LP Perspectives on DEI

September 8, 2021

The former real estate head of LA's pension plan, LACERA, has said LPs can be stewards of change, particularly in relation to diversity, equity and inclusion (DEI).

John McClelland, former Principal Investment Officer of Real Estate at the Los Angeles County Employees Retirement Association (LACERA) spoke with NAREIM and Suzanne West, Senior Advisor at The CenterCap Group, over the course of two interviews in January and July. The interview is one in a series of perspectives on DEI by institutional investors.

McClelland offered his perspectives on DEI, how institutional investors will get more active in relation to diversity and urged managers to bring more junior talent into due diligene and onsite visits as well as diversify the composition of the Investment Committee.

Quotes: "I think that investors can and will get more and more active. Many are already asserting their expectations and collecting information from investment managers," McClelland said during the interview, predicting there would be a "lot of data collection".

He continued: "Then investors are going to ask themselves, “What do we do with this? What could we force and foist upon the investment management community?” At the moment, LPs are leaning towards encouragement. They won’t fire or hire managers that are not diverse. However, I’ve seen “no” votes by individual members of a board in a public environment because the manager was not diverse ... LPs will want to see improvement over time in the diversity, equity and inclusion efforts of the firms.

Download your copy of the interview, here.

Key highlights include:

• One of the big leaps in manager selection will be ability for LPs to have scorecards beyond their own universe of managers to be inclusive of other managers so that they can compare their current managers’ score relative to others in the universe.

• In the work from home environment, LPs are asking to speak to analysts or junior team members in their underwriting of managers and GPs. This also benefits junior members in terms of their development opportunities to see senior level interaction and to speak with investors when called on.

• McClelland wants to see junior professionals represented at due diligence and onsite meetings. Not only can juniors learn from firsthand experience at these meetings, but it also shows that the manager values these professionals and takes DEI seriously.

• DEI shouldn’t be about elevating the token diversity person at the expense of reverse discrimination — but about advancing the best people and building supportive networks.

• LPs are looking to see diversity in the composition of the investment committee.

Download your copy of the interview, here.