How equity in finance could massively shift capital for a stronger economy

In an interview by Motley Fool Live, recorded July 13Daryn Dodson, Managing Director of Illumen Capital, discusses some of the key barriers to equity that exist in the current investing space and how impact investing is helping to break down and break down these barriers.

Daryn Dodson: If we look at issues of justice and the fact that most of the world is made up of women and people of color, and if we look at the wealth management business, which is 98.7% white males, we see tremendous opportunity, in people that are clearly being overlooked and underappreciated in the leadership of the financial services industry, and the wealth management business in particular, to drive that prosperity and optimality that we hope to see.

In fact, our research with Stanford University has allowed us to examine, among other things, that we secretly tested 180 wealth allocators managing more than $4 trillion in capital. We tested them to see if they would rate high-performing black-led funds and high-performing white-led funds differently using exactly the same criteria except for the CEO’s face.

What we found was that as we increased the performance of black-led funds, the bias increased and less principal and less interest was paid to high-performing black-led managers. The better they did, the more biases they looked at. When we combine this research with the 1.3% women and black people in the wealth management business, we have to ask what is actually going on [laughs] that these high-performing managers would be systematically and consistently overlooked if they outperformed.

That could very well be one of the reasons they’re isolated in this very small percentage of the wealth management business. As we work with managers, executives, and wealth managers to reduce their implicit biases that would erode their clients’ returns and their own returns, there’s a chance that there could be a massive shift of capital to where it should be optimal in the ecosystem outperform and support the overall growth of the economy, world economy, US economy, etc.