 Hello, and welcome to a conversation bringing diversity, equity, and inclusion to American Museum's $40 billion endowments. I'm Laura Kalanian. I'm the founding partner of Upstart Collab. At Upstart, we believe that creative people solve problems, and we're disrupting the way that creativity gets funded by connecting impact investing to the creative economy. I'm joined in this conversation today by Christine Kelleher, Chief of Investments at the National Gallery of Art, and Calvin Baker, who is a trustee of the Walters Art Museum and a retired managing director of Ground Capital Management. Christine and Kelle, thanks so much for being with us today and being part of this conversation. So just to set the stage a bit, the museums in the United States hold $40 billion in their combined endowments, but unlike foundations and universities, cultural institutions have been behind when it comes to values aligned and mission-related investing. And so at Upstart, we see this as a great opportunity, and we'd like to unlock the capital in the creative sector for values and impact. What we've seen is particularly in the last year, since the summer of 2020, and the national reckoning with structural racism, is that cultural institutions are understanding that the endowment is one way that they can live their values of diversity, equity, inclusion, and access. And a way that we've been talking with museums and other large and dag cultural institutions about doing this is through what's called diverse manager strategy, thinking about who the fund managers are that are implementing an endowment investment strategy and ensuring that fund managers who are women and BIPOC leaders are able to have the responsibility and take the role to work with cultural institutions to live their values and to successfully invest their endowments, stewarding those financial resources for the health of the institution. Why is diverse manager strategy so important, and why is it such a powerful way to express your values around diversity, equity, and inclusion? Well, unfortunately, a very, very small portion of assets and assets under management in the United States today is invested by women and by BIPOC fund managers. Only 1.3% of money controlled by US asset managers is currently in the accounts of diverse fund managers. And what that translates into is entrepreneurs and which entrepreneurs get funding for their endeavors. Only 2.4% of that venture capital funding is finding its way to diverse company founders. So you're going to hear from Helen Christine what it can look like to intentionally include diverse managers in the lineup for investing in your endowment and how having the best players on the field will result in the best potential performance results. So Christine, I'd love to just open the floor to you. Tell us a little bit about the National Gallery of Art, the size of your endowment and what's happened in the last year or so as you and the leadership at the museum have been thinking about your values of diversity, equity, inclusion, and access and what they mean as part of your endowment strategy. Sure. So first, thank you so much for the invitation to speak today. I'm so excited to be here with you, Laura, and and you, Cal. To start, the National Gallery of Art was founded by Andrew Mellon in 1937. And he donated his collection, construction funds, and a small endowment. And he asked Congress to fund the annual operating costs in perpetuity so the American people could enjoy the collections free of charge. So due to both investment returns and additional gifts, the size of that original endowment is now valued at $1.3 billion. The payout from the endowments supports both operations and art acquisitions totaling about 14% of the gallery's total budget every year. Our journey on diversity, equity, access, and inclusion really started with the appointment of Kaywin Feldman as the gallery's director back in 2019. She launched a strategic planning process that not only resulted in a revised mission for the institution, but also identified priorities and values. And one of those values was diversity, equity, access, and inclusion. So last summer, we engaged in a more formal survey of the assets under management for the gallery's endowment portfolio. And we took a survey of the investment firms managing capital for us inquiring about the gender and race of their investment professionals. We presented the results of this survey to the executive team at the National Gallery, to our investment subcommittee and the Board of Trustees, and very quickly realized that we had tremendous support for making a more formal commitment to improving diversity in the portfolio. And this all culminated in a formal statement that was approved by the Board of Trustees this past May. The elements of that statement are first and foremost, you know, why we think this is important. And we believe that diversity of thought leads to the best decision making and risk management decisions. And as a result, diversity is truly essential to achieving the highest investment performance of the long-term investment portfolio. Second, our goal is to increase exposure to investment firms that are committed to racial and gender diversity over time. We have not set a target date or a target allocation or carve out, but we are hoping that by ensuring that our investment managers understand the importance of this topic, we will see improvements in the portfolio. Third, we've made diversity part of the formal investment process, so any new mandate must include diverse managers. Fourth, we've committed to measuring and reporting annually on our progress. And finally, we recognize that there is strength in numbers. So we are partnering with similarly-minded cultural institutions and professional organizations, including a wonderful cultural institution study group that Laura has founded on impact investing. The Walters Museum is also a member and this group of professionals has engaged in very rich conversation about these issues that certainly has helped us along our journey. Christine, that's fantastic. And it's so exciting that the $1.3 billion endowment at the National Gallery of Art is now taking diversity into consideration as part of implementing your strategy. So you're just at the beginning of actually making this happen. Hal, you have been part of the Walters Museum for quite a while now and you helped the museum five years ago implement a diverse manager strategy and so you've already got results that you all are seeing at the Walters Museum. Tell us a little bit about how you got started at the museum and made this choice. And then we'll come back in a minute and ask you what the results have been after the first five years of experience. Sure. Thank you. And thank you, Laura, for having me and inviting me to be a part of this panel discussion. It's great to be on the panel with Christine. First of all, I'm a trustee of the Walters Art Museum and I'd been on the investment committee for a number of years prior to our new executive director at that time, Julia Machiare Alexander, asking me in 2014 to take over as chair of the committee. And I had experienced a number of managers in the portfolio who had been managing our portfolio, a portion of it for a number of years, whose performance was, I would categorize as okay, median, nothing great. And I never understood why we didn't have better managers managing a portion of our portfolio, particularly in areas that were alpha driven, meaning areas like the small cap area where there whether it was value or growth in the international area and or private equity. And