Diversifying Investments: A Study of Ownership Diversity and Performance in the Asset Management Industry

Publication Date January 28, 2019

Download Executive Summary

Research across a multitude of fields and industries has identified the potential economic and social benefits of diversity. Yet the asset management industry continues to struggle with a lack of diversity. Research studies and articles have consistently documented the low level of representation by women and racial/ethnic minorities among asset managers. Analyzing and exploring diversity in the asset management industry is vital given its sheer enormity and the wealth it generates ($69.1 trillion in assets under management and $99 billion in profits in 2016).

This report captures insights from a new study about the state of diversity in the U.S. asset management industry. Professor Josh Lerner (Harvard Business School) and Bella Research Group led the research, building on a similar study published in May 2017. While numerous studies have documented the lack of diversity among asset managers and asset management firm employees, the current research contributes a new perspective by analyzing the diversity of ownership of asset management firms as well as any performance differences between diverse-owned and non-diverse owned asset mangers.

The research was commissioned by the John S. and James L. Knight Foundation, a private grantmaking organization. Beginning in 2010, Knight Foundation embarked on an effort to diversify the management of its endowment holdings, and as of June 30, 2018, had invested $830 million with diverse-owned firms (representing 36 percent of endowment holdings). Knight supported this study to inform the larger discussion unfolding about diversity in the asset management industry.

Key Findings

  1. COMPOSITION: Firms with female or minority ownership make up a low percentage of all firms in the asset management industry. These diverse owned firms represent an even smaller fraction of the total number of funds and total assets under management (AUM) across all asset classes.
  2. PERFORMANCE: Diverse-owned funds perform at a level comparable to that of their non-diverse peers. Within conventional statistical confidence levels, funds managed by diverse-owned firms typically perform as well as non-diverse funds after controlling for relevant characteristics (such as firm size, fund size, geography and investment focus). Extending this analysis to include sophisticated risk adjustment approaches for hedge funds and mutual funds, and public market equivalent metrics for private equity funds reinforced the conclusion that returns, in general, are statistically indistinguishable between diverse-owned and non-diverse owned funds. Insufficient data made such analysis impossible for real estate funds.
  3. TRENDS: Representation of diverse-owned firms has increased modestly in recent years among hedge funds, private equity and real estate. However, AUM with diverse-owned firms has fluctuated significantly year-to-year.
  4. DATA: The biggest barrier to research on diverse ownership or management is the lack of data, as most data providers for the asset management industry do not track diversity in a systematic way. The report relies on the most comprehensive data sources available, but to encourage further research on this topic, improved data on the composition of firm ownership and management is required.

Download the executive summary, full report, and enhanced performance analysis.

Read the press release announcing the report findings here.


About the John S. and James L. Knight Foundation

Knight Foundation is a national foundation with strong local roots. We invest in journalism, in the arts, and in the success of cities where brothers John S. and James L. Knight once published newspapers. Our goal is to foster informed and engaged communities, which we believe are essential for a healthy democracy. For more, visit kf.org. To see Knight Foundation’s report on its endowment management, visit: https://www.knightfoundation.org/about/financial-info/


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