Updated with correction
The hedge fund industry remains a bastion of white males, but for reasons that may have more to do with investment performance and business survival than conscience, many firms are aggressively seeking to hire, retain and promote more women and people with diverse backgrounds, including military veterans.
The problem is that there is a dearth of candidates with desired diversity characteristics who want to work for a hedge fund, sources said.
"All hedge funds would agree that the talent pool is very limited. There aren't enough diverse candidates, be that women, ethnic minorities, different educational backgrounds, etc.," said Sara Rejal, global head of liquid diversifying strategies at Willis Towers Watson PLC, London, in an email.
"Most hedge funds would argue they have good cognitive diversity (and) some will also point to the number of languages spoken within their teams. They will, however, largely admit that when it comes to gender diversity at the senior level in particular, they are lacking," Ms. Rejal said.
Industrywide statistics about the level of diversity and inclusivity within hedge funds are scarce, particularly metrics about race, ethnicity and sexual orientation, sources said, noting that the most commonly used workforce measurement is the number of non-caucasian males employed.
Researcher Preqin Ltd., London, noted a slight increase in the number of women employed worldwide hedge funds in all roles to 19.3% in 2019 from 18.6% in 2017 within its data base of money management professionals.
"The hedge fund industry has made material progress across job functions, but it's no secret that white males still dominate the space," said James J. Gnall, vice president, alternatives and advisory, Wilshire Associates Inc., Santa Monica, Calif. "The investment side of the business still is the arena of white males, but it's definitely getting better."
Preqin's analysis supported Mr. Gnall's observation: In 2019, 23% of hedge fund investment team employees worldwide were female compared to 6% two years earlier.
Despite efforts to recruit more people of color, hedge fund managers may find institutional investors unwilling to invest in a fund led by a black portfolio manager or team leader.
Recent research from Stanford University and Illumen Capital Management LLC, a venture capital and private equity manager based in Oakland, Calif., found "systemic racial disparities in how (institutional) investors evaluate funds and allocate money," according to the paper "Race influences professional investors' financial judgments."
"Well-intentioned investors often leave money on the table in the investment process. Our research found that investors tend to devalue firms with black ownership and leadership even for high-performing funds, said Norris A. "Daryn" Dodson IV, Illumen Capital's managing partner and a co-author of the paper.
Mr. Dodson declined to provide Illumen's assets under management.