I thought we could do better. So when I became chair, I engaged the investment committee to look at diverse own managers, minority and women own managers. And let's look at the portfolio without compromising it in any way. Let's look at those areas where we were underperforming. And let's find managers with diverse backgrounds who have shown that they can add value and outperform the benchmark on a consistent basis. And we developed a subset of the investment committee of five people to work on making that happen. And we launched the program in 2016 in the spring of 2016. And we said that it had to be a minimum of 10%, in other words, 10% of our portfolio, which at that time is $117 million, 10% had to be with minority and women owned firms. We weren't going to increase, we weren't going to put any focus on it. But we were going to say, if we're doing this right over time, the percentage of money managed by diverse own managers is going to increase because they're outperforming. And we will have succeeded in our goals. And in fact, that's what we've done. We've been very successful over that five year period. Of our five managers, three have consistently outperformed the benchmark over that five year period. And two have been either at the peer level or slightly above in terms of their performance over that five year period. So we've been very satisfied with the result. So that sounds great. We just heard how the National Gallery has begun this process and how the Walters has been following along with a diverse manager strategy for five years. Let's get under the hood a little bit, because it sounds almost too neat and easy in terms of how these two institutions have been able to adopt a diverse manager strategy. Christine, what were some of the things that you wrestled with or had to talk through at the National Gallery of Art in terms of defining what a diverse manager meant or what sort of data was helpful in the decision making process? And were there surprises along the way as you rolled out this new value statement to your existing fund managers? And what kind of questions did they have for you? So give us a little bit more color in terms of what it's been like to put this new commitment in place. Sure. I have to say, I am surprised that we were able to come to some consensus relatively quickly. I know for a lot of institutions, it takes many years to process and bring different opinions to bear. We were pleasantly surprised, I think, that what we started with was more impressive than we expected, certainly better than market. One of the challenges was, you know, everybody wants everybody needs to put things into a framework and finding peer data that was relevant where we could understand how our peers were defining a diverse manager. That continues to be a challenge. Everybody is looking at this in their own unique way. So it's hard to measure how you're doing compared to other institutions. And we, of course, did have a conversation about how to define a diverse firm. And the conclusion was that we define a diverse firm as one in which people of color or women are at least 33% of the ownership leadership investment team for top owners. And we do also report on majority firms that have a majority in those four categories. But for right now, the 33% has been the threshold for us. I think another sort of side effect of going through is a number of our investment managers simply by us measuring and asking them for this data have since come forward and expressed difficulty in recruiting diverse candidates to their firms, which is kind of exactly the type of conversation that we want to be having. So I think that has been a very optimistic step forward. And finally, I think the goal is not just to include firms that are diverse at the get go in our portfolio, but really that all of the firms that we're investing with over time are able to diversify their investment teams. That makes a lot of sense. You know, you made it sound almost easy, right? That the Walters realized that they were underperforming in some areas, they opened up the aperture to assess some new managers, they hired those managers and five years later, we've got some great performance to report on. But when you and I've talked before, it's really not always so straightforward. And it sounds like you've been in a number of conversations at the Walters and elsewhere in your career, where there have been discussions that revealed unintentional bias among some of the decision makers and real discouragement by the advisors and the consultants who are guiding these trustees and executives around decisions around about which managers to hire. Would you mind sharing some of your observations after such a long career on both sides of this issue, both as a as a fund manager and as a fiduciary? Sure. Well, first of all, let me tell you how we define diverse own. We looked at firms that were 51% or better owned by minority and or women owned firms. And what we found was that oftentimes consultants really don't put their full effort or commitment into finding qualified firms, such as we're talking about, they will give excuses like, well, we can't find in find any, they're not on our platform. Well, they're too small. They're too big. They've only been around 10 years. Well, they've been around 30 years. I mean, it just runs the gamut on why they can't find them, but they are there. And there are consulting firms that know where those firms are. And our attitude with our consultant was this is what we want. We want to do it within a year. We're going to bring the resources to bear to help make you successful. Let's work together. And when you have that kind of cooperation, great things happen. And if there's one message I would give to the audience is you are the client. If you're a consultant, can I give you what you want? You need to fire them because there are other consultants out there who are very actively and successfully engaging in finding diverse own managers who are doing a great job. And to those managers, to those consultants who don't get it or won't get it, you need to push them to the side, thank them for their time, and move on with the consultants who are out there doing the job that they're supposed to do. I think that's pretty clear. And it won't be the first time that an institution has needed to replace their advisors when they want to move in a direction that really reflects the values and mission of the institution in the endowment investment strategy. So Christina and Cal, thank you so much for sharing what's possible. Whether you've got a $117 million endowment the way the Walters did five years ago when they began this process, or a $1.3 billion endowment as the National Gallery of Art has now, as they've recently implemented a commitment to hire diverse managers. Cultural institutions can do this, following the example that foundations and universities have set for a number of years. For anyone who'd like to learn more about this, please visit the Upstart CoLab website at upstartco-lab.org and read the guide, what cultural institutions need to know about investing for values and mission, a primer that we've put together to do, just like the title says, help museums and libraries and performing arts centers and arts schools think about these issues for the first time through a context, through a lens that makes sense as an institution committed to art, design, culture, heritage, and creativity. Christina and Cal, thank you so much for being part of this conversation. And thanks to the team at SoCAP and Spectrum for allowing us to bring this to the audience today. Thank you.