Featured: The Reconstruction
Overcoming racial bias to optimize asset management for returns – and impact. Money managers at the world’s sovereign wealth and pension funds and university and foundation endowments seek to optimize portfolios to maximize returns while minimizing risk. One indication they’re failing: Firms owned by white men manage 98.7% of the $69 trillion in U.S. assets under management. Racial bias throughout the financial system reinforces structural bias in education, in healthcare, in solutions to environmental challenges. “Everyone loses when we have sub-optimal asset allocation and when we systematically push away the very people who are at the top of their craft or career only because of their race,” Illumen Capital’s Daryn Dodson tells Monique Aiken, host of The Reconstruction podcast on ImpactAlpha. Such bias also represents a breach of fiduciary duty, starving pensioners and institutions of returns. Systematically reducing bias in asset management, Dodson says, “can help bring our economy, our GDP, our global prosperity, to a much larger and more optimal goal.”
Illumen Capital last year raised an $85 million fund-of-funds that trains fund managers in the portfolio to root out implicit and explicit racial and gender biases (see, “Illumen Capital’s $85 million fund is combating fund manager biases to drive impact and alpha”). The fund aims to create a model of a system optimized to value people, “not only because of their race and gender, but the value that they can bring to marketplaces,” Dodson says. Such models are sorely needed. Research from Illumen and Stanford SPARQ found that racial bias in asset management, implicit or otherwise, is systematically excluding Black fund managers from securing allocations. The kicker: The bias is actually worse against high-performing fund managers. “It’s a very odd, but important finding,” Dodson says, that asset allocators undermine their own performance “through their inability to see past the race or the gender of the leader of a firm to the value that’s on the other side.”
Read on and listen to, “Overcoming racial bias to optimize asset management for returns – and impact,” the latest podcast from The Reconstruction on ImpactAlpha.
- The Reconstruction. ImpactAlpha’s podcast series, hosted by Monique Aiken, is chronicling the people and projects centering Blackness in the service of economic liberation for all. Catch up on conversations with Melissa Bradley, Rodney Foxworth, Carmen Rojas and other leaders of this reconstruction, on Spotify, Apple or Anchor.
- On the beat. Scan The Reconstruction’s landing page for podcast summaries and original coverage, including dealflow, features and Agents of Impact.
Dealflow: Follow the Money
Greenwood scores $40 million from top financial institutions to bank Black and Latino Americans. The Black-led fintech founded by former Atlanta mayor Andrew Young, rapper Michael ‘Killer Mike’ Render, and Bounce TV’s Ryan Glover will use the Series A financing to improve banking services for Black and Latino Americans. “Greenwood is better equipped than ever to provide equitable, best-in-class, full-banking services to Black and Latino individuals, families and businesses,” says Glover. Nearly 600,000 customers have signed up for Greenwood since October.
- Big bank backing. Truist Bank’s VC arm led the financing, with participation from Bank of America, PNC, JPMorgan Chase, Wells Fargo, Mastercard, Visa, SoftBank Group, Lightspeed Venture Partners and Panoramic Ventures’ Paul Judge (see, “Panoramic Ventures hunts for underserved founders in overlooked markets”).
- More.
Gender-lens fund WIC Capital backs Senegalese bakery. The Dakar-based fund is supporting the expansion of Les Ateliers de Corinne, a woman-led bakery that hosts cooking workshops. “Les Ateliers de Corinne has the potential to become a key food brand in Senegal and West Africa,” says WIC Capital’s Evelyne Dioh Simpa. By supporting such small and growing businesses, she said, “we will strengthen the African private sector, contributing to job creation, innovation and GDP growth.”
- Fund traction. WIC is backed by a local women’s investment club, which invests alongside institutional capital. FMO recently backed the fund (see, “Mapping the climate edge for gender investors – and vice versa”). Les Ateliers de Corinne is WIC Capital’s third investment.
- Check it out.
Dealflow overflow. Other investment news crossing our desks:
- Vertical farming company AeroFarms is planning to go public via a merger with Spring Valley Corp., a special purpose acquisition corporation, or SPAC. Kentucky-based AppHarvest, another controlled-climate agri-venture, went public via a SPAC in February (see, “Greenhouse venture AppHarvest will reach the Nasdaq before its tomatoes reach consumers“).
- U.K.-based Sugi, a green retail investing fintech, raised more than £406,000 ($560,000) on equity crowdfunding platform Crowdcube (see, “Retail investors demonstrate the power of the crowd“).
- Sunday II Sunday, which makes hair products for Black and Brown customers, closed a $4.2 million investment from Johnson & Johnson’s investment arm, Ignite Venture Studio and Symrise Inc.
Fund news. The latest on who’s raising.
- Gateway Capital Fund, a Black and woman-led investment fund, raised $6 million to invest in Milwaukee’s pre-revenue startups.
- Toronto-based real estate developer Dream reached a first close of C$136 million ($108 million) for its fund focusing on affordable housing, inclusive communities and resource efficiency in real estate.
Impact Voices: Pass the Mic
Georgia is throttling voters. The South’s financial system is doing the same to its entrepreneurs. As Georgia enacted new restrictions on voting last week, Calvert Impact Capital’s Beth Bafford laid out the parallels to the lack of financial access across the South. Bafford rolled up the Twitter thread into a post for ImpactAlpha. “Access to voting is a fundamental right in our democracy,” writes Bafford. “Access to quality, affordable financial services should be a fundamental right in our economy, too.” Much of the South, home to more than half of the U.S.’s Black population and more than a third of the Hispanic population, lacks access to financial products of every type: venture capital, banking, lending, and philanthropy. Georgia, for example, pulled in just $63 per person in venture capital funding in 2019 compared to $1,559 per person in Massachusetts. In Mississippi, total VC funding amounted to less than $8 million – the equivalent of a seed round in Silicon Valley. “We are leaving opportunity on the table,” says Bafford.
- Business starts. Southern states are among the nation’s leaders in new business creation. “These limited capital flows are not due to lack of ideas, innovation, or talent,” says Bafford. Community development financial institutions are helping meet the demand for capital. Bafford worked with 13 Southern CDFIs to create the Southern Opportunity and Resilience Fund, or SOAR, a “community recovery vehicle” that provides flexible, affordable capital and support to small businesses in Georgia and 14 other southern states.
- Civic mobilization. Georgia’s civic organizers have mobilized to “empower local communities, broaden access to resources and unleash the talent and creativity of people across the South to create a better future,” Bafford says. Efforts such as the Atlanta Wealth Building Initiative are building on that mobilization to organize around policies and systems to redress the city’s racial disparities.
- Keep reading, “Georgia is throttling voters. The South’s financial system is doing the same to its entrepreneurs,” by Beth Bafford on ImpactAlpha.
Getting on board. BlackRock and the Vanguard Group are among the 43 new asset managers signing onto the Net Zero Asset Managers Initiative, a pledge to reduce emissions across portfolios by 2030 and reach net-zero by 2050 or sooner.
Agents of Impact: Follow the Talent
Portfolio managers Chris Diaz, Ryan Myerberg and Colby Stilson, all ex- of Janus Capital Group, will head Brown Advisory’s new sustainable fixed-income strategy… FinDev Canada recruits Lori Kerr, ex- of the Inter-American Development Bank, as chief executive officer… Living Cities is searching for a CEO in Washington, D.C. or New York… Rocky Mountain Institute seeks a principal to support its global advocacy efforts to phase-out coal… CarbonPlan is looking for a software/data engineer… Ejido Verde, which supports land conservation and indigenous communities’ in Mexico, achieves B Corp-certification.
Thank you for your impact.
– Mar. 29, 2021
