Originals | October 2, 2020

Illumen Capital’s $85 million fund is combating fund manager biases to drive impact and alpha

Dennis Price
ImpactAlpha Editor

Dennis Price

ImpactAlpha, Oct. 2 – Reduced bias. Increased performance. More impact.

That’s the timely thesis of Illumen Capital, the impact investment fund-of-funds led by Daryn Dodson that this week closed on its $85 million first fund. 

Anchoring the fund are Ford Foundation, W.K. Kellogg Foundation, Weingart Foundation and Deutsche Bank. At least five family offices also backed the fund, including 4S Bay Partners in Chicago and HRK Investments in Saint Paul, MN. Illumen already has selected nine impact investment funds that are targeting equitable outcomes in education and health technology, financial inclusion and sustainable energy. 

Illumen’s strategy: Train fund managers in its portfolio to root out implicit, not to mention explicit, racial and gender biases and thereby increase returns by optimizing drivers of value, including investment opportunities, hiring and board selection. 

The required training, over a 10-year period, helps both white fund managers and managers of color correct for biases that cause managers to overlook talented entrepreneurs and misallocate capital. 

More than most industries, asset management has failed to achieve diversity in leadership and ownership. Firms owned by women and minorities manage just 1.3% of assets in the $69 trillion asset management industry. Research last year from Illumen and Stanford SPARQ’s Jennifer Eberhardt showed that Black, male fund managers faced greater levels of bias the better their performance. 


Impact investing hasn’t escaped such bias, says Dodson, previously a consultant to the board of the Calvert Funds. 

“Within the impact investing ecosystem, one of the huge drags on our ability to redefine finance and asset management within the world is the underestimation and overlooking of women and people of color,” he says, including in investments, hiring and portfolio companies’ board selection strategies. 

One of Illumen’s goals, says Dodson: “Make impact investing deliver on its promise.”

Power levers 

Investment firms responded to the police killings of George Floyd, Breonna Taylor and other Black Americans, along with this year’s protests, with a wave of statements, if little action.

In contrast, says Dodson, who sits on the board of Ben & Jerry’s, “Our investors have stepped off the sidelines and taken a stance with their money,” says Dodson. 

Illumen pushes beyond diversity and inclusion initiatives that focus on junior level employees or a few portfolio companies. Partners sit on boards. They make reporting rules for their portfolio companies. They often have significant financial control in the companies they invest in.


“Partners of firms have power,” says Dodson. “What differentiates us is that we work with our managers to walk the walk and execute within their organizations and we do that in a way that recognizes the power analysis within the system that we’re in.”

“They have the ability to substantially move the needle,” he says.

The fund of funds structure allows Dodson to take on a systemic problem at a systemic level. Rather than anti-bias training, Illumen focuses on increasing representation of women and people of color in key levers of power within the fund. That is, in hiring, promoting and retaining talent, in selection of investments, and in board selection of portfolio companies. 

Another Illumen strategy, Impact Experiences, an organization Dodson co-founded, provides on-site and virtual experiences for managers and limited partners to gain context around slavery, lynching, mass incarceration and “how the asset management business came to be so segregated,” says Dodson.

The group has partnered with local organizations in Montgomery, Alabama, for example, to highlight the historical challenges faced by Black entrepreneurs that continue to today. The experiences, says Dodson, “helps people understand the context in which Black entrepreneurs are working to achieve outsized returns and have an impact and be recognized for the humanity and brilliance they bring to the marketplace.”

For Illumen, returns and impact depend on rooting out bias. A legally-binding side letter articulates the bias reduction commitments each manager makes over the life of the investment. 

Correcting the racial and gender imbalance in asset management will ultimately mean shifting roughly $35 trillion in assets to firms by women and people of color. Says Dodson, “Our goal is to never stop reducing bias – to increase returns and impact – until that’s achieved.”