Efforts to promote diversity, equity and inclusion on college campuses are increasingly under fierce attack. In April, the University of Texas at Austin laid off dozens of employees formerly working on DEI initiatives in response to a new state law. Similar bills restricting DEI in higher education have been introduced in more than 25 states and have become law in 14. Duke University recently discontinued race-conscious scholarships, as have nearly 50 other colleges and universities. An overall shift away from DEI efforts is gaining momentum, with more than 150 institutions rolling back or eliminating their DEI programs in the past year and a half.
This backlash not only undermines efforts to create inclusive academic environments but also threatens to perpetuate inequities in critical areas such as university asset management, where diversity is sorely lacking and urgently needed. Institutional leaders must recognize that embracing diversity in asset management is a strategic advantage that can enhance financial performance and bring substantial benefits to their investment portfolios.
At many colleges and universities, the fear of anti-DEI fervor has spread within administrative and faculty circles, including in campus investment offices, where financial experts determine which outside firms will manage university endowments. Nationally, these endowments have assets totaling more than $800 billion. While higher education institutions strive to foster diverse communities of students and faculty members, few have promoted diversity among the firms that manage their endowment dollars—a continuing issue I’ve explored in previous articles.
The lack of diversity among asset managers for college and university endowments is part of a larger problem in the investment sector. In 2021, the Knight Foundation sponsored a study conducted by Harvard Business School professor Josh Lerner and others, that found that only 1.4 percent of U.S.-based assets under management are controlled by firms owned by women and minority group members. Crucially, the 2021 study also showed that diversely owned firms match the financial performance of nondiversely owned peer firms. And, in fact, a recent study published by Boston Consulting Group found diverse firms may actually outperform peers.
Despite those and other studies showing that diverse-owned firms generate competitive returns, college and university investment teams are often still reluctant to hire them.
This spring, the Stern Center for Business and Human Rights at New York University, where I work; the Knight Foundation; and the Global Economics Group released a report assessing the degree to which universities are working with diversely owned asset management firms. We asked the investment offices at 50 of the largest private and public universities to share their roster of outside asset managers. While several institutions had relatively strong records of working with firms owned by women and minority group members, others reported low percentages of assets under management with diverse-owned firms. Most disappointing was that 24 of the 50 schools were unwilling to share their data.
A few of the institutions that opted out of our study cited the 2023 U.S. Supreme Court ruling invalidating the use of affirmative action in admissions at Harvard and the University of North Carolina. Others cited legal actions such as the American Alliance for Equal Rights lawsuit against the venture firm Fearless Fund, which had been offering a grant specifically to businesses owned by Black women. Still others cited the increasingly contentious political debates around environmental, social and governance, or ESG, standards more broadly.
The plaintiffs successfully argued in the Supreme Court affirmative action case against Harvard and UNC that the admissions process at those two universities violated the Equal Protection Clause of the 14th Amendment of the U.S. Constitution and Title VI of the Civil Rights Act of 1964. In light of the court’s ruling, it is understandable that universities are treading cautiously. However, we are not recommending any favoritism or the use of quotas. We are proposing that university investment offices simply provide equal opportunities for women- and minority-owned firms to compete on a level playing field for university contracts.
We also want to highlight the need for college and university investment offices to identify any policies they have in place that disadvantage diversely owned firms. For example, policies regarding requests for proposals often require firms to demonstrate that they have managed a minimum amount in assets to be considered. In practice, this could disproportionately exclude Black-owned investment firms, which are less likely to have raised sufficient funds from friends and family to meet the minimums due to the generational wealth gap that impacts Black Americans.
This is not just about ensuring equal opportunity. Colleges and universities can avoid missing out on high-performing talent and improve their overall returns by addressing such blind spots in their manager-hiring processes. These corrections should be treated as a business priority, and senior staff and resources should be allocated accordingly.
As a starting point, college and university investment offices need to track the percentage of their assets under management with diverse-owned firms. This measurement should not be undertaken with an eye toward setting numerical targets, but rather toward keeping diverse, high-performing firms in the mix. The goal is not to guarantee contracts but to allow women- and minority-owned firms to compete for business.
As we’ve tried to do with our latest study, an initial goal needs to be disclosure of baseline data that will accurately chart progress over time among peer institutions. Shared data also allows colleges and universities, and various stakeholders across those institutions, to have conversations rooted in numbers so we can evaluate which practices lead to desired outcomes.
None of these actions cross the line into what the Supreme Court defined as improper consideration of race. We have a long way to go in ensuring that all talented asset managers, regardless of race or gender, are given equal consideration. But it is the responsibility of college and university presidents, chief investment officers and board chairs to clearly articulate the business imperative of addressing and promoting the diversity of their asset management firms.
