- White people involved in racially charged incidents highlight financial industry biases
- Investing with minority managers builds disadvantaged communities by helping close the wealth gap, Beeck Center’s Erika Davies says
- The persistent anti-Black bias in hiring asset managers will continue until commitments to diversity are carried out, Davies tells Karma
To Erika Seth Davies, it was no surprise that the two white people involved in separate racially charged incidents last month worked in the financial world.
Amy Cooper, who called police after a Black man asked her to leash her dog in Central Park, worked for Franklin Templeton. Tom Austin, who questioned whether a group of Black men were legitimate visitors to his building’s gym, had been CEO of venture capital firm F2 Group. Both have been fired from their jobs.
The two cases highlight what has been a decades-long problem in the financial world — more than 98% of the $70 trillion handled by the asset-management industry is overseen by whites. Those white managers carry biases that discriminate whether they know it or not, said Davies, a fellow at Georgetown University’s Beeck Center for Social Impact and Innovation. The biases affect the hiring of asset managers, and, she says, ultimately hurts investors.
“You aren’t getting the best performance when you are not bringing in the most diverse advice,” Davies said.
Stanford University research last year backs up her statement. Institutional investors were likely to rate white-led investment teams higher than those led by Black fund managers that were equal in performance, leading to racial disparities in how trillions of dollars are invested, according to the research, done in conjunction with private equity firm Illumen Capital. By undervaluing the performance of Black-led investment teams, asset allocators probably are not making the most optimal decisions on where they place trillions of dollars of their clients’ money.
The Cooper and Austin cases were followed by the horrifying death of George Floyd while in police custody and new data showing that the pandemic lockdowns hurt Black-led households more than white ones.
“We cannot ignore the fact that things aren’t working,” Davies told Karma. “There is this inherent anti-Black bias in this country.”
The issues are deep-rooted and are “centuries in the making,” she said. While admitting “I don’t know that we are willing to do what is necessary” to solve every problem, Davies did offer advice on reducing the discrimination in hiring asset managers.
It’s not enough to say you are going to hire the best person for the job because “your perspective on the best candidate is informed by your biases,” Davies said. White managers will “err toward whiteness” unless there is a commitment to diversity, she said.
As a white manager, “I need to say I am going to get a better result from a diverse group of people. They are going to see opportunities differently,” Davies said. “You need to believe in what they bring.”
Beyond simple financial performance, there is a ripple effect of benefits that comes from more diverse hiring, Davies wrote in a paper for the Association of Black Foundation Executives.
Investing with minority managers builds disadvantaged communities by helping close the wealth gap between whites and minorities, she wrote. Minorities, and women, often hire and train other women and people of color, creating a wider and deeper pipeline for diverse talent. And minority managers are often philanthropists and high-impact donors in their communities, Davies wrote.