Surge

The private capital industry’s lack of diversity poses significant challenges, particularly for firms led by Black or Hispanic founders. Analyzing data from various sources spanning 2000 to 2021, researchers found these minority-owned funds initially raise only 25% of their target amounts, compared to 50% for white-owned counterparts. While successful, they attract slightly more subsequent capital than non-minority funds. However, underperformance hits them much harder—nearly three times more than white-owned funds.

Investigating potential reasons, the researchers ruled out overvaluation, staffing issues, or limited investment opportunities. Instead, racial biases appear to play a significant role. Notably, investments in minority-owned funds surge after high-profile police violence incidents, indicating heightened racial sensitivity. Additionally, the arrival of a minority chief investment officer at a local public pension fund significantly increases the likelihood of investment in diverse funds and their ability to raise larger funds.