A woman from a New York housing project who becomes co-CEO of the largest hedge fund firm in the world. A young man who learns investing from scratch in order to provide for his family. A woman who leaves the former Eastern Bloc and pays her way through Harvard so she can learn how capitalism works. A man who doesn’t believe those who tell him finance isn’t for people like him, and goes on to gain a doctorate in econometrics.
These are just some of the stories of the hedge fund industry.
Our industry has always attracted pioneers; hedge fund firms are staffed with people who refuse to accept the status quo.
This pioneering spirit is now being turned inwards, as hedge fund firms examine the composition of their own workforces. Despite leading the investment management industry in many fields, hedge fund firms still face challenges when it comes to attracting and retaining diverse talent.
These challenges are not, of course, entirely of the industry’s own making. Social norms in many countries deter women from pursuing quantitative subjects, for instance, and thus limit the pool of talent available to hedge fund firms. Further, the small size of most hedge fund firms limits their ability to search out talent, meaning that those who are not already familiar with the industry may have trouble finding a way in.
The industry, however, is dedicated to improving this situation. Last year the Alternative Investment Management Association (AIMA) convened a global Diversity and Inclusion Steering Group, which has adopted as its mission the creation of “an environment across our industry that celebrates difference, is open to all as a career choice, and can attract a more diverse and inclusive pool of candidates.” To that end, the Group has committed itself to providing the industry with “practical resources, advice, role models and case studies to enable them to develop a culture which embraces difference, and to hire and retain a more diverse and inclusive workforce.”
This paper, produced with support from EY, is the first such resource.
Within the pages of this paper you will find an examination of the challenges faced by the hedge fund industry when it comes to diversity and inclusion. You will also find an explanation of why diversity and inclusion are so important to our industry, and why people choose to join hedge fund firms in the first place. Throughout the paper you will find case studies of individuals and firms with unique diversity and inclusion stories to tell.
The core of this paper, however, is practical. It contains 45 different actions hedge fund firms can take to improve their diversity and inclusion, from how they find new recruits to how they develop their existing talent. Most of the actions described in this paper can be taken by firms of any size, and with any level of resources.
We look forward to supporting the hedge fund industry in its drive to become even more diverse, inclusive, and pioneering.
Jack Inglis Chief Executive Officer, AIMA
Robyn Grew Chair, AIMA Diversity and Inclusion Steering Group; Member of AIMA’s Council; Group COO and General Counsel, Man Group
Diya Wilson Tax Partner, Wealth and Asset Management, EY
Since the first days of the industry, the story of hedge funds has been one of change. Investment strategies have been pioneered, popularised, and commercialised. Management firms have moved out of dorm rooms and garages to offices in Mayfair, Greenwich, and the Central District. Investors have gone from being friends of the founder to some of the largest and most sophisticated financial institutions in the world. Countless funds have been created and gifted with names that speak to the industry’s ambitions: dynamic, active, growth, alpha.
Throughout all this change, however, one thing has remained fixed: the staff of hedge fund firms. For an industry that prides itself on providing alternatives, the hedge fund industry is still overwhelmingly homogenous in demographic terms—even when compared to its peers in the financial services. In most jurisdictions, hedge fund firms are staffed by men, generally drawn from the socioeconomic elite and the ethnic majority.
This situation is beginning to lead to unease in the industry. Hedge fund managers and investors alike increasingly recognise the role that diversity can play in combatting groupthink—creating better decisions and thus better investment outcomes. At the same time, however, many firms are unsure as to how they can promote diversity. Most hedge fund firms are small, founder-led businesses, with fewer than a dozen members of staff, all of whom are extremely busy with their day jobs. How then can such firms be expected to dedicate resources to solving a seemingly intractable problem, with which even national governments struggle?
Happily, there are steps every hedge fund firm can take to improve its diversity and inclusion (D&I), no matter its size or resources. Fostering greater D&I in the hedge fund industry will require commitment. It will pitch the industry against traditions and social structures that have remained unchanged for decades. Ultimately, however, the hedge fund industry is nothing if not an example of the benefits of breaking with tradition.