Morgan Stanley
  • Institute for Sustainable Investing
  • Jun 20, 2023

The Growing Demand for LGBTQ+ Investment Options

A growing population of investors who openly identify or ally with the LGBTQ+ community and generational shifts in wealth are creating opportunities for asset managers and financial advisors to meet demand for investments tailored to LGBTQ+ equity.

Nearly half of U.S. investors in a recent Morgan Stanley survey want opportunities to invest in LGBTQ+1 equity and inclusion, across a broad range of products and strategies. This demand increases substantially among LGBTQ+ investors (86%), heterosexual2 investors with an LGBTQ+ household member (76%) and younger investors (67% of Gen Z and 56% of Millennials). However, there are very few investment options today focused purely on LGBTQ+ equity.3

For asset managers and wealth managers, exploring these options may have the benefit of helping to improve equity and inclusion for the LGBTQ+ community while meeting investor demand and capturing investible assets from younger investors.

The Market for Investments Advancing LGBTQ+ Equity & Inclusion

Although the LGBTQ+ community in the U.S. is growing, with 26 million people representing 8% of adults overall and 21% of Gen Z adults4, individuals still face social and economic disparities. Half of LGBTQ+ workers report that they have experienced workplace discrimination5 and LGBTQ+ founders have raised just 0.5% of venture capital in the U.S.6

Investor capital could act as a lever to address such inequities. “Investing with LGBTQ+ objectives describes the effort to direct investment capital toward the advancement of populations historically disadvantaged based on their sexual orientation or gender identity,” says Susan Reid, Morgan Stanley’s Global Head of Talent and Director of the Institute for Inclusion. “The goal is to advance equitable and inclusive opportunities for the LGBTQ+ community, while also delivering market-rate financial returns.”

The business case for LGBTQ+ investment products includes both investors who identify as part of that community as well as younger investors: Investors born after 1980, regardless of their identity, could play a significant role in demand for these products (see Figure 1). A majority of Millennial and Gen Z investors expressed interest in finding investment options that advance LGBTQ+ equity and inclusion. As older generations transfer wealth to their heirs in the coming decades, $73 trillion is predicted to move to investors more interested in investible products and strategies advancing LGBTQ+ equity.7 In Morgan Stanley’s analysis, holding all else equal, this generational wealth transfer could drive demand growth by boosting the assets of those interested in LGBTQ+ equity investing by more than 40%.8

Figure 1: Demand was Higher Among Younger Respondents
How interested are you in finding investment products or strategies that seek to advance LGBTQ+ equity and inclusion?

Age ranges: Gen Z: 18-26, Millennials: 27-42, Gen X: 43-58, Baby Boomers: 59-77, Silent Generation: 78-80. Respondents who answered Very or Somewhat Interested. *Denotes a small sample size

Meeting the Opportunity

Despite this investor interest, investment options today are limited. Among interested investors, 42% highlighted a lack of LGBTQ+ equity investment opportunities. Nearly a third did not know how to invest in this theme (32%) and lacked research or data on the theme (31%).

This demand creates opportunities for asset managers to differentiate themselves among investors within and beyond the LGBTQ+ community. “Our research suggests that nearly $20 trillion9 is currently held by investors interested in products or strategies that advance LGBTQ+ equity but don’t have viable options to do so,” says Jessica Alsford, Morgan Stanley’s Chief Sustainability Officer and CEO of the Institute for Sustainable Investing. “Any new product or strategy aligned with this theme—from screening approaches to funds that target positive impact—could be well-received by interested investors, giving asset managers the opportunity to potentially differentiate themselves in the market.” (See Figure 2.)

Figure 2: Investors Interested in LGBTQ+ Equity Investing Voiced Demand for a Wide Range of Potential Products and Strategies
How interested are you in the following products targeting LGBTQ+ equity and inclusion?

Funds or strategies...
actively engaging with companies to improve their LGBTQ+ employee policies, practices and representation 87%
screening for and investing in companies with pro-LGBTQ+ employee policies, practices and representation 87%
managed by members of the LGBTQ+ community 86%
investing in companies offering products and/or solutions with relevance to the LGBTQ+ community 85%
from asset managers with LGBTQ+ inclusive policies for their own employees, or with inclusive statements as part of their investment principles 84%
targeting LGBTQ+ founders 77%
excluding companies that do not explicitly include protections for LGBTQ+ people in their labor rights policies 76%
philanthropic giving targeting LGBTQ+ equity and inclusion efforts 82%
Respondents who answered Very or Somewhat Interested.

