Using confidential administrative data from the U.S. Census Bureau, we examine

whether race and gender affect compensation and career outcomes in the U.S. asset management industry. We document substantial compensation gaps: female portfolio managers earn 27% less than male peers, and minority managers earn 20% less than White peers. Female and minority managers also face significantly higher rates of forced turnover, and female managers are less likely to be rehired following job separations. These gaps can not be explained by differences in qualifications: minority managers are more likely to attend elite schools and hold advanced degrees. Nor do they reflect differences in performance: we find no systematic disparities in investment performance or in the ability to attract investor flows. Importantly, we show that greater diversity among asset management firm owners helps mitigate these disparities. Together, these findings challenge the notion that meritocratic industries are immune to discrimination and raise concerns about taste-based discrimination and potential talent misallocation in an industry central to capital markets.

This paper constructs the first comprehensive database of U.S. diverse-owned hedge fund managers by leveraging image recognition technology alongside extensive manual verification. Our analysis reveals that, as of the end of 2022, only 1.1% of U.S. hedge fund industry assets are managed by firms owned by women or historically under-represented racial/ethnic minorities. These firms appear to encounter significant barriers to raising capital, expanding their asset base, and winning mandates from large asset owners, challenges that persist after social movements such as Black Lives Matter and the MeToo campaign. At the employee level, hedge funds show under-representation of Blacks and Hispanics, and women in senior and investment roles relative to both the U.S. labor force and the financial services industry. Promotion rates for these groups also lag behind those of their White, male counterparts. Women are more often hired into non-investment positions like investor relations and compliance than into investment positions, but minority-owned firms tend to employ more minority professionals. Despite external pressures on, and stated internal efforts by, the asset management industry to increase diversity of ownership and investment teams, our findings suggest that there has been no material change.