Considerations Over ‘Human Capital’ Growing

By ARLEEN JACOBIUS  | Source: PIOnline

COVID-19 has illuminated shortcomings in how some workers are treated, leading some asset owners to look at including employee management considerations as part of their investment strategies.

Asset owners, by and large, already include employee considerations, dubbed “human capital,” as part of their ESG company engagement efforts and many view it as a potential risk to portfolios. But more recently, institutional investors, including CalPERS and CalSTRS, are contemplating whether to go beyond environmental, social and governance and devise an investment strategy with human capital management at the forefront.

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The Impact of Improving Diversity in the Asset Management Industry: 3 Key Statistics

It has been well established that women and minorities are underrepresented in the Asset Management Industry despite evidence that on average they have historically produced superior returns relative to the majority of their counterparts. The U.S. Government Accountability Office found that women and minority-owned investment firms managed only 1% of the $70 Trillion of assets under management in the United States. 

However, it is also widely believed that diversity across practically any measure is additive.  Many studies over the past several years have highlighted the potential economic and financial benefits of improved diversity. Here are 3 key statistics:

  • A Harvard Business Review of VC firms showed that when firms increased their number of female partners by 10%, they saw their profitable exits rise by 10% and overall returns by 1.5%. 
  • According to a report by McKinsey, companies who rank in the top quartile for diversity are 35% more likely to earn returns above their industry median.
  • Credit Suisse Research Institute found that companies in which at least ¼ of executives are women outperform the market by 3%. Furthermore, companies where at least ½ of executives are female outperformed the market by 10%.

As a result of many of the social ills facing this country, as exposed by recent events and the attention that they have garnered, we are witnessing renewed discussions around improving diversity within the asset management industry, and giving women and minority-owned asset managers access to larger institutional opportunities. The Diverse Asset Managers Initiative (DAMI) was established in 2017 and is a consortium of financial services professionals, institutional investors, corporate and philanthropic board members, and trade associations committed to raising awareness among institutional investors about the benefits and opportunities of investing funds with diverse owned asset management firms.  You can read more about DAMI at www.DiverseAssetManagers.Org or read their Fiduciary Guide to Investing with Diverse Asset Managers and Firms on the SEC Website. 

Buy, Sell, or Hold During COVID-19

A decade-long bull run on Wall Street has come to an end in the most abrupt fashion in history.

The COVID-19 coronavirus driving the sell-off will probably not resolve itself overnight. We do not know just how much the coronavirus will impact the economy in the long term, but all signs suggest that it will continue to affect the market in the short to intermediate term. 

With this much doubt, should one be a buyer or seller of stocks at this time?

Stocks are suddenly not as costly to buy, however as we typically see, there’s a lot less interest in purchasing stocks today than there was when valuations were higher.

In January, when the coronavirus was surfacing in China, the conversation was concentrated on whether the epidemic could eventually impact the U.S. markets. We now know for certain there will be a material influence on the U.S. market. Irrespective of how deadly the virus ends up being, the coronavirus epidemic of 2020 is currently creating a far more serious impact on the market compared to previous outbreaks such as SARS.

Wall Street historically is focused on quarterly results, and this present quarter will be difficult for many sectors in the market. However, there’s nothing so far to imply that there’ll be a permanent effect on our economy or that earnings won’t eventually recover. If you’re an investor with a time horizon measured in years, rather than the quarters, then the current sell-off provides opportunities to purchase quality businesses at a discount.

Many sectors of the market will be harder hit than others. The travel sector could take well into 2021 until it recovers. That being said, even the the airline and cruise industries, where several stocks have dropped more than 35% in 2020 have long-term trends that should still dive growth in the coming years. 

Even if you don’t have the stomach to get into the downturn, it is possible to still come out ahead by avoiding the desire to sell. Between May 2008 and February 2009, the S&P 500 lost nearly half its value and many investors decided sell out of all of their stocks. That was a costly mistake as over the next 5 years the S&P 500 increased over 153% percent.

The best way to generate money on the long haul is to stay invested through ups and downs, either in individual stocks or commingled vehicles. 

It is an interesting time to be an investor. I know that many household are feeling the weight from what has been lost in recent weeks. But the market will rally again, and if history is a guide that rally will more than make up for recent losses.