As the founder of the first Black-owned asset manager, John Rogers believes ethnically diverse managers are still not receiving adequate funding compared to their white counterparts.
Rogers told the Financial Times, “People are used to thinking of minorities as experts in music or athletics, but not as mutual fund managers or investment bankers.”
The founder of Ariel Investments describes the lack of accessible private market platforms for minority-run organizations as a “huge problem” for fellow minority-owned asset managers. In order to compete with trillion-dollar managers, small platforms scramble to afford basic needs such as tech, compliance and training for future team members.
He claims minority investors are often considered “too big” to receive funding for a startup and too small for large proportions.
“Years ago everyone told us ‘You need to get to scale for us to hire you, you need a track record and you need all the expensive bells and whistles’. But once you get all the bells and whistles, they say ‘You are too big,” said Rogers.
He added, “If you can’t grow because they say you’re already too big, then you go backwards, not forwards.”
Researchers found proof that racial bias is also a huge problem in the mutual fund industry. In a series of reports and surveys, they discuss the need for accountability among diversifying external management. According to a 2021 report by the Knight Foundation, more than 6 percent of U.S. fund managers across asset classes are now minority-owned and receive 0.7 percent of U.S. dollars under management.
Another report from Morgan Stanley in October explains more findings, including that diversity and inclusion have become top priorities for asset owners. However, “70 percent of white investment decision-makers in large U.S. pension funds, endowments, insurance companies, and foundations still believed that prioritizing diversity in their investment management meant sacrificing returns.”
Yet, 87 percent say that investment teams with sufficient representation of women will improve the performance of their investments, and 86 percent believe the same for multicultural representation.
Former U.S. assistant attorney-general Robert Raben insists “There is profound and persistent bias in the industry, an actual belief that people of color cannot manage money at the highest levels.”
“There are black and brown managers, and we have data that shows they’re high performing. But as long as the majority of people think it’s a performance trade-off we will continue to have a huge demand problem,” Raben, the founder of the Washington D.C.-based Diverse Asset Managers Initiative, told the Financial Times.
Surveyors also looked at returns from 2008 to 2019, in two separate studies by Harvard Business School and Bella Private Markets. The studies showed that minority-owned firms either performed well or outperformed their white-owned organizations. And still, one multi-billion-dollar black asset manager explained that he has to meet with “hundreds more investors than his white colleagues to raise the same amount of capital.”
The outlet also shared findings from a 2019 Stanford University study. It found that women and people of color were “considered riskier investments,” but still expected to reach higher qualifications than white males. The study also found that allocators “harshly judge” the top-performing managers of color more than others.
Although nearly every major U.S. asset manager has vowed to improve diversity within its firms, there are still some “serious shortcomings.” A 2021 report from a U.S. House financial services committee regarding 31 investment firms with $47 trillion in assets found that Black employees and members of other minority groups are still under-represented in investment firm boards, particularly in senior roles.
The committee also found that more than four out of five of their senior managers were white, and only about three in 100 were black. However, companies like Prudential Financial and Northern Trust have the highest number of positions held by people of color.
Shundrawn Thomas is currently president of Northern Trust Asset Management, a 1.2 trillion funding house. He got the “culture shock” of his life when he began working in the finance industry three decades ago. He also went into detail about the struggles Black employees endure to climb the corporate ladder in asset management — without a mentor.
“There is one thing about having the work ethic and putting in the effort, but it’s a different thing having someone show you the ropes,” said Thomas.
He claims the average asset manager has increased urgency in bringing more diverse candidates to job interviews, but there is still work to be done. “We are not forcing people to make decisions about ethnically diverse candidates, but we are going to make sure there are more opportunities,” he said.
