Cognitive diversity can boost investment performance, study finds | Metaglossia: The Translation World | Scoop.it

"Cognitive diversity can boost investment performance, study finds
Study by professor of finance Alex Edmans, commissioned by the Diversity Project, found that cognitive diversity must be effectively managed to lead to better investment performance


09 JUNE 2025
Hannah Smith
Cognitive diversity can lead to better performance from investment teams, a new survey from the London Business School suggests.


The study by professor of finance Alex Edmans, commissioned by the Diversity Project, found that cognitive diversity must be effectively managed to lead to better investment performance. Firms cannot simply ‘add diversity then stir’ to achieve superior results.


Cognitive diversity is the range of perspectives, skill sets, experiences and ways of thinking within a team, and how that influences the quality of decision-making. It can arise from differences in educational background, professional background, life background, cognitive style, personality and demographics.


The study combines a review of academic literature with first-hand insights from investment professionals, revealing strong consistency between the two and high conviction across ‘virtually all’ practitioners that “cognitive diversity has the potential to create substantial value in asset management.”


See also: Investors urge companies to recommit to diversity and inclusion


The research found cognitive diversity can create clear competitive advantages for investment teams. Cognitive diversity leads to a greater range of perspectives, mitigates the risk of groupthink and helps investors to identify factors not priced in by the market. It said the most valuable sources of diversity are different skills sets and professional backgrounds.


However, diverse teams may also experience slower decision-making, as integrating conflicting viewpoints may lead to dilution or paralysis. Sophisticated leadership is essential to harness the benefits and minimise the costs from diverse thinking.


The research suggested six ways the investment industry can make diversity part of a core business strategy:


Optimise hybrid working. The report’s conclusions imply challenges for hybrid working, for example, the preference for ‘small, nimble meetings’. It is also clear from the study that certain tasks do not require cognitive diversity and may be best achieved by one person working from home. The industry has some way to go to optimise working practices.
Broaden recruitment and keep a close eye on promotions. Firms must cast a wide net – not just in who they hire, but in how they hire and then how they develop people from different backgrounds. While there have been promising initiatives, the industry still struggles to bring in talent from ‘non-traditional’ paths, and even when they enter, few make it to the top.
Organise diversity and inclusion efforts around problem-solving. Framing diversity as a key driver of innovation and better decisions — rather than a box-ticking exercise — helps shift the conversation to business strategy and outcomes.
Assess the quality of decision-making. There is an opportunity for the industry to assess the drivers behind good and bad investment calls and embed those learnings into business practices.
Reframe the debate. A recent global C-suite Diversity Project webinar suggested that leaders from around the world see genuine diversity and inclusion as key to building the best teams. This research resets a fractious debate, providing nuanced analysis of the benefits (and – if not properly implemented – the costs) of diversity.
Baroness Helena Morrissey, chair of the Diversity Project, said: “The Diversity Project commissioned this work to reassess the ‘business case’ for diversity. We made it clear at the outset that we wanted to see what the evidence showed, not work backwards from any conclusion we hoped to see. The conclusions are both intuitive and compelling: diversity must be developed thoughtfully and managed well to harness its powerful benefits.


“As the report highlights, great investment involves pursuing outlier ideas, so firms must create the right teams working in the right conditions for those ideas to surface. I hope this research will unify those on opposite sides of the DEI debate so we can all focus on delivering the best client outcomes.”


Edmans added: “Before conducting this research, I thought that cognitive diversity was unambiguously beneficial – surely, diverse viewpoints lead to better decisions. But the scientific evidence and practitioner insights highlighted that it’s more complex. While cognitive diversity can indeed generate substantial benefits, it is also difficult to manage and must be supported by psychological safety and a culture of inclusion.


“These challenges only heighten its importance: since it is tricky to get right, any organisation that succeeds will enjoy a significant competitive advantage. I hope this report helps firms do exactly that – in asset management and beyond.”


The Diversity Project is a cross-company initiative working to foster a diverse and inclusive investment and savings industry in the UK. It has 119 members, representing £13trn in assets under management and more than 85,000 employees.


The full report can be found here."
https://portfolio-adviser.com/cognitive-diversity-can-boost-investment-performance-study-finds/
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