June 15, 2021—Raelan Lambert doesn’t think that investing in women and diverse managers is a fad. Instead, it’s the smart thing to do for investors who wish to capture strong risk-adjusted returns for the long term. Consider that almost 30% of women-led private equity firms are generating top quartile returns, along with 34% of diversely-owned firms, according to the latest research from The Knight Foundation.
Lambert, who leads the global alternative investment team at Mercer’s wealth management arm, only expects this percentage to grow. And she doesn’t want Mercer’s alternatives clients, who encompass around 13% of the firm’s $171 billion of assets under management*, to miss out on the opportunity. So last summer, as the U.S. was coming to terms with our society’s legacy of racial inequity, Lambert launched a program that aims to identify and invest in women- and minority-owned alternative investment funds.
Now a year into the new effort, called Leap continuum, Lambert is taking stock of what it has accomplished and the work that’s yet to be done. Here are some of the reflections she shared with RFK Compass, which have been edited for brevity and clarity.
About the Leap Initiative
RFK Compass: Last summer, you launched Leap Continuum at Mercer to create an intentional pathway to invest in women and minority-owned/led private markets funds across all stages of their lifecycle. What inspired you to start this strategy?
Raelan: I grew up in a multi-racial family, and as a child, I didn’t recognize differences between my sister and me, nor did I recognize how differently I was treated or perceived when I hung out with Black friends in high school. How could I be privileged? I grew up in a log cabin and self-funded my college education and was the first person in my family to graduate. As I entered into the professional world, I realized that I faced a journey with fewer obstacles and more opportunities than my Black friends and my younger sister. I knew I had to do more.
So, in 2020, I challenged myself to step into my sister’s and friends’ shoes, and that’s how my idea for the Leap Continuum (“Leap”) was born. Our Diversity & Inclusion specialty research, advice, and solutions aim to advocate for managers who may have been historically overlooked from receiving institutional capital, including women, Blacks, indigenous people, people of color, LGBTQ+, U.S. veterans, and people with disabilities.
We designed our Leap investment strategy to be inclusive, and we are achieving this through three pathways: (1) Leap invests in women and other Leap Managers often underrepresented in institutional investors’ core portfolios; (2) Leap invests across a full spectrum of managers, including first-time funds, funds within their growth phase (raising funds II and III) and well-established managers who have a number of funds; this enables us to support managers throughout their phases of evolution; and (3) Something else I’ll mention later.
I aim for Leap to seize the opportunity to debunk the myth that only cis-gender white male managers can generate attractive risk-adjusted returns, and our team is committed to helping break down the cultural and behavioral biases that so many of us may not even realize we’re propagating.
RFK Compass: You currently lead Mercer’s Global Alternatives Business. As a woman in the industry, do you think programs like Leap fully adequately address gender inequity in the investment/financial sector? If not, what is needed to supplement such programs?
Raelan: I know that I can do more – and I will. Leap is a strong catalyst for our journey, and while we cannot change the industry or attitudes overnight, we must start somewhere. We have an opportunity to accelerate positive change for us all.
As a woman, breaking into the financial industry in the late 1990s wasn’t easy, and it’s even harder for individuals who don’t comport with the typically white and male majority. I admire Mercer and our parent company, Marsh McLennan, for taking a stand to take bold action within our organization and the industry at large. There is so much more we can do, including collaborating with apprenticeship programs like Bronx-based Here to Here, to connect us with high school talent from communities that may not have had exposure to opportunities helping them achieve their full potential.
We need to turn what’s possible into what’s achievable. As part of our global responsibility, we need to be individually accountable and include everyone who can impact change.
Unpacking Diversity, Equity, and Inclusion in the Investment Sector
RFK Compass: Many firms are now committing to starting new diversity, equity, and inclusion (DEI) programs or auditing their current actions. At RFK Compass, we challenge the investment community to create workplace equity and commit to representation at all levels within the private sector, not just in support roles. Where does Mercer stand in terms of reaching its own DEI goals?
Raelan: It starts at the top, and I am proud that our leaders have committed to enacting change and holding us accountable. More than five years ago, we set out to establish stronger gender equity, and today, we’re proud of the progress we have made toward our long-term Inclusion & Diversity (I&D) goals.
At Mercer, women comprise 58% of our US organization and 42% in our US Wealth business. Ethnically and racially diverse colleagues (self-reported – January 2019) comprise 22% of Mercer’s US workforce and 18% of Mercer’s US Wealth business. As part of Marsh McLennan, we released our 2020 ESG Report to affirm our commitment to creating a workforce that reflects the diversity of the communities in which we live and work.
We, like many of our industry peers, know there is more progress to be made. Mercer is committed to building a more sustainable and equitable future for our colleagues and our industry.
RFK Compass: One of the challenges we hear from allocators and funds is the lack of data in the market on DEI, yet this is an industry whose business model depends on credible, consistent data. How do you envision Leap being a driver of DEI data for better impact?
Raelan: We also continue to invest in quality systems, tools, and technology so that we can effectively track and report on this data for our clients. We have also been collaborating with the Institutional Limited Partners’ Association for many years and applaud them for the work they’ve done to push the boundaries and include diversity and inclusion metrics as part of standard due diligence. We seek to leverage the strong foundation they’ve developed and build upon it over time.
RFK Compass: You mention that “a DEI program should fit within an investor’s overall risk appetite.” Can you expand on that? What does that look like in practice?
Raelan: While Leap is focused on women and diverse-owned and led managers, its main focus is on returns, which is driven, like any investment, by manager selection. All investments have a risk of losing capital, and first-time funds are inherently more risky given most lack a portable track record if the team is spinning out from a predecessor firm, a standalone track record, and/or a team that has invested together across multiple cycles. This is true for all first-time funds, not just diverse ones.
That’s why we designed Leap to include managers who are launching their first fund, those who have some experience, and others who are well-established and highly regarded in the industry. We endeavor to support all managers throughout their evolution and they are required to adhere to the same diligence standards we have instituted for all of our private markets investments, including an assessment by our Ratings Review Committee, which is responsible for rating every private markets fund we diligence. Finally, Leap investments help mitigate risk by being diversified across all strategies and asset classes including venture capital, growth equity, buyout, and special situations within private equity as well as infrastructure, real estate, and private debt.
RFK Compass: How can CIOs show key stakeholders, including corporate boards, chief human resource officers, and investment trustees, that they’re proactively pursuing investment opportunities related to DEI? Do any examples come to mind of leaders who are doing this well?
Raelan: Well, a word you used in your question is key: “proactive”. In our discussions with clients, many are still figuring out how to incorporate DEI into their investment policies and private markets’ allocations. Some are doing it in anticipation of directives from boards and CIOs, while others are responding to shifts in their organizations’ investment beliefs and seeking to accelerate change.
Earlier this year, we released a white paper aimed to provide limited partnerships with practical steps to consider when implementing DEI into their broader portfolio objectives. You are welcome to share this with your stakeholders, as it’s far too dense to describe in detail here!
RFK Compass: What challenges lie ahead in DEI? Where do you see the industry in five, 10 years?
Raelan: Personally, I would like to see the monikers “emerging managers,” “diverse,” “minority,” and other identity-based attributes fade. I’d like to see us as an industry put our capital behind a cause that eventually makes racial and ethnic equity a reality and core to our collective investment strategy.
I would like to accelerate our industry’s potential to generate strong returns, not based on one’s alma mater or socioeconomic status but based on one’s performance, potential, perspective, and sheer will to do more.
* Important Notices
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