By Megan Sayles
The John S. and James L. Knight Foundation (Knight Foundation) on Dec. 7 released a new study about diversity in the asset management industry, which found that although diverse-owned asset management firms perform just as well as their White competitors, they manage significantly fewer assets in much smaller portfolios.
The analysis found that minority- and woman-owned asset management firms only manage 1.4% of the $82.24 trillion U.S.-based asset management industry, which includes mutual funds, hedge funds, private equity and real estate. It also found that there is no statistically-significant difference in performance between diverse- and non-diverse owned funds.
“This is probably an opportunity for asset allocators to find really good, high-performing managers and invest with them. One of the arguments that asset allocators always make is that the hard thing of their job is to find new, great managers who aren’t managing so much money that they become inefficient,” said Juan Martinez, vice president, treasurer and CFO of the Knight Foundation. “From our perspective, I think what we are showing is that there are managers who could manage a lot more money, and they are performing really well.”
This study is the third in a series of research on the state of diversity in the asset management industry. The Knight Foundation embarked on this research after exploring its own portfolio.
In 2010, its CEO was asked how much of the Knight Foundation’s $2.1 billion endowment was managed by diverse-owned firms. After further examination, the foundation found that the number amounted to $7.5 million, or 0.35%.
This number did not align with the Knight Foundation’s core belief of fostering equitable communities, so changes were made. Today, 42% of the foundation’s endowment is managed by diverse-owned asset management firms.
For each of the studies, the Knight Foundation enlisted the help of Bella Private Markets, a firm led by Harvard Business School professor Josh Lerner that focuses on providing solutions to the challenges facing the private capital industry.
According to Lerner, it’s important for diverse-owned asset management firms to have greater representation because it’s an avenue for wealth creation in a country where wealth is unevenly distributed, particularly by race.
Diversifying the asset management industry can also benefit minority business owners because investors, such as venture capitalists, tend to fund those who like them.
“It’s not only the direct effect that owning these funds can create wealth, but that ultimately, there’s all sorts of follow-on effects from having diversely-owned managers in terms of who can actually get funding for their businesses and ultimately create more wealth there,” said Lerner.
Martinez hopes that the findings of this study will motivate individuals in leadership positions to recommend that their companies take a closer look at their portfolios and seize opportunities to employ diverse-owned asset management firms.
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