Our Spotlight Series column highlights individuals and organizations

making an impact in the finance industry.

Townsend discusses representation of people of color and women, homogeneity in the finance industry, and the importance of diversification.

How do you think the investment industry has changed, in terms of diversity, since you joined? What challenges still lie ahead? 

I think about the changing diversity landscape in terms of actuality and intentionality pre and post the recent episodes of social injustice. While there certainly has been a heightened sense of awareness and deliberation surrounding the dearth of diversity in the industry, the actual numbers tell a slightly different story. Let me explain. When I first joined the (buy-side) investment community over 20 years ago, one would have been hard pressed to find another person of color, particularly an African American, at any level of the investment staff at other organizations. At one point, I even took to documenting how I would often be the only black person at large (1k+ attendee) investment conferences across the globe. The raw number of diverse individuals in the industry has certainly increased since I joined, but it is also instructive to put those numbers into perspective. If one looks at the overall financial services industry, 9.9/9.5% of entry level positions are comprised of Black/Latinx individuals, those figures decline at the mid-level (6.9%/5.9%), and further dwindle to 2.7/3.6% for senior level positions. Clearly a lot more work needs to be done, and if one were to home in on the asset management industry, the figures are even more alarming. Women and minority owned funds represent just 1.3 percent of the assets in the $69 trillion asset management industry. As far as hedge funds are concerned, I can count on one hand the number of African American owned hedge funds beyond a critical mass of AUM – and considering there are 3,600 hedge funds in the U.S., that’s roughly 0.1% (or ‘0’ rounded to the nearest whole number) - appalling figures given the level of diverse talent that exists in the industry. Numerous studies also show diverse-owned firms are overrepresented in the top-performing quartile of hedge funds. Should it not be a fiduciary obligation to allocate to those diverse-owned firms in order to generate more attractive returns? The thought that over $500B in trading profits generated at hedge funds over the past twelve months flowed into firms that refuse to put women and minorities into leadership positions is profound, as this industry is essentially funded by entities (state pension funds, endowments, large corporations) with much more diverse constituent bases. We are often told to be patient and that change will not happen overnight, and while my verbal responses are usually measured, my thoughts are, “Oh, you mean 350 years of slavery and the Jim Crow era is not long enough?”  

But it is not all dire. Since I joined the industry, I would say there are a lot more initiatives and programs focusing on educational support, mentorship, and networking, which I think are critical in terms of building a more diverse pipeline. I think the increased focus on socioeconomic disparities has equated to more capital flowing to diverse managers, particularly in private equity and venture. However, the spigots seemed to be turned off when it comes to African American owned hedge funds, and that needs to change. There has also been a significant increase in the level of (positive) intentionality by many institutions. And by that, I mean the number of conversations being had and committees formed to address the lack of diversity at all levels. But when it comes to these discussions, we also need to be honest about the unconscious biases that can affect judgements and influence allocation decisions. I think the intentions are good, and I remain hopeful that they result in more efficient execution and actual checks being written. If I had a dollar of AUM for every conversation that is being had about this issue, there’d be no need for this interview.

While the aforementioned increase in awareness and diversity initiatives is encouraging, several challenges remain. For one, there needs to be more transparency (& granularity) with regards to the demographics of the investment managers utilized by institutions so there’s more accountability. The industry also needs to increase the pipeline of talented managers, from more exposure to role models and increased financial literacy within black and brown communities to nurturing and retaining talent at investment organizations. Bias in recruitment is another issue as many diverse and talented individuals don’t get the opportunities [to build track records] at the more established firms. The age-old chicken and egg problem also lingers as diverse managers are often seen as too risky or incapable of handling the larger allocations. Lastly, institutions need to change the rules of engagement as the existing bylaws which prohibit them from investing in smaller firms is the proverbial nail in the coffin for an early-stage diverse manager trying to make a mark in this industry.

How has diversity shaped your career and the decisions you’ve made to this point?

