Aug 31, 2020 · 55m · capital-allocators
Diversity, Equity & Inclusion 4: Joel Wittenberg – A Prescription for the Future (Capital Allocators, EP.154)
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In this episode of Capital Allocators, host Ted Seides interviews Joel Wittenberg, Chief Investment Officer of the W.K. Kellogg Foundation, to examine how fixed income principles, impact investing, and the Expanding Equity initiative drive sustainable endowment returns and advance racial equity across the asset management industry.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 20.4% of the talking time here. How this is scored →
Ted as informed peer 4.2 Guest teaching 3.5 Guest disagreement 0.1 Ted pushing back 0.2
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 45:39 Calling out poor impact investing returns across the industry
Joel candidly critiques the broader impact investing industry, arguing that peers avoid disclosing returns because performance has been substandard.
Hardest push from Ted ▶ 33:41 Probing leadership diversity vs whole firm dataTed interrupts Joel's citation of McKinsey data to challenge whether the reported outperformance applies to overall firm diversity or solely executive leadership.
Biggest teaching moment ▶ 29:07 Educating on the retention barrier faced by 'onlys'Joel educates Ted on research showing why diverse hires fail when placed as the sole minority in a group, reframing the problem from recruitment to retention structure.
Ted holds their own ▶ 15:22 Highlighting VAR limitations in tail risk eventsTed demonstrates deep quantitative literacy by pointing out that standard VAR models fail during market crises when correlations converge to one.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Joel Wittenberg's Career Path from Fixed Income to Kellogg Foundation | 3 | 2 | 0 | 0 | Ted opens with a standard biographical prompt. Joel provides an extended monologue detailing his early career in fixed income, corporate treasury at Dow and Armstrong, and his transition to the Kellogg Foundation. | |
| Applying Duration and Convexity to Endowment Management | 4 | 4 | 0 | 0 | Ted asks how fixed income concepts shaped endowment management. Joel articulates how viewing growth equities, VC, and distressed debt through duration and convexity alters balance sheet asset allocation. | |
| Portfolio Architecture, Due Diligence, and Tail-Risk Management | 6 | 3 | 1 | 1 | Ted actively probes on portfolio construction, manager due diligence, and the limitations of VAR models during tail events. Joel agrees with Ted's point that VAR only covers normal distributions and details their use of tail puts. | |
| Kellogg Foundation's Mission and Internal Racial Equity Journey | 3 | 4 | 0 | 0 | Ted asks when racial equity crossed into the trust's investment operations. Joel shares the foundation's 2007 anti-racist commitment, his own personal learning curve as a white CIO, and building a majority-diverse investment team. | |
| Facilitating Honest Conversations on Bias, Identity, and Microaggressions | 3 | 4 | 0 | 0 | Ted asks about the specific workplace insights Joel gained. Joel explains how discussing lived experiences, unconscious bias, microaggressions, and religious identity transformed internal workplace culture. | |
| Launching Expanding Equity for Mainstream Asset Managers | 4 | 4 | 0 | 0 | Ted asks how Kellogg's internal philosophy was applied to external asset managers. Joel details the origin of Expanding Equity with large private equity firms and the research behind mid-career promotion drop-offs. | |
| The Four Strategic Pillars and Business Case for Organizational Diversity | 5 | 4 | 0 | 1 | Ted distinguishes outside-in emerging manager programs from inside-out institutional reform and asks a clarifying question about firm-wide vs leadership diversity data. Joel outlines the 4 strategic pillars and business case. | |
| Allocating to Emerging Diverse Managers | 5 | 3 | 0 | 0 | Ted asks about sizing allocations to early-stage diverse managers and evaluating readiness for core mandates. Joel explains using separate accounts, partner references, and avoiding treating diverse managers as a 'kids table.' | |
| Evolution of Kellogg's Impact Investing Program | 5 | 3 | 0 | 0 | Ted asks how Kellogg transitioned from purely mission-focused impact investments to commercially viable financial returns. Joel highlights their portfolio turnaround and specific investments like Revolution Foods and Impact America Fund. | |
| Defining Diversity, Industry Scaling, and Expanding Opportunities | 4 | 4 | 0 | 0 | Ted questions how Kellogg navigates ethnic and racial definitions and scales peer collaboration. Joel explains Kellogg's broad definitions, scaling Expanding Equity cohorts, and tapping overlooked venture capital founders. |
Statements from this episode (15)
Wittenberg: Distressed debt can match or beat VC returns with lower duration
“A VC investment is going to be our longest duration asset. But if you think about a, for example, a shorter duration asset, a distress bond fund allocation, your duration risk is a lot lower, your cash flow is a lot higher, and your return over the distress cy…”
Kellogg Foundation Buys Out-of-the-Money Puts for Market Tail Risk
“We will buy out of the money puts that have so little delta in them that you can't really count them as part of your equity allocation.”
