Features | March 1, 2018

Daryn Dodson: Tackling investors’ racial and gender biases to unlock hidden value

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New Revivalists is a series from ImpactAlpha and Village Capital profiling the people, places and policies reviving entrepreneurship — and the American Dream.

New Revivalist: Daryn Dodson, managing director of Illumen Capital
Place: Washington DC
Mission: Daryn Dodson and Illumen Capital are on a mission to reduce implicit investor biases by training fund managers to overcome implicit biases and find hidden value.
Follow: @impactpreneur

A new era in the fight for economic justice is underway and Daryn Dodson is making his stand from within the United States’ asset management business, which he calls, “one of the most economically unjust places on earth.”

Of the $36 trillion in the North American asset management business, just 1% are managed by firms owned by women and people of color. Dodson, founder and managing director at Illumen Capital, a Washington, DC-based private equity firm says the omission of women and people of color is unjust and means mainly white, mainly male investors are missing opportunities in plain sight.

The problem extends to impact investing, says Dodson, where investors are putting money into educational technology, financial inclusion, clean energy and other high-impact sectors without considering how implicit biases exclude people of color and women from those strategies.

“Not only have investors not considered their implicit bias, but they haven’t considered that suboptimal economic decisions are being made,” Dodson told ImpactAlpha. “They’re hurting the impact and the returns of their portfolios without even knowing it.”

Illumen Capital has partnered with Stanford University and leading researchers on evidence-based trainings to help fund managers overcome implicit biases and find hidden value.

ImpactAlpha: How are you inspired by a previous generation’s fight for economic justice?

Dodson: When I was 14 or 15 years old, I would travel to meet people like Julian Bond, Margaret Walker, and Ruth Bader Ginsburg. I met Bob Moses, who helped organize voter registration drives in the South, sit-ins and Freedom Schools. The narrative in my head was that Dr. Martin Luther King Jr. led his life in pursuit of civil rights justice, but that he was killed in the fight for economic justice. MLK was assassinated in Tennessee — 50 years ago this April — as he stood with sanitation workers in Memphis after two workers were killed.

Dr. King would make moral arguments of course, but he also frequently spoke of economic justice. In his “I Have a Dream” speech, Dr. King said the people were given a check that came back marked “insufficient funds.” What he was saying, in essence, is that the Constitution of the United States was not being fulfilled without the fulfillment of the human rights, dignity and economic equity of people of color, women and others who were not recognized.

ImpactAlpha: Tell us about Illumen Capital.

Dodson: Illumen Capital is a private equity firm that focuses on three very important strategies — research, fund-of-funds investing, and impact experiences.

ImpactAlpha: What problem do you want to solve?

Dodson: The problem in our formal financial market is that there are $36 trillion dollars in the North American asset management business and just 1% are managed by firms owned by women and people of color.

The problem in impact investing is that investors are investing in educational technology, financial inclusion, clean energy and so on. Yet, they don’t consider how implicit biases keep people of color and women out of those strategies. Not only have investors not considered their implicit biases, but they haven’t considered that suboptimal economic decisions are being made. They’re hurting the impact and the returns of their portfolios without even knowing it.

One of the things I find really powerful about impact investing is that the formal financial sector never said that it was necessarily fair…but impact investing did. Impact investing said that it’d be a new form of investing that was going to be better, that was going make a difference in society, and that was going to be all of these new things. So for impact investing to leave out inclusion for women and people of color is a major omission. It’s an omission from creating economic value, and it’s an omission for creating a more just and equitable world.

ImpactAlpha: What’s unique about Illumen’s approach to the problem?

Dodson: For our research, Illumen Capital has partnered with Stanford University and the leading researchers in the world on implicit bias reduction to create interventions. There are lots of bias trainings but the field has had mixed results. Our differentiation is that we’re evidence-based. For our funds, we invest in private equity funds while applying our evidence-based training methodology to reduce fund managers’ implicit bias over the course of a 10-year holding period — a period long enough for changes to take hold, something about which I feel strongly.

Finally, for our impact experiences, we partner with Impact Experience, an organization that I co-founded with Jenna Nicholas, where we bring impact investors into marginalized communities for a three-day experience to increase “proximity” — a concept developed by Bryan Stevenson that addresses the fact that people often fail at helping communities because they haven’t spent enough time in those communities.

ImpactAlpha: Can you share an Impact Experience example?

Dodson: We took DBL Partners and Tesla (a company in their portfolio) to rural West Virginia to sit down with coal miners from Williamson, West Virginia. The group discussed what’s necessary to work together across politics, race and geography to create economic momentum in their local community. Impact Experience has organized and brought impact investors, thought-leaders and the communities together in West Virginia, Georgia, post-hurricane Houston and post-hurricane New Orleans. When impact investors return from an impact experience, they reflect on actual conversations with actual people that they’ve connected with on a human level. They’re then able to bring that insight back into their investment processes.

ImpactAlpha: Illumen Capital’s website refers to “systems change.” How do you think about systems change in your work?

Dodson: First, we also train our investors to reduce bias, which is something they can then apply across their entire portfolio. That is a systems strategy — one element of our systems strategy.

Second, we invest across sectors, which enables us to have a conversation about the person who interacts with a biased doctor in the health system, a biased teacher in the education system, a biased energy company that offers inequitable access and so on. If we don’t think about these things together, it’s like a balloon — we squeeze one area on financial inclusion and it pops out in education.

When we publish research in the future, we’ll be able to look at how bias works across systems, and how impact is stunted across systems, to see the cross-sector innovations that we want to take on.

ImpactAlpha: What is the future of impact metrics?

Dodson: The future of impact metrics is that women and people of color will be included in impact metrics — not as a measurement alone, but as a strategic and competitive advantage because they’re too often overlooked and underestimated in the search for talent and investments.

ImpactAlpha: What are your greatest hurdles and opportunities?

Dodson: Our obvious hurdle is that, when you talk to people with implicit bias who struggle to reduce their implicit bias, it’s hard to explain the value proposition of reducing implicit bias. It’s a Catch-22 in some ways.

One opportunity is that, as $59 trillion in capital shifts to a new generation, Illumen Capital is well-positioned to help rewrite the metrics of impact investing to include frameworks that will help managers reduce their bias and unlock their ability to see past gender and race to value.

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