Fearless Girl now faces the New York Stock Exchange. (Photo: State Street Global Advisors)

Many observers have lamented the lack of diversity in the asset management industry. Now, a study that looked at diversity within ownership of U.S. asset managers concludes that women and minorities are strikingly underrepresented in mutual funds, hedge funds, private equity and real estate.

The lack of diversity is a problem in many sectors, and one increasingly scrutinized in the media.

Josh Lerner, a Harvard Business School professor, and Bella Research Group led the research commissioned by the John S. and James L. Knight Foundation. The new report built on findings in a similar study published in May 2017.

The aim of the research was threefold: to better characterize the ownership diversity of U.S. asset managers; to examine the effect of diverse ownership on financial performance; and to study the composition of institutional investors that invest with diverse managers.

The value of global assets under management stood at $69.1 trillion in 2016, according to the study, which cited research by Boston Consulting Group.

Mutual Funds

The research identified 136 women-owned firms managing $430 billion — 9.9% of firms and 0.8% of total industry assets under management — and 120 minority-owned firms managing $191 billion, which represented 8.8% of firms and 0.4% of total industry assets. Data came from the eVestment Traditional Database.

The study looked at diverse firms for every quarter from 2011 through 2017, and found underrepresentation of diverse-owned firms throughout this time period.

The analysis found no statistical difference in performance of funds managed by diverse-owned firms and ones managed by non-diverse firms. Separately, the analysis showed that diverse funds often had top-quartile returns: on average, 29% of minority-owned and 26% of women-owned funds were in the top quartile.

Based on fourth-quarter 2017 data, the most recent available, the study found that public funds and corporate clients had the largest amount of assets invested in women- and minority-owned funds, but noted that these investor types were heavy investors in mutual funds in general.

Investments from public funds, foundations, endowments, high-net-worth individuals and family offices represented a bigger share of assets under management in a typical women- or minority-owned fund that in non-diverse funds.

Hedge Funds

Using data from Hedge Fund Research — which covers about half the hedge fund industry, according to the study — the research found that women owned 4.6% of firms and just 1.5% of industry assets, and minorities owned firms owned 8.9% of firms and 2.7% of assets.

The study identified an upward trend in women- and minority-owned hedge funds since 2010, which accelerated since 2016. In addition, analysis of top-quartile performance showed that 26% of women funds and 28% of minority funds exhibited top-quartile returns, on average.

Private Equity and Real Estate

According to the study, data collection on diversity is relatively new for both private equity and real estate. The research used Preqin databases merged with hand-compiled lists of diverse managers. It said data coverage of diverse-owned private equity firms was solid, while data coverage of real estate was still an obstacle.

Only 5.2% of private equity firms identified in the research were owned by women, and they managed approximately 3.4% of industry assets. Minority-owned firms represented 3.9% of all private equity firms and managed 3.8% of industry assets.

Although some evidence exists of an increase in the number of funds raised and amount of capital raised by women- and minority-owned private equity and real estate firms since 2006, diverse groups are still underrepresented. However, small sample sizes precluded a detailed analysis, according to the study.

Among private equity asset managers, the research again found little evidence that women- or minority-ownership affected fund returns. However, some weak evidence showed that minority-owned real estate funds underperform non-diverse funds. (The study noted that this difference in performance was not statistically significant when net internal rates of return were used as the measure of performance.)

The study examined the composition of institutional investors that committed capital to diverse-owned private equity firms relative to a random sample of private equity firms from Preqin. These data showed that on average, diverse-owned private equity firms had fewer institutional investors relative to the random sample. No data were available for representation of diverse-owned firms in terms of assets under management.