There is no capitalism as we know it without funding that channels capital to entrepreneurs, start-ups, restructured businesses and much more. But the data shows that financiers have failed when it comes to diversity, equity and inclusion. We have often reported bank failures, such as loans to black-owned startups and new black owners. But it goes beyond banking – a somewhat similar story holds true for other parts of the financial services industry. “Marketplace Morning Report’s” David Brancaccio spoke to Chris Farrell, senior economics contributor, about data that illustrates part of this. Below is an edited transcript of their conversation.
David Brancaccio: You’ve read the studies, where else do we see this failure to fairly lend and fund?
Chris Farrell: The asset management industry, I mean, that includes private equity, real estate mutual funds, hedge funds. And, you know, David, the asset management industry is a lifeblood of the economy, which is why the business press spends so much time covering private equity and hedge funds. And in this industry, minority and women owned businesses represent a small percentage of the activity.
Brancaccio: Okay, so these asset managers, you saw the numbers on – I was going to say diversity – but these are really the numbers on the lack of diversity.
Farrell: Right, so the Knight Foundation has been tracking minority and female-owned asset management companies for over a decade. And by the way, the term minority in their study means racial and ethnic groups such as blacks and Asians. So the foundation’s latest report examines the asset management industry – which totals more than $ 82 trillion – in fall 2021, just 1.4% of total U.S. core assets under management were under management. by companies belonging to various groups. It’s a fraction, David, of the total pie.
Brancaccio: Or roughly $ 82 trillion. This is not a surprising result. But it is certainly worrying. Now you mentioned that this is the latest in a series of studies … are these studies tracking progress?
Farrell: There has been some modest progress, little progress … the first study was in, this particular series, 2017. And, you know, over the last five years we’ve seen an improvement, the percentage of core assets Americans under management by various owned companies, it fell from 1% in 2016 to 1.4% in 2021. This is not a big change, however.
Brancaccio: What about the performance of investments to remedy this bias?
Farrell: So I think it’s absolutely essential in this study, the author took great pains, David, to answer this question, and the main thing: no statistically significant difference in performance between the various and the non -various groups held in all asset classes.
Brancaccio: Very well. The financial planning industry sends a lot of clients’ money into private equity, hedge funds, etc. It’s not particularly diverse either.
Farrell: No, so I was reading the Knight Foundation study, it reminded me – and I went back, 2018 survey of certified financial planners – less than 3.5% of the 80,000 certified financial planners in the States – United were black or Latinx. In other words: there are only 2,700 CFP Black or Latinx. So there are a lot of initiatives going on in the asset management industry, the financial planning industry, I mean, really the whole financial services industry, to embrace more diversity, but Message in numbers like this, there is so much more to do, especially since money and money management are at the heart of our economy.