Wittenberg: VAR Models Only Work for 1-2 Standard Deviation Moves
“The VAR model is helping you on the one and two standard deviation moves. And that's it.”
Wittenberg: Kellogg Foundation Investment Team Is Two-Thirds Racially Diverse
“I have Built a team that is two-thirds racially and ethnically diverse. If we include gender, where we're 75%, we don't include gender when we think about this.”
Wittenberg: KKR and Värde joined Kellogg's inaugural Expanding Equity cohort
“It is our first cohort. It's being done this year, and this is five firms. These are, again, some of the largest firms. You know the names. Some of the names allow us, they allow us to use the names KKR, Varde and Beacon Investments real estate firm in Boston”
Wittenberg: Being the sole diverse employee in a department reduces success
“When you have a department that has one diverse person in it, That person is more likely to not be successful than if they were to have other peers and other diverse people in that department.”
Wittenberg: Diverse-owned firms manage only 1.3% of $71T in AUM
“One of the things we see is that of the 71 trillion dollars of assets under management, this number is unbelievable. Only 1.3% are from diverse owned firms. 3.9% of mutual funds are diverse owned. 8.9% of hedge funds and 1.2% of real estate funds.”
Wittenberg: McKinsey found diverse leadership yields 35% higher return likelihood
“There's a McKinsey study in 2015, and it showed that companies in the top quartile for racial diversity of leadership were 35% more likely to have financial returns above their national industry medians.”
Wittenberg: Diverse companies see 19% higher revenue, 2.3x cash flow per employee
“So there's another one, a Harvard Business Review study that showed That diverse companies experience increased innovation, and it results in 19% higher revenue, 2.3 times cash flow per employee more.”
Wittenberg: All-white firms will not survive to 2050
“Our country is going to be more than 50% diverse in 2050. Our workforce in 20 50 will be more than 50% diverse. If you're not addressing these things today, if you're just a bunch of white men, that firm ain't gonna make it to 20 50.”
Henry Kravis Views Accountability as Key Driver for KKR Diversity
“The accountability part, I can't stress enough, and as we talked to Henry Kravis about this was his key driver, is he sees the accountability as how he's going to bring this into his organization.”
Wittenberg: Emerging manager programs risk being perceived as a kids' table
“The one thing that we have to really be careful of is some people see this as kind of the kids' table, and that's not obviously our goal, but that's one of the downsides of this type of a program.”
Wittenberg: Kellogg's US Impact Portfolio Returned 9% Over 3 Years
“For the last three years, our U.S. Portfolio had a return of nine percent, and so we're starting to see some real benefits come out of this thing.”
Wittenberg: Impact investors' silence on returns suggests poor financial performance
“What we're seeing in impact investing Is that other impact investors aren't talking about their investment returns, which tells me that the investment returns have not been good.”
Wittenberg reviews ETF portfolio trades after six months for behavioral traps
“Whenever we do a trade, we have an ETF portfolio. We make tilts in our portfolio. I go back about six months if I can and try to look at the trades after six months and come up with one of the behavioral traps I may have fallen into.”