decrease operational risk and grow AUM?
We all realize that a diversified client base provides for a more stable business. A stable client base helps to pass operational due diligence reviews and close larger institutional investment mandates, thus growing AUM and revenue. However, studies have also shown that personnel diversity in both front and back office teams can both decrease operational risk and increase profitability.
Structuring teams with diverse backgrounds, across gender, race, age, education, and employment; can greatly increase objectivity, information flow, team interaction, and independence. Hiring with diversity in mind therefore can generate different and potentially more profitable investment ideas. The diverse composition of the hedge fund or the private equity fund manager team can also attract larger institutional investors including public pension plans who have diversity mandates. Today, due diligence teams are not only looking at staff credentials and years of experience, but they are looking at diversity within the teams in their evaluation of the corporate culture and the internal control framework.