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Money Management

Women- and minority-owned firms hold tiny slice of money management industry

Updated with correction

Money management firms owned by women and minorities offer similar performance to those owned by white men yet manage just 1.3% of the assets in the $69 trillion U.S. money management industry, according to a second study by Bella Research Group and the John S. and James L. Knight Foundation.

The study, which looked at mutual fund, private equity, hedge fund and real estate managers, found that firms that are substantially owned (defined as 25% to 49% women or minority ownership) or majority owned (50% or higher women or minority ownership) made up just 8.6% of total firms in 2017, up from 7.3% in 2016.

However, the study, in part, attributed the increase to a wider data set, compared to the previous study, unveiled in 2016. That study, along with the current one, was led by Josh Lerner, head of the entrepreneurial management unit and the Jacob H. Schiff professor of investment banking at Harvard Business School.

In terms of assets under management, across the four sectors — mutual fund, private equity, hedge fund and real estate managers — majority diverse-owned money management firms represent just 0.9% of AUM, while 1.3% of AUM are managed by substantially and majority diverse-owned firms. Study could not provide comparable statistics from the last survey because the current study is based on a larger data set.

"We have seen progress in terms of the number of diversely owned managers out there, but we've seen less progress in terms of the share of assets they have," Mr. Lerner said in an interview. "We'd love to see that number be bigger. But that number is harder to change."

The asset management business isn't one "you break into by going big immediately," Mr. Lerner said. "You have to start small and work your way up."

Mr. Lerner noted that there's a real need for ownership data within this sector of the industry. While the Bella Research Group and the John S. and James L. Knight Foundation had a team of people compiling data from a variety of sources for months to prepare this report, most pension plans have a lean staff and don't have the time or resources to engage in such extensive research.

"The average pension plan has a lean staff, and the managing of the day-to-day process of flows of capital, managing relationships, is pretty all-consuming," Mr. Lerner said. "So, this is a market where there's a real need for high-quality information."

The John S. and James L. Knight Foundation, a private grant-making organization, in 2010 began an effort to diversify the management of its endowment assets. Some $830 million — 36% of endowment assets—were managed by diverse-owned firms as of June 30.