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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is an associate professor of finance at the University of Central Florida
In most industries, pay gaps between white men and everyone else are well documented. In the US, women earn roughly 80 cents for every dollar earned by men, according to Pew Research. Black workers earn even less.
But finance and asset management industry, in particular, is supposed to be different. In theory, fund managers live and die by numbers that anyone can see: returns, risk, assets under management. If you perform, money flows in. If you don’t, investors leave. On the surface, industry incentives should reduce bias.
That, however, is contradicted by some research carried out by a team including John Bai, LinLin Ma, Aisulu Munkina, Yuehua Tang and myself. Using confidential earnings records from the US Census Bureau matched to decades of fund performance data, we studied who gets paid, and who gets pushed out, among thousands of mutual fund portfolio managers.
If any profession should purely reward skill, this is it. It doesn’t. Female portfolio managers earn about 25 per cent less than comparable white men. Minority managers earn roughly 26 per cent less. The steepest penalty falls on minority women, who earn more than 60 per cent less than their white male peers.
The disparities don’t stop at pay. Women are nearly 20 per cent more likely to be fired. Minority managers are about one-third more likely to be forced out. And when women lose their jobs, they are 40 per cent less likely to be rehired into another portfolio-management role. In other words: lower pay, shorter careers, fewer second chances.
Perhaps those gaps reflect differences in performance. Maybe white male managers simply deliver better results. But they don’t. Risk-adjusted returns and investor flows are statistically indistinguishable across race and gender. Female and minority managers generate the same alpha — the degree of investment returns above the market trend — and manage funds of similar size. In some cases, minority managers even attract more investor capital.
What about qualifications? Maybe education or credentials explain it. Not even close. Women in general appear to have similar academic attainment as men. And minority managers are more credentialled. They’re more likely to have attended elite universities, more likely to hold MBAs or advanced degrees, and often enter the asset management industry earlier, suggesting deeper specialisation.
If weaker performance and fewer credentials do not explain these gaps, what does? One clue comes from who runs these firms. We gathered data on the ownership of advisory firms that employ these managers. Where ownership is overwhelmingly white and male, the pay and firing gaps are largest. Where leadership is more diverse, the gaps shrink. For example, a 10 per cent increase in female ownership reduces the likelihood that a female manager is forced out by 7.5 per cent. Firms with more diverse leadership show smaller disparities in both compensation and turnover. That pattern is hard to reconcile with pure meritocracy. And our findings challenge a common assumption in finance: If markets reward performance and punish inefficiency, discrimination and bias should be reduced. But even in one of the most performance-driven corners of the economy, it doesn’t.
That matters beyond questions of fairness. Asset managers oversee trillions of dollars that shape which companies grow, which technologies get funded and how retirement savings compound. If talented managers are underpaid, sidelined or pushed out for reasons unrelated to performance, capital isn’t being allocated to the best decision makers. That’s not just inequitable. In asset management, it’s also a returns problem. Every time a high-performing manager is overlooked or forced out, firms are effectively leaving money on the table.
The encouraging part is that the disparities aren’t inevitable. Firms with more diverse ownership and leadership show smaller gaps in pay and turnover. For boards and investors, that suggests a playbook: track compensation and promotion by demographic group, tie leadership accountability to retention and pay equity, and broaden who holds decision-making power. These aren’t diversity “initiatives”. They’re governance tools to ensure firms are rewarding skill.
In finance, people like to believe markets correct everything and diversity programmes have recently come under attack. But our evidence suggests that even on Wall Street, merit needs a little help.
