Asset Managers Owned by Women and Minorities Have to Work 10X as Hard for Assets

A Harvard professor finds firms owned by minorities and women control only a tiny fraction of industry capital — despite solid performance.


Firms owned by women and minorities manage a mere 1.3 percent of the investment industry’s $69 trillion in assets.

A study from Bella Research Group and the John S. and James L. Knight Foundation found that these firms are stuck managing a penny on the dollar, despite being overrepresented in the top quartile of performance. Harvard professor Josh Lerner led the research with Bella, examining mutual funds, hedge funds, private equity, and real estate.

“The most striking contrast in this report is the very low AUM on the one hand and the return evidence on the other,” Lerner told Institutional Investor. When it came to performance, diverse-owned firms were overrepresented in the top quartile. Private equity performance was particularly notable. Minority-owned private equity firms represented 34 percent of the top quartile of performers, while firms owned by women were 29 percent of the top quartile of performers.

Women owned 4.6 percent of hedge funds in 2017. Minorities owned 8.9 percent. Still, they accounted for less than 1 percent of total assets. Women and minority representation in real estate was the lowest of all four asset classes. They represent less than 4 percent of total firms. Women-owned firms manage 0.8 percent of assets and minority-owned firms oversee a little more at 1.2 percent.

The Knight Foundation, which sponsored the study, has been looking to diversify its endowment since 2010. As of June 30, 2018, the foundation had invested $830 million with diverse-owned firms, which is about 36 percent of the endowment.

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The study found that companies with at least 25 percent women or minority ownership accounted for 8.6 percent of total firms in 2018. In the first study published in May 2017, based on data from 2016, 7.3 percent of firms had diverse ownership in the asset management industry.

When it came to the absolute number of firms, growth was significant. The number of diverse-owned private equity funds grew 60 percent, from 362 to 577; real estate grew 19 percent, and the number of diverse-owned mutual funds rose from 988 to 1,105, or 12 percent.

But it was a different story when it came to assets under management. Firms majority-owned by women and minorities managed 0.9 percent of the industry’s assets. Once firms with 25 to 9 percent ownership were added in, the share rose modestly to 1.3 percent.

Lerner — Harvard Business School’s chair of entrepreneurial management and an investment banking professor — said that if performance is good and these firms are still not thriving from a business perspective, then other changes are needed. He is calling for an increase in transparency to ensure that institutional investors can identify diverse firms.

“One of the issues that remains the most vexing is how hard it is to get data and figure out what is going on,” Lerner said. “We had a team of bright young people combing through all the disclosures by state pension funds on their diversely owned managers, Preqin data, and the databases of a number of consultants who shared their proprietary databases with us for this study. Still it took many months of work to compile this information,” he said. “We know that ownership is where the rubber meets the road. That’s where the economics accrue.”