There are “vast and hard-to-justify disparities in asset management,” says the study’s author, a Harvard Business School professor of investment banking.
The hoary proposition that Wall Street is an old boys’ club for white men has just been bolstered with new supporting data.
According to a study commissioned by the John S. and James L. Knight Foundation, firms owned by women and minorities manage only 1.1 percent of the total assets under management in the $71.4 trillion dollar asset management industry, which tallied $100 billion in profits in 2015.
Furthermore, the study’s “initial analysis found no statistically significant difference in the performance of these diverse-owned asset management firms and their peers.”
Josh Lerner, professor, Harvard Business School
The study was conducted by Josh Lerner, chair of the entrepreneurial management unit and Jacob H. Schiff professor of investment banking at Harvard Business School, and the Bella Research Group (BRG), of which Lerner is also managing partner and co-founder.
The study examined mutual funds, hedge funds and private equity funds (as well as real estate funds) and found that the “number of women- and minority-owned firms ranged from 3 to 9 percent, and assets under management ranged from below 1 percent to 5 percent.”
Regarding mutual funds’ ownership, the study found “127 women- owned and 107 minority-owned firms, managing $406 billion and $160 billion in AUM. For women, the 127 firms represent 8.8% of firms and 0.9% of total industry AUM. For minorities, these numbers represent 7.4% of firms and 0.3% of total industry AUM.”
Regarding hedge funds’ ownership, the study found “4.3% and 8.0% of firms being owned by women and minorities, respectively. These firms control less than 1% of total industry assets.”
Regarding private equity ownership, the study found that only “1.9% of PE firms are women-owned, and they manage approximately 1.5% of industry assets. Minority-owned firms represent 3.7% of all PE firms and manage 3.4% of industry assets.”
The study also observes that “diverse-owned firms exhibit strong returns, but they are dramatically underrepresented in every asset class.”
The study classified firms as women-owned or minority-owned “if at least 25% of firm ownership is held by women or minority individuals, respectively. Firms may be classified as both women-owned and minority-owned if they have substantial levels of ownership held by women and minorities (e.g., firms with both women and minority owners or firms owned by women who also belong to a racial/ethnic minority group). The definition of ‘minority’ includes racial/ethnic minorities (e.g., Hispanic, Black, Asian, and Native American) but does not include other underrepresented groups such as veterans or disabled persons.”
The BRG study, Knight says, grew from its “efforts to diversify its endowment investments. Knight has moved $472 million of its endowment – or 22 percent – to management by women- and minority-owned firms in the past decade, with no compromise on performance.”
“Diverse-owned firms are underutilized by institutional investors,” Juan Martinez, Knight Foundation chief financial officer (CFO), says in a statement. “We made a conscious decision to change our approach—and we urge our colleagues to do the same.”
The study also points out that “more complete data on diversity in the asset management industry would help effect change.”
According to Harvard’s Lerner, “the more we learn, the clearer it is that there are vast and hard-to-justify disparities in asset management.”
Concerns about diversity in asset management go well beyond Wall Street, of course.
In the U.K., for example, a “study compiled by Aviva Investors, a London-based asset manager, found that 75 per cent of investment companies have no plans to instigate gender-related objectives across their businesses, in defiance of criticism that women are being ignored by the industry,” according to a recent report in the Financial Times.
One reason for the gender diversity gap: “We lost too many women from the industry a few years ago at a critical moment, which has left a big gap. It is not obvious how we are going to fill it,” Anne Richards, CEO of M&G Investments, a London-based asset management company, told FT last year.
Lerner’s research focus, according to his Harvard Business School biography, is on the “structure and role of venture capital and private equity organizations.” His work is collected in three books, The Venture Capital Cycle, The Money of Invention, and Boulevard of Broken Dreams.
Lerner also “co-directs the National Bureau of Economic Research’s Productivity, Research, and Innovation Program and serves as co-editor of their publication, Innovation Policy and the Economy,” per Harvard, which notes also that he teaches a doctoral course on entrepreneurship and that he “founded and runs the Private Capital Research Institute, a non-profit devoted to encouraging data access to and research about venture capital and private equity.”
The complete BRG report is available at: http://kng.ht/2pXUdAF.
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