The U.S. asset management industry is severely lacking in diversity, a report from the John S. and James L. Knight Foundation and Bella Private Markets finds.

Based on an analysis of a sample of asset management firms representing $82.24 trillion in assets under management (AUM), the report, Knight Diversity of Asset Managers Research Series: Industry (30 pages, PDF), found that investors entrusted only 1.4 percent of assets to firms owned by women and/or people of color, despite diverse-owned firms’ investment performance matching those of their less diverse peers. The share of AUM by diverse-owned firms has hardly changed over the past decade, ranging between 1 percent in 2016 and 1.4 percent in 2014, 2020, and 2021.

The latest in the Knight Diversity of Asset Managers (KDAM) Research Series, the report found that minority-owned firms and women-owned firms each represent 6.1 percent of all U.S. management firms and manage 0.7 percent of total AUM. Minority-owned firms account for 9.3 percent of hedge funds and manage 3.4 percent of their AUM, 9.2 percent of mutual funds and 0.4 percent of AUM, 5.1 percent of private equity funds and 4.5 percent of AUM, and 1.8 percent of real estate funds and 1 percent of AUM. Women-owned firms account for 3.9 percent of hedge funds and manage 2.2 percent of their AUM, 6.7 percent of mutual funds and 0.6 percent of AUM, 7.2 percent of private equity funds and 1.6 percent of AUM, and 1.8 percent of real estate funds and 1.7 percent of AUM.

In terms of performance, based on linear regression analysis, the study found no statistically significant differences in performance between diverse- and non-diverse-owned funds across asset classes.

“Investing wisely requires planning for future possibilities — assessing risk and anticipating opportunities that are unforeseen,” said Knight Foundation chief financial officer Juan Martinez. “Diversity in who manages your assets is just as important as the diversity of what you invest in. Managers with different backgrounds, viewpoints, and experiences can often better identify investment opportunities that other managers might overlook. Given their investment returns, diverse-owned firms represent an untapped opportunity for investors. It’s time to ask why more investors aren’t putting their money in the hands of more diverse asset management firms.”

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