Findings from a US study shed light on the governance issues most central to 74 endowments and foundations.

Endowments and foundations rank investment committee diversity as a top issue related to governance, according to NEPC’s latest Endowment and Foundation Poll.

An overwhelming 92 per cent of 74 respondents believe a diversified committee drives a successful investment program, with responses split almost evenly between “diversity promotes open discussion and differing points of view” and “successful investment programs depend on the actual diversity of the committee.”

However, although committees are becoming more balanced overall, with greater female, minority and age diversity, just 22 per cent of respondents said their committees include “all of the above.”

The findings are in line with wider financial services sector trends, particularly regarding a sharper focus on minority groups and women. According to research last year by MSCI, for example, “there continues to be a slow increase in the overall percentage of women on boards globally,” with women today holding 19.0 per cent of directorships among US S&P 500 companies, up from 16.9 per cent in 2013. Pershing has also argued that shifting demographics mean old formulas for success no longer add up, and that women advisors can help unlock new market opportunities.

Although those surveyed by NEPC appear enthusiastic about the idea of having a more diverse investment committee, they felt that their committee should be smaller than it currently is: while 39 per cent have a committee size of between seven and ten members, 53 per cent believe four to six members is the optimal size. Investment knowledge and business expertise emerged as the most desirable qualities in prospective committee members, with diversity and age at the other end of the spectrum. Echoing this, over 80 per cent of respondents reportedly spend most of their time developing asset allocation and portfolio structure for their respective organizations.

“Sound governance is the cornerstone of successful investing,” said Cathy Konicki, partner and head of NEPC’s endowment and foundation practice. “It’s encouraging to see that most organizations are utilizing their investment committees for the big picture decisions – asset allocation and portfolio structuring – where they are best positioned to add value.”

Indeed, the greatest governance concerns cited by respondents included committee expertise (41 per cent), timely implementation of strategies (24 per cent) and process/procedure oversight (24 per cent).  

NEPC is an independent, full-service investment consulting firm, providing asset allocation, manager search, performance evaluation and investment policy services. The firm works with institutional investment programs and high net worth clients on an advisory and discretionary basis.