While I have been consciously aware and passionate about this industry for many years, there was perhaps the unconscious element (being a person of color) of choosing a path where success was based to a large degree on objectivity and measurability. The rather interesting question of diversity’s impact during my career invokes statistics and conjecture. The studies and data that highlight the discrepancies in compensation and opportunities between women and people of color and their white male counterparts are widely known. Thus, I have occasionally conducted the thought experiment questioning whether I would have gotten better assignments, promotions, or remunerations if I had not been a person of color. You’re sort of forced to become a champion of stamping out paranoia because the answer is rarely apparent, and you never have the option of removing your diversity vest when you go into work each day. While I’ve been able to take advantage of the educational and career opportunities presented to me, I do at times find it difficult to resist the thought that I might be a victim of the cliché; that people of color must work twice as hard to go half as far. 

The current, entrepreneurial chapter of my career involves building a firm focused on diversity of thought and differentiated sources of alpha. There is also the mission imperative of addressing the egregious homogeneity in the hedge fund industry. After attending several emerging manager conferences and speaking with several institutional gatekeepers, I had adopted the “if you build it, they will come” philosophy. However, I didn’t fully grasp the chicken and egg problem at the time. If someone had told the 18-year-old me that the color of my skin would matter just as much as my experience and accomplishments 20+ years into the career that I love, I wouldn’t have believed him.   

Is there a program or programs you'd like to highlight that are doing a great job in this space (e.g., The National Association of Investment Companies (NAIC), Greenwood Project, Women Investment Professionals, etc.)? 

While there are several great organizations focused on industry diversity, I will highlight the few I am either a part of or have had some exposure. First, the Toigo Foundation, which was founded by Sue and Robert Toigo, has been committed to diversity for over 30 years. The Toigo Fellowship is offered to select students (underrepresented talent) attending some of the country’s top MBA programs. Toigo provides support at all levels of professional development, from the classroom to the boardroom and Sue is the nicest person you’ll ever meet! Second, The National Association of Investment Companies (NAIC) has done a great job increasing the levels of diversity in the alternatives space. The initial focus was on Private Equity and Venture, but there has been an increased focus on Hedge Funds in recent years. Lastly, a more recent initiative focused on high performing diverse owned asset management firms is the Bank of America DREAM program. The program is committed to raising institutional awareness about the benefits and opportunities of investing in funds with minority and women owned managers.

What was the biggest challenge you’ve faced in your career as it relates to diversity? How did you overcome it? 

One of the biggest challenges was entering the industry. The level of diverse representation in the asset management industry when I began my career was much lower than it is today. I was hellbent on getting a position in the hedge fund industry after I obtained my MBA. Between my first and second year of business school, I put together a list of about 20 or so (mostly) hedge funds that I wanted to target during the recruitment process. I presented the list to a classmate who had been a consultant focused on the alternatives space before business school. She inked up the list in red, crossing out the names that she knew personally or was most familiar, then proceeded to tell me that I shouldn’t waste my time with those firms as they would likely never hire a black person on the investment staff. The other problem beyond the obvious was that she crossed out 70% of the names on the list. Needless to say, my first foray into the asset management business was not with a hedge fund. However, I was fortunate enough to come across an anomaly during the on-campus interview process – an investment firm that practiced what they preached when it came to hiring and nurturing women and minority investment staff. And it was 10 years later, when my boss was hired by a multi-strategy investment firm, that I was brought in (to the hedge fund industry) as a key member of his team. I suppose this highlights the value of networking, mentorship, and aligning yourself with individuals who value your contributions rather than judging you based on the color of your skin. 

How do you think your perspective as a diverse individual influences your investment process? 

It was Maya Angelou who said that we are the sum total of our experiences. We are all unique in our own way. My path and perspectives have also been shaped by my upbringing; being the youngest of my parents’ 14 children, we like to joke that we grew up ‘Po because we couldn’t afford the ‘o-r’. At any rate, I think those experiences along with one’s background, shapes decision making, which increases diversification. I also think that having lived the diverse perspective provides an edge in our process that I like to say aims to ‘arbitrage the homogeneity’ that exists in the industry as most participant firms tend to hire the same type of individuals from the same schools, having been taught by the same professors. This may create a tendency towards groupthink, crowded trades, and industry or market dislocations. I do recognize however that sometimes it pays to just follow the herd, such as during periods of record liquidity when the tide lifts all boats. We don’t always get it right but having differentiated thoughts and perspectives permeate through our process has served us well, especially during periods of heightened volatility.

LinkedIn - Jethro Townsend

National Association of Investment Companies (NAIC)

Robert Toigo Foundation (Toigo)