Sourcing and Diversifying Investment Managers

How We Source Managers


The Foundation was endowed with an initial gift from John and Catherine MacArthur in 1978. We do not seek or receive funding from the government or other public or private sources. We depend on the earnings and growth from our investment portfolio to fund our charitable spending and operations. 

We use two methods for management of investment assets: an investment portfolio designed to earn a financial return sufficient to support a substantial, stable level of grantmaking and related operating activity over the planning horizon; and an impact investments portfolio dedicated to the advancement of our program and philanthropic purposes.  

With respect to our investment portfolio, we do not invest directly in individual companies; rather, we invest with managers who invest on our behalf and on behalf of other investors through pooled funds. We seek managers who can outperform applicable benchmarks over long periods of time and, therefore, generate excess performance (outperform the market).

Within the public markets, this means we have focused on hedge funds in lieu of more traditional “long-only” funds. In private and public asset classes, we want to see assets under management that are commensurate with the manager’s strategy and can adequately support the manager’s business model and prospects for success.

In evaluating any prospective manager, we consider several factors and criteria, including:

  • assets under management;
  • the manager’s fit within our overall strategic approach;
  • past performance;
  • extent of drawdowns in a variety of market conditions;
  • transparency in reporting and policies;
  • consideration of the manager's financial, accounting, risk, ethics, and other policies, including the firm’s approach to environmental, social, and governance factors and diversity among its key staff; and
  • statistical analysis of factors that we consider important in obtaining strong risk adjusted returns such as the information ratio, alpha generation, tracking error, and volatility.

 

Diversifying Our Investment Portfolio


Our commitment to the Just Imperative requires us to interrogate our decision making and, with respect to our investment portfolio, the manner and method by which we select investment managers.

Historically, the money management/investment business has been dominated largely by firms led or owned by White men. Investment firms led by or owned by women and people of color have historically had challenges in attracting investment capital due to a variety of reasons, including discrimination, implicit bias, lack of opportunity for entry to the field, lack of mentorship, the amount of assets under management, and closed networks.

While MacArthur has always been willing to invest with any manager who met our investment criteria as described above, we determined several years ago that it was necessary for us to take additional steps to ensure that we are identifying diverse firms. We also reviewed our processes and criteria to be sure that our selection was not constrained by implicit bias or our own experiences and preferences. We believe that with the changes we have made, and will continue to consider, we can identify more investment firms led or owned by women and people of color.

We recognize that there are challenges to steadily increasing the number, the amount, and the percentage of assets under management with diverse managers. Managers may be terminated if a fund closes, shuts down, performs poorly, or a portfolio strategy shifts, mandating an exit from a particular asset class. In addition, the size of the overall portfolio may increase due to strong markets and the performance of our managers, potentially affecting the percentage of assets under management by diverse managers.

For those reasons, we do not believe setting arbitrary numeric goals is wise or necessary, because it could constrain our decision making and some aspects are outside of our control. We believe that using processes that expand networks and opportunities is important to increasing the number of diverse managers and assets under management.  

We intend to be accountable and transparent and therefore will report annually on our progress. Our aspiration is to have at least 20 percent of our U.S.-based assets invested with diverse managers by 2024.

We will consider several factors when defining and identifying diverse managers, including:

  • percentage of ownership;
  • leadership in key positions;
  • portfolio managers; and
  • a commitment to diversity at the firm, as reflected by efforts to increase the number of persons of color and engagement with the field.

Here are the steps we have taken over the last several years:

  • Contracting with Lenox Park, a leader in centralizing demographic data within the investment industry. Lenox Park fosters greater transparency and standards for diversity, equity, and inclusion (DEI) by combining its experience in the DEI space with tech-enabled data aggregation and analytic tools. Lenox Park has developed a comprehensive diversity assessment that maintains the importance of diverse firm ownership while capturing metrics such as leadership and staff demographics, hiring, attrition, and board representation.
  • Signing on to the Institutional Limited Partners Association Diversity in Action Pledge.
  • Creating a portfolio sleeve to invest in emerging managers, with a focus on managers who may lack the track record and the amount/number of assets under management of larger, more established managers. We hope this approach will attract a diversity of managers.
  • Using a database of marketable managers maintained by Cambridge Associates, we routinely evaluate all the managers Cambridge Associates considers diverse under its criteria to determine whether their performance and characteristics fit our investment criteria. We have reached out to such firms and invited expressions of interest.
  • Networking with peers, industry consultants, and others to identify potential firms.
  • Signaling our interest by asking all managers about their approach to diversity, equity, and inclusion, and sharing our commitment to diversity among key staff.
  • Meeting with more than 100 people of color- or women-owned firms over the last year through June 30, 2021. In addition, we participated in several roundtables and forums to expand our networks.
  • Establishing a new fund, with an initial $50 million, with GCM Grosvenor to help identify and invest in people of color- or women-owned managers whose assets under management may not yet meet the Foundation’s criteria and to share information with us about diverse firms that we might invest in directly. So far, two African American-owned firms, four Asian American-owned firms and one woman-owned firm have been retained.
  • Maintaining a watch list of diverse firms that may become open to investment, increase their assets under management, or improve long term-performance records.
  • Committing over $730 million for investment directly or indirectly in 34 different investment management firms encompassing 47 different funds, as of June 30, 2021. The firms all are either African American-, Asian American-, Latinx-, or women-owned or have women or people of color as key principals.
  • We established a paid internship program in our Investment Department and work with Girls Who Invest to help identify a diverse pool of potential candidates. We hope that such an approach helps address the need for more people of color and women to have opportunities to learn about the investment business and develop necessary skills.
  • In this context, we will continue our efforts to identify and retain qualified diverse investment managers as we seek to achieve our investment objectives over time and to sustain our charitable mission. We welcome expressions of interest from such firms.

Managers interested in being considered by the Foundation should contact the following staff:

Private Equity: Mark Franke or Melissa Richlen
Fixed Income and Liquid Credit: David Greenwald or Joseph Rumph
Global Public Equities: Buck Betten or Eric Vaang
Real Estate and Energy: Caixia Ziegler

 


View our annual financials ›


 

Updated September 2021

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