The answer to the lack of diversity among fund managers could be as simple as adopting a blind audition process similar to an orchestra's

Maybe the answer to the long-standing lack of diversity among fund managers is as simple as adopting the blind audition process of the local orchestra or the coaches on the singing competition show “The Voice.”

“Even if we get more women and people of color in the fund management pipeline, we may need to address implicit biases as the orchestras do,” said Aurelia Flores, co-founder of the female-focused angel network Citrine Angels, when asked about improving racial and gender diversity in fund management. “Having people audition behind a curtain, but in this case looking only at performance data.”

As an industry, asset management has a poor track record when it comes to diversity. According to a 2019 report by the Knight Foundation, firms owned by women and people of color manage only 1 to 5% of the assets under management in the United States. Though there is virtually no distinction in performance between funds with diverse and non-diverse management when controlled for factors like fund size and geographic focus, Illumen Capital and an interdisciplinary team at Stanford found that investors still had a preference for high-performing white male-led funds over high-performing black male-led funds.

But when we zero in on the management of impact investing funds, the numbers start to get better: almost 40% of senior impact investing decision-makers are female, according to a study by Russell Reynolds Associates released in February. That impact investing firms tend to promote from within — another finding from the same study — suggests that the sector is intent on keeping some of traditional investing’s bad hiring habits out of their work. Mission Investors Exchange, a network of 200+ foundations committed to impact investing, is also tracking efforts by philanthropies to work with diverse fund managers to manage their endowments.

Unlike an audition, though, eliminating bias and incorporating diversity “doesn’t happen overnight or through a singular event, which is why our work with managers occurs consistently over the life of our investment,” Heran Getachew, Illumen’s vice president of investment, said in an interview with Karma.

Is impact investing’s promising gender diversity extending to race? The Russell Reynolds study did not consider the question of racial diversity in impact investing, and the lack of available data on race in fund management makes drawing the contours of the problem a challenge. The data that is available about the asset management industry suggests a pretty big problem. If impact investing is doing things differently — whether by building a deeper pipeline or creating a proverbial curtain, or both — the world needs to know.