October 26, 2020

NAREIM Dialogues, fall 2020 

Mike DiRé, director of real estate at the California State Teachers Retirement System, and Christina Scarlato, principal portfolio manager, real assets at The World Bank Pension Plan, both agree that it’s difficult to demand managers meet preset criteria on diversity, either at the ownership or corporate level. 

However, they say it’s not difficult for investors to talk more about the diversity of their manager partners — or for managers to show traction on progress in diversity.

Speaking to Suzanne West, senior advisor of The CenterCap Group, DiRé and Scarlato talk about how their plans have worked with managers to encourage and enact change, and how managers can communicate better with their investors about how they’re focusing on diversity at the corporate, as well as asset management, level.

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Key highlights:

• CalSTRS believes that diversity of ideas is important to achieve top-tier returns.

• The World Bank's goal is to find high caliber, interesting groups pursuing unique and compel- ling strategies that fit within their portfolio. Diversity is a differentiator, but it is not a criteria until there is more di- versity within the field.

• LPs are evaluating GP re- sponses to tough questions to determine if the manager is proactive about making im- provements, such as setting up a diversity outreach program and hiring senior women or people of color. LPs are looking to invest in managers that are attentive and forward-thinking.

• ESG should not be a check-the- box exercise and reporting numbers, but articulating plans and enacting change with in- vestments at the portfolio and asset level. The best ideas on ESG should always be shared.

Key quotes:

• The best ideas on ESG should always be shared. GPs may feel they cannot give away their best ideas but, on the ESG front, people should work together and not fight one another.

• It would be awkward to sit in the chairs we’re in, and for me in particular as a white male, to direct people to do better if we didn’t look at ourselves first.

• You’re not going to, all of a sudden, create a field of female and diverse middle or senior management. You’ve got to start at the bottom, at the analyst level, and grow them internally.

• It is with our existing relationships where we we have influence. We are in it together and can exchange ideas with the acknowledgement that we all have room to improve the diversity of our teams.

• To me, anyone who’s thoughtful about any issue is ultimately a better manager and investor. CalSTRS wants partners who are attentive and forward­ thinking to invest our money.

• Social progress is difficult to track, but it’s not difficult to show traction.

• Things come out through conversation since some of our managers are already doing a lot of the right things... What’s critical is to know that it’s not about checking the boxes — it’s about intent and actual desire to do better.

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