We all see the problem. Is there a solution to asset management's lack of diversity?

It’s a classic story. Sháka Rasheed grew up in inner city Miami—tough neighborhood, violent city, single mother. Both his cousin and good friend were shot while he was in middle school. There is a well-trodden path for young black men in poor urban America. Rasheed was on it. But then in seventh grade, Mr. Johnson, his science teacher, pulled him aside one day after class. “You are making excellent grades in spite of yourself,” the teacher told him. It was enough. Five years later, Rasheed graduated high school with high honors, president of the class of 1989. Morehouse College followed, and later, Harvard Business School. He’s now a managing director and head of alternatives at Lazard Asset Management.

But Rasheed’s story is no classic: He works in asset management.  

Nearly 90% of senior money managers in the US are white. African Americans make up 12% of the nation’s workforce, and but hold 1% of top investment roles. The same story goes for Hispanic and Latino populations, which account for 16% of the overall job market and 2% of high-level investors. Women represent 47% of the workforce, and 18% of asset managers. Serve your country in the military, and your chances of finding employment in financial services drops by about 30%. For people with disabilities, their likelihood falls by roughly 13%. Those who see asset management as a true meritocracy have either failed to consider the next step in their logic, or—more alarmingly—they have considered it.  


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The only demographic fully represented throughout finance is white men. Accounting for 35% of the labor force, this group owns 97% of hedge funds and roughly three-quarters of senior spots in portfolio management, investment banking, and securities broking. No one who has attended an investment conference will find these numbers shocking. The most common reaction of people I interviewed for this piece was this: “Only three-quarters?”

For those of you still reading, good on you. Tackling issues of race, gender, class, and the overall status of minorities can be deeply uncomfortable, fraught with historical baggage, and ripe with the chance to offend or take offense. But an awkward or imperfect discussion is better than none at all. Indeed, reluctance to face this industry’s demographic reality has further entrenched it. The firms that are bright spots for diversity share something in common: Open discourse about the issue. As Alcoholics Anonymous says, the first step to recovery is admitting you have a problem.

“How do you talk about making changes when you can’t even say the words?” Melody Rollins, PIMCO’s head of institutional client management, leads the fixed-income giant’s ongoing diversity initiative. “So one of the first things I did at PIMCO was create a norm for how we talk about people and their backgrounds that’s comfortable for everybody. How does one refer to African Americans? What about Filipinos, or Puerto Ricans versus Dominicans? Women make up half the population, so there is a common language around gender. But for race and culture it doesn’t exist.” 

Contacting an asset manager to speak about bond duration is one thing; asking for his or her reflections on being black is substantially more awkward. But Rollins—like every other minority financier I spoke with—speaks freely about her background and its impact on her career. The takeaway: Race isn’t taboo. For minorities in this industry, it’s likely something they have thought about a lot.

“Growing up near an army base in Northern California—a place that’s still predominantly white—we were always the only black family, and the poorest family,” Rollins recounts. “But I was OK with that. And I think I got used to being different. People would ask me about my skin or my hair all the time.” If Rollins cut an unusual figure on a Northern California military base, she was a veritable unicorn at her first place of employment: early 1990s Salomon Brothers, where she spent two years as a debt capital markets analyst. “I lost my very first paycheck in a game of liar’s poker with John Meriwether,” she says. “And I developed a thick skin. I can’t even repeat the grotesque, sexual things that they would say to me on a daily basis. I kind of laugh now at the political correctness.”

Almost no one cites explicit racism or misogyny as the root cause of underrepresentation. As Rasheed says with a chuckle, “I don’t believe there is any overt or covert effort to sustain this industry’s homogeneity. Systems have inertia to them—until there is a conscious effort to turn them around.” An abundance of research and cringe-worthy anecdotes suggest minorities now contend mostly with unconscious bias. When asset owners first meet Rollins and her team, for example, some will direct questions to her junior staff, assuming she’s not the one in charge. Or recently, at a bank which shall remain nameless, the head of an investment division sought out one of the group’s two black professionals to ask “if the Harlem 125th Street station was actually safe,” as his daughter wanted to catch a train home to Old Greenwich. The African American staffer doesn’t live in Harlem. He never has.

Biased behavior costs minority and female money managers. A 2012 study of mutual fund flows found that managers with foreign-sounding names performed on par with the John Smiths of the industry. Investors, however, allocated them 14% fewer assets, cutting managers’ average compensation by more than $100,000 a year. Likewise, women and minorities own 12% of US equities-focused asset management firms, but manage 1% of total assets in the strategy. For the small slice that does truly make it as minority managers, success can come with a catch-22: Those who become advocates for diversity worry they will be judged scolds, complainers, or “playing the race card.” Research suggests that this fear is well-founded.