Morgan Stanley Wealth Management’s existing Investing with Impact framework offers asset managers developing values-aligned investment options, including those focused on advancing LGBTQ+ equity, an investment lens with three considerations:

1)     Intentionality: Adopt a dual purpose of generating market-rate financial returns alongside advancing LGBTQ+ equity through the investment process through restriction screening, ESG integration or thematic solutions. For example, 87% of interested investors reported demand for investing in companies that have efforts to promote of culture of LGBTQ+ inclusion through employee policies, practices and representation.

2)     Influence: Aim to modify the behavior of companies or sectors with the explicit purpose of driving industry capabilities directed at LGBTQ+ equity. Investors can drive this change through active ownership, in which they directly engage with companies in their portfolio to evolve corporate behavior, or market building, which relies on industry coalitions and advocacy for improved regulatory and other standards.

3)     Inclusion: Consider LGBTQ+ representation among owners, senior management and investment teams at asset management companies. Investors can use this strategy to evaluate the ownership structure of firms in an effort to accelerate the flow of capital toward managers owned and led by members of the LGBTQ+ community and provide diverse perspectives in capital allocation decisions.

Investors may also consider philanthropic giving to organizations with the primary mission of advancing LGBTQ+ equity, or major programming dedicated to the LGBTQ+ community. The survey found that demand for philanthropic giving targeting LGBTQ+ equity and inclusion was particularly high among people who identified as heterosexual but have an LGBTQ+ household member (89%), even higher than responses from LGBTQ+ investors (87%).

In addition to specific investments that advance LGBTQ+ equity, 80% of LGBTQ+ investors and 40% of non-LGBTQ+ investors see this issue as an important factor when selecting a financial advisor or platform. In fact, 80% of LGBTQ+ and 31% of non-LGBTQ+ investors would switch financial advisors or investment platforms based on LGBTQ+ equity and inclusion opportunities.

More disclosure from corporates and reputable data providers will be needed to help scale LGBTQ+ equity investing and close the supply-demand gap for products and strategies targeting this theme. As younger generations more interested in LGBTQ+ equity investing inherit and build more wealth, and as the U.S. LGBTQ+ population increases, asset managers and financial advisors would be wise to examine the opportunities and position themselves for potential market leadership.

1 We use the term ‘LGBTQ+’ to reflect those who identify as lesbian, gay, bisexual, transgender, and queer, with the ‘+’ including other non-cisgender and/or non-straight identities, such as pansexual, asexual, intersex, gender non-binary, and those questioning their gender and/or sexual identities.

2 Refers to respondents who self-identified as straight/heterosexual.

3 In 2022, Morningstar did not list any funds focused on LGBTQ+ equity and inclusion. Dedicated funds are relatively rare across many social themes.

4 https://www.census.gov/library/stories/2021/11/census-bureau-survey-explores-sexual-orientation-and-gender-identity.html

5 https://williamsinstitute.law.ucla.edu/publications/lgbt-workplace-discrimination/

6 https://startout.org/insights/

7 Press Release: Cerulli Anticipates $84 Trillion in Wealth… | Cerulli

8 The methodology to arrive at these calculations was as follows: The U.S. Federal Reserve’s data on wealth splits by generation was applied to Insider Intelligence’s figure of $58trn for 2020 US Wealth Managers’ AUM. Responses by generation in Figure 5 of the report were then used to calculate the $20trn number. Cerulli’s estimates for generational wealth transfer were then applied to create a post-generational transfer split of AUM, and the same responses in Figure 5 of the report by generation were used to calculate a post transfer AUM figure. The generational wealth transfer was the only new variable: this does not assume any underlying growth in AUM or any increase in demand for investments serving LGBTQ+ equity and inclusion.

9 The methodology to arrive at these calculations was as follows: The U.S. Federal Reserve’s data on wealth splits by generation was applied to Insider Intelligence’s figure of $58trn for 2020 US Wealth Managers’ AUM. Responses by generation in Figure 1 were then used to calculate the $20trn number.

Disclosures

This material was published in June 2023 and has been prepared for informational purposes only and is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley Research Department and is not a Research Report as defined under FINRA regulations. This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.

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CRC 5698205 06/2023 

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