Definitely. And gathering the right information and data remains a key priority in building the most robust network of diverse managers that we believe comprise best-in-class investment ideas.
An example of that is the work we are doing to gather self-reported diversity data from our manager network. We’re looking not only at ownership but management of the firms. We are also looking at leadership at the individual investment strategy level and the diversity among the investment teams.
This level of information will give us even more insight and perspective into the diverse manager universe. For example, it can help us uncover firms that aren’t necessarily diversely owned, but whose owners have been very intentional about creating a diverse firm. That’s something that we absolutely want to know and something that we want to support since it has been proven that having a diverse group of people with varied experiences in a decision-making process typically results in better outcomes.
D: Absolutely. It’s always a pleasure catching up with you, Jasmine. Now one last question that I’m going to steal from the roundtable discussion—what’s the best book you’ve read lately?
J: Mindset by Carol Dweck. It’s a classic that I like to revisit from time to time. The premise is about creating a growth mindset versus a fixed mindset. The idea is to focus on the journey versus the outcome. Dweck explains that if you’re focused on the journey instead of worrying about a destination, then there’s no concept of failure. It might take different people a longer time to get to the outcome, but you have to believe that anyone can do anything.