Each underrepresented group has its own set of hurdles. Young women, for example, struggle to secure mentors and sponsors because most senior investors are men. Close, outside-of-work relationships can be seen as inappropriate, and their partners may not like it. Carmen Heredia-Lopez, CIO of the Chicago Teachers’ Pension Fund, notes that “as women, we always question our quantitative ability. ‘Should I be here? What am I doing here?’” While on the job at a bank, a young black man says that given the stereotype, he’s “never allowed to be angry.” He worked at hedge fund a few years ago, and saw white male managers sent off to China for deals. The back office full of Ivy League-educated, Mandarin-speaking Asian professionals wasn’t even thought of. Yet underrepresented groups face as many common challenges as unique ones—and many of the same solutions.

“I don’t care if someone is blue, green, purple, or from Mars: I just want them to make me money.”

Lack of critical feedback frequently hinders professional development for any “out group,” according to PIMCO’s Rollins. Their superiors—the vast majority of which will be white men—may avoid constructive advice for fear of appearing biased. Rollins coaches PIMCO’s diverse junior staff members to actively seek out and open themselves to feedback. Otherwise, they might miss out on the tough lessons that turn their white male colleagues into better investors.

To Chris Ailman, CIO of the $187 billion California State Teachers’ Retirement System (CalSTRS), self-censuring managers are an argument against tokenism. “If you only have one African American analyst or one Latino analyst, and you’re tough on them, you may ask yourself the bias question,” he says. “They might even ask that question. But if you have four of them, and you’re tough on one, then it doesn’t come up. In any group, regardless of ethnicity or gender, there are strong performers and there are weaker performers.” The important thing, Ailman says, is holding everyone to a universal standard.

At CalSTRS, the standard for diversity extends to its portfolio, as well. For more than a decade, the fund has chosen to seek the talents of small and emerging managers—many of whom are women and minorities—rather than solely trust the giants to invest. Although members of the public have criticized the makeup of CalSTRS’ investment roster, Ailman insists his motivation has nothing to do with public relations. After all, he’s pretty used to hearing free advice on how to run the portfolio.

“This is absolutely about making money—I want to get away from group think. Each time we’ve expanded into emerging managers, it’s about our concern that the big firms don’t want their performance to stray too far from the benchmark,” he says. Thus far the thesis has been borne out: Small managers have outperformed on the margin. While their median return roughly matches those of the large core firms, the return spread is wider. “I keep telling people, you don’t have to be a white male on the island of Manhattan to be a good money manager,” he concludes. “I don’t care if someone is blue, green, purple, or from Mars: I just want them to make money.”

One of CalSTRS’ recent diversity wins sits with Ailman during the interview—and most other things he’ll do at work this summer. Adriana Gutierrez joins the fund through an internship for ethnically diverse students from non-investment majors. Overcoming the pipeline issue—called insurmountable as often as it’s called a cop-out—requires starting early, according to Ailman. “I get hit with the diversity criticism a lot: ‘Your investment managers are not matching the demographics of California.’ And I say, ‘Wait a minute, what about the demographics in business schools?’ What we’ve tried to do here is change the pipeline, and catch the undergrads.”

Asset management’s pipeline of minorities—with the exception of Asian students—starts as a surge into colleges and ends as a tiny trickle after business school. First the good news: The race gap for university enrollment is narrowing. White and black Americans go to college at about the same rates, and Hispanic/Latino populations are close behind. And the bad news: Only one in five black students and three in ten Hispanics will come out with a degree in four years, while 43% of white people and 46% of Asian students will. For entrance into business schools—a prerequisite for private equity and an advantage elsewhere—230,000 hopefuls write the GMATs annually. Of those, 17,500 are people of color. But just 300 score above 650, which is the threshold for getting into an elite MBA program. And while in business school, black and Hispanic students drop out at higher rates (12% and 9% respectively) than do white students (5%). Asians are again the exception: 97% leave with an MBA.

After graduation, minorities will continue to see their world get whiter and more male. At every advancing rung up the ladder, minorities and women drop off. White men hold 21% of administration jobs in portfolio management, 45% of professional positions, 53% of mid-level managements roles, and 74% of executive placements.





Why? Promotions and job opportunities depend on professional networks, which are largely segregated spaces. Women tend to network with other women; minorities often network within their own races. This holds for white men as well, with the consequence of other white men primarily having access to the top jobs—because they’re mostly held by white men. Furthermore, many executives see a sense of isolation and exclusion in their minority staff members. The most effective diversity initiatives battle this plague aggressively. But most don’t, because it’s hard. Management has other things to focus on—like investing.

The CEO of a major financial firm recently put one of his senior staffers in charge of developing a diversity plan. She has held a multitude of focus groups. But even with leadership committed to the well-being and advancement of its minority staff, she’s struggling.

“We have a lot of super-talented diverse professionals who say, ‘I feel so alone; I have no network.’ It’s hard,” she says. “I can’t bring the world’s problems to the CEO. How can you solve a problem superficially that has such deep roots? What is it that the firm can do? What happened in Ferguson is not the company’s fault. When I was a toddler, my father told me, ‘You don’t question white men.’ And that’s what makes you who you are—you have to own that,” she paused. “Yes, there is a lot of opportunity in America, but the psychological scars go so deep.”

