00:00 Hi, I'm Allie Jackson Jolly. I'm here with Darren Dodson, who is CEO of Illumine Capital.
00:10 Darren, welcome and thanks for being here with us.
00:13 It's great to be here.
00:14 Yeah. So you reached out to me because there was some new research you did around the growing
00:23 gap in wealth management as it relates to race. Could you talk me through some of those
00:30 facts that you think we should know?
00:32 Sure. To start out with, Illumine Capital is a private equity venture capital and growth
00:40 fund of funds. So we conducted research with Stanford Spark Center. And what we did is
00:47 we looked at the 1.4 percent of $82 trillion in the asset management business that women
00:55 and people of color use in terms of the firms that they have, which we thought was quite
01:02 low. So one of the things that we did is we tested 180 asset allocators for bias. And
01:11 what we found is that they were more likely to leave money on the table than invest in
01:18 high performing black led funds when A/B tested against white led funds. So that was a striking
01:24 finding because that means that they're underestimated and overlooked entrepreneurs throughout the
01:31 ecosystem, as well as fund managers that are not getting the capital consistent with their
01:37 performance.
01:38 And when in that research, did you drill down any? Were there any findings or lessons that
01:44 we could learn about exactly how race was impacting decisions on investment or like
01:52 what it was specifically about perceptions about, you know, the managers that felt like
02:02 they weren't good, you know, people to invest in?
02:05 Well, the most striking finding was the higher that black managers performed, the more bias
02:12 they faced, which created an issue for those that are fiduciaries that manage the largest
02:19 pools of capital in the world, such as sovereign wealth funds or pension funds. And it sort
02:27 of called the question of whether or not they're meeting their obligations under their fiduciary
02:32 duty by not looking at managers of color as a potential for outperformance of their larger
02:42 portfolio.
02:43 Because if these managers were outperforming and facing more and more bias, less likely
02:48 to be selected, then that's a problem for the broader financial markets to really look
02:54 more deeply into.
02:57 And so what I mean, it's like the question of the day, right? What can be done? We know
03:02 that implicit and sometimes overt bias is a very real issue in this country. It's one
03:11 that we haven't fully grappled with or addressed. So so what can be done to find out that bias
03:19 to to try and push those numbers beyond that one point four, which is you're right, appallingly
03:25 low. What are your suggestions?
03:27 Well, one of the things that we can do is look at the example of Illumine Capital. So
03:34 Illumine Capital was actually built by myself and my colleagues to create an investment
03:41 platform that interrupts these biases through partnerships with our managers. And we look
03:47 at bias within the hiring, promotion and retention of talent processes. One one area. Then we
03:54 look at a second area within the selection of investments. And the third area that we
03:59 look at is in the board construction of the companies we invest in and and and control.
04:07 So we want to make sure that these different biases don't creep into these decision making
04:12 processes. So as an investor in private equity and venture and growth funds, we work very
04:18 closely with these managers to improve across their platforms.
04:22 Hmm. Yeah. But I guess what I mean is I'm curious, like, what does that training look
04:28 like if somebody has a innate bias around what a good manager is and isn't and race
04:38 is coming into play? How do you like is there a different scale that you're asking people
04:43 to look at? What exactly are the tools that you're helping to provide to make people address
04:50 what could be racism? Well, thanks for the question. One of the
04:54 things that we do in terms of an intervention and it's a 10 year process for our managers.
05:00 So this is a time intensive process that we focus on largely because we think there's
05:07 a lot of value on the other side. But one example of one exercise might be to look at
05:13 the questions that the manager asked to ensure that they're consistent across men and women
05:19 and women and people of color and and white men. What we see in terms of evaluative processes
05:28 is that the questions what we see across evaluative processes is that the questions actually change
05:37 when women or people of color are being evaluated versus white men. We see the questions are
05:44 a lot more opportunistic on the white male evaluation side, whereas on the women and
05:50 people of color side, they're very downside oriented. And as human beings and social psychology,
05:58 we often answer questions the way that they're asked and that impacts the way that we answer
06:04 them. But the assumption that something should be downside oriented because it's a woman
06:09 and a person of color is not a good assumption for comparing consistently across investments.
06:16 We see a lot better results when things are compared effectively and apples to apples.
06:24 So what makes you optimistic? You obviously have a rather large hill to climb in terms
06:32 of flattening out this bias. But what can I ask you? Is there anything that makes you
06:37 optimistic that you think that this gap you're able to close this gap? Eventually, this gap
06:44 will get closed. Well, you know, one of the things that Nelson Mandela said from prison
06:51 about when he knew he might be free again was when there was blood in the streets. He
06:58 thought that the grasp of apartheid was so strong and so in fear of losing control that
07:09 they would do drastic things to keep power in place. So when I look at George Floyd in
07:15 that moment of the country killing this unarmed black man or this policeman perpetrating that
07:27 type of violence, one of the things that makes me in a way optimistic is that those that
07:35 are preventing the flows of capital to women and people of color are desperately trying
07:41 to do it against their own financial interest and returns. I think that in some sense that
07:48 overt part of it is very pronounced right now as there's pushback against DEI and other
07:55 aspects of advancement in society. But in this case, fiduciary duty and stewarding the
08:05 beneficiaries of pension plans and sovereign wealth plans is very much in the interest
08:10 of not only the beneficiaries but those managing capital. So I think that many of the studies
08:17 that we look at within this area of social psychology, there's a prejudice test. And
08:22 oftentimes people that are neutral on the prejudice test, in other words, they would
08:28 not be determined to be racist, are on the bias test very, very positive that they won't
08:35 invest in women and people of color even if given the exact same high-performing information
08:41 of white men. So part of this is deeply psychological. And what gives me hope is that people are
08:48 willing to examine their own biases like many of our investors, investors like the Ford
08:54 Foundation and the California Wellness Foundation and other large endowments are willing to
09:00 examine their biases and look at their entire pools of capital and find and create new pathways
09:07 to capital to help enhance their overall returns.
09:10 Yeah, and so we're almost out of time, but I have a final question for you, and that
09:15 is you mentioned your training program has a horizon of a decade, of 10 years. Do you
09:21 think, is that the time frame by which you think if, you know, those who would like to
09:30 work to flatten bias or those who realize that they're leaving money on the table, the
09:35 ROI is, you know, would be better if they thought about it differently. Do you think
09:39 in 10 years from now we may see a measurable difference? Might it be sooner? What's your
09:45 best guess on when we might see that 1.4% that's being invested in women of color, women
09:53 and people of color, when will that move a little bit?
09:57 Well one of the most exciting aspects of our business model is that those that invest in
10:03 us that manage in excess of $2 trillion in capital, when they begin to look at their
10:09 entire portfolios and take the learnings from Illumine Capital and apply them respectively,
10:15 that creates a massive shift that begins to chip away at this larger $82 trillion problem
10:25 in a significant way. So one of the things that gives me hope is looking at the portfolios
10:33 and the intentionality that many of our investors are investing with and going on a journey
10:39 with us on to examine how to use our learnings and insights and apply them to their respective
10:45 portfolios.
10:46 Alright, well I like it. We are out of time now. It's really important stuff so I look
10:53 forward to following the progress and keeping this conversation moving.
10:58 Terrific, it's great to be here.
11:01 Thank you.
11:01 Thank you.
11:03 [End of Audio]
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