The Alternative Investment Management Association, in conjunction with Ernst & Young, has prepared a paper on inclusion and diversity in the hedge fund industry. The paper begins fittingly with a quotation from Eileen Murray, co-CEO of Bridgewater Associates, who says: “We are fortunate today that people understand that companies do better when there’s diversity of thought, it creates innovation and creativity and, given the world we live in and how quick paced technology change things, you need people who can think more creatively and innovatively. The world is coming together to not only celebrate diversity but to understand its competitive advantage.”
The quote is fitting because Murray is an example of the success that can come for (and from) those who enter the hedge fund industry from unexpected directions. Murray grew up in a housing project in upper Manhattan. Her neighbors there included survivors of the Holocaust and refugees from Cuba.
From Murray’s thought the report proceeds to some “rough numbers.” A visitor looking about in the office of an “imaginary average hedge fund firm” will see that 80% of the workers are men. If they are looking specifically at the senior management team, that number will be 90%. Fewer than 10% of hedge funds were founded by a member of an ethnic minority, and firms that were so founded remain the smallest in terms of assets under management.
These numbers change if one looks granularly at specific functions or regions. For example, roughly half of an average firm’s investor relations or marketing teams are likely to be women. Also, although the representation of women in senior staff is 12% in the United States, it is 18% in Hong Kong.
What are the Barriers?
There are a lot of barriers to greater inclusiveness. These start with the talent pool from which hedge funds recruit: largely investment banks and the STEM faculties, or recent STEM graduates of universities. Investment banks “have their own struggles” trying to attain diversity, so recruiting from them is a bad start. As for universities as teachers of sciences, technology, engineering, and mathematics, the STEM numbers too are male-dominated. And fewer than 1% of the doctorates awarded in mathematics by US universities are awarded to African-Americans.
If hedge funds are to receive the benefits that might come from having a greater number of Eileen Murrays in the mix, how should recruitment change?
Hire a Team: Recruit for the Team
The paper has some suggestions. First, rethink the point of recruitment. Managers might want to think about hiring a team, rather than hiring individuals and turning them into a team. And the managers can start the process of hiring a new team by recruiting … a pen and a blank piece of paper. They can list with these low-tech gadgets what they want the new team to do. Then, what skills will the team need to accomplish those goals. With the aid of these lists, they can start looking for people who can play roles within that team.
Then there is the matter of the talent pool for recruitment. A firm might want to tell its recruiters (whether they are internal or third-party firms) that they want to get beyond the sell-side and academic networks. They want to use social media and non-specialist recruitment websites.
Further, there is a growing trend whereby names and addresses are removed from applications or resumes before they are analyzed in connection with the firm’s needs. Names are usually gendered and often carry ethnic overtones. Addresses likewise, can be “tony” or not: they can be urban, suburban, or rural; they come with baggage. Unconscious bias can be removed as they are deleted. The AIMA/EY report suggests going further and removing the name of the credentialing academic institution too.
The interview process is something else that might bear a fresh look. The report suggests that the traditional “unstructured interview” is part of the problem, not the solution. A “relatively open conversation between” job seeker and a firm executive can work as a search for a cultural fit but prioritizing cultural fit invites homogeneity. A structured interview, in which each interviewee is asked the same questions, is more to the point, and can lead to the inclusion of beneficial misfits.
A Final Observation
“Firms may … wish to ensure that any external events at which they speak accommodate diversity, for instance by ensuring that they offer accessibility for those with disabilities, or that the speaker panels are diverse. Some firms also choose to push for superior D&I performance at their portfolio companies. One interviewee told us that while their firm is too small – and hires too infrequently — to have a robust internal D&I initiative, it nonetheless pushes for better D&I at the companies in which it invests.”