“Looking back, did I think the industry would be further along now than it is? I had hoped so,” reflects Sue Toigo, a leading figure in the push to diversify asset management. In 1989, she founded an MBA fellowship to help send a small number of minorities through Columbia Business School and onto careers in finance. “We thought it would be assistance with tuition, a mentor, a summer internship, and then everyone would be on their way. After several years, we realized that alums were coming back to us because they had been passed over for promotions, and didn’t know why. There was no overt racism, but it was a subtle, ingrained form of racism that they couldn’t put their finger on. And we realized that we had to be involved throughout their entire careers,” she says. “It was no different from dropping your kid off at college and thinking you’re all done.” 

Now in its 25th year, the Robert Toigo Foundation—named for Sue’s late husband—helps send 50 or so underrepresented MBA students to the nation’s top schools every year. It joined forces with Carlyle Partners in 2010 to create a yearlong paid fellowship, rotating a new MBA graduate through the private equity firm, a plan sponsor, and a portfolio company. (More on this later.) Many of the most prominent minority asset owners and managers in the industry today have passed through Toigo or SEO—a banking and private equity-centered internship program—or both. Oprah Winfrey stepped in and paid Sháka Rasheed’s tuition at Morehouse as he teetered on the verge of insolvency. Relative to gender, the status of minorities in finance is much more tightly bound up with issues of class. Find a minority firm or individual success story, and often you will also find philanthropic intervention somewhere along the way.

White and black Americans go to college at the same rate. But just one in five black students graduate in four years, while 43% of white students do.

Alternative investment management is among the least diverse professions in America. Even Fortune 500 CEOs count more women (4.8%) and minorities (5%) among their ranks than do hedge fund owners (97% white men). While a successful buyout firm will search high and low for that underpriced, overlooked gem of an asset, their hunt for talent could hardly be narrower.

Tanaka Maswoswe, a young vice president at Carlyle, believes that if it weren’t for earning the Toigo private equity fellowship, he wouldn’t be at the firm. “To get into the industry, you first spend two years at an investment bank after college, then go to a private equity firm for another two years, and then you go to business school. But, if you have a slightly different background, it’s very hard if not impossible to gain traction.”

Maswoswe’s background? A bachelor’s in economics from Yale, then investment banking at Barclays, followed by a Harvard Business School MBA. Apparently, missing out on the two-year pre-MBA stint in private equity firm effectively bars one from ever having a career in the industry. And Carlyle’s leadership recognizes the value a standard recruitment process would have overlooked: Maswoswe earned a permanent position during his fellowship tenure, a promotion shortly thereafter, and a role on the deal teams for two of Carlyle’s largest industrial acquisitions (Axalta and Signode). 

David Rubenstein and his fellow co-founders have stressed diversity since the beginning, when the issue wasn’t even on the radar for alternatives managers. (For many, it still isn’t). The firm has an overarching diversity council, mentorship programs, and has created individual “affinity groups”: A women’s forum, an African American group, and a lesbian, gay, bisexual, and transgender group. The founders regularly meet with each of these units. “Without patting ourselves on the back, we have perhaps been more sensitive to these issues than other private equity firms because we’re based in Washington, DC,” Rubenstein says. “I came out of working in the White House for a Democratic President”—Carter—“and under a person who put a lot of emphasis on diversity.” Still, he acknowledges, “I don’t think that our firm or any other can completely escape society’s problems.”

 Those that have found success managing them at a firm-wide level all do so at the insistence of their executives. A happy, engaged, and inclusive staff with diversity at all levels is not achieved by grassroots efforts alone. Any meaningful diversity initiative must have buy-in from the top-down. It’s no accident institutional investing’s leaders in this field—Carlyle, CalSTRS, and corporate pension standout Exelon among them—all put forth executives for interviews, not human resources managers.

David Marchick, head of external affairs at Carlyle and chairman of the Toigo Foundation, knows more about the diversity challenges facing asset management than almost anyone. Grassroots initiatives may complement an executive-led drive for diversity, but they can’t succeed on their own. “I’ll say this because David Rubenstein won’t: I think it starts at the top,” Marchick says. “You have to start with this premise that the CEO or top person sees diversity as an important priority. Without that, no amount of organizing is going to be effective. With that, you still have a lot of work to do.”

Rubenstein feels their work is far from over. “I think we’ve done a very good job with respect to women and gender, and I think we could do a better job with race,” he says. “It’s about having better talents and skill sets than you might find with a lily-white, all-male environment. If you can understand your society better, and reflect it better, you might be able to be a better investor.”

To Sháka Rasheed, since seventh grade in Miami onwards, the stakes have always been higher. “Diversification is the fundamental basis of good investing. Different experiences will yield different outcomes, so you must always, always cast the widest possible net or you won’t grow. And if you don’t grow, eventually you will die.”