NAIC Study Reveals Systemic Barriers in Pension Fund Investments for Diverse-Managed Funds

WASHINGTON, Dec. 17, 2024 /PRNewswire/ -- A new study commissioned by the National Association of Investment Companies (NAIC) highlights the stark barriers diverse-managed funds face in attracting pension fund investments, revealing systemic inequities that hinder innovation, growth, and the financial performance of pension funds. Despite the proven advantages of diversity -- including enhanced decision-making and more substantial returns -- over 95% of capital still flows to non-diverse funds.

Some of the key findings from the NAIC study, which analyzed pension fund investments in diverse-managed funds from 2012 to 2022, include:

• Persistent Underrepresentation: Over 95% of capital commitments remain concentrated in non-diverse funds, underscoring entrenched inequities across asset classes.
• Dramatic Underinvestment: Diverse-managed funds receive commitments that are 25.6% smaller than non-diverse funds on average. Funds led by ethnically diverse women experience a staggering 37.8% gap.
• Fund Size Disparities: Diverse-managed funds require a median AUM of $45 billion to attract public pension investments, compared to just $20.2 billion for non-diverse funds—a 123% higher threshold.
• Institutional Differences: Public pension funds have increased allocations to diverse-managed funds, rising from 7.6% in 2012 to 11.1% in 2022. Corporate pension commitments gradually increased to a high of 7.9% in 2020 and then significantly dropped to 4.3% in 2022, ending with just 1% more than the 3.3% they committed in 2012. Union pension funds exhibit sharp inconsistency, starting at 3.1% of commitments in 2012 and peaking at 9.8% in 2014 but plummeting to 0% in 2022.

For the 10 years studied, public pension funds consistently committed more to diverse-managed funds, which likely stems from greater public accountability, diverse stakeholders, and specific social impact mandates. Differences across fund types may be attributed to varying governance structures, decision-making processes, and long-term strategies. Corporate and union funds could potentially increase diverse investments by examining and adapting practices from leading public funds. Sector-specific trends indicate that factors such as beneficiary demographics or institutional cultures may drive diverse fund investments. Understanding these trends could provide valuable insights for promoting diversity across all pension fund types.

The research highlights the pension funds that made the most commitments to diverse-led managers during the period studied. The New York State Common Retirement Fund led public pensions with 62 commitments. For corporate pensions, Duke University's Employees' Retirement Plan led with 35 commitments, and the leader for union pensions was the Operating Engineers Trust Fund of Washington, D.C., with 21 commitments.

The disparities identified have far-reaching consequences, limiting opportunities for high-performing, diverse talent and stifling market innovation. "NAIC commissioned this study to provide clear insight into the capital allocators that are investing with diverse managers," says Robert L. Greene, NAIC President & CEO. "We are encouraged to see that public pensions increased commitments to diverse-led funds over the decade studied, and we hope that corporate and union pensions will begin to follow their lead and expand the capital flow to this high-performing market segment."

To view the full report, visit naicpe.com.

About the National Association of Investment Companies

Celebrating more than 53 years of advocacy and performance, the National Association of Investment Companies (www.naicpe.com) is the trade association and largest network of diverse- and women-owned alternative investment firms. NAIC's membership comprises more than 190 diverse-owned alternative investment firms that collectively manage over $460 billion in assets under management. NAIC member firms invest with more than 2,200 portfolio companies globally and consistently generate superior returns that help fuel the growth of the retirement and asset management industries.

Media Contact:
Kristen Perlman
Director of Marketing & Communications
National Association of Investment Companies
[email protected]
201-218-1763

SOURCE National Association of Investment Companies