By Dillon Iwu
Over the past four years, during what is often referred to as the George Floyd era, we witnessed a remarkable shift in the financial landscape. Investors from diverse backgrounds have significantly expanded their assets under management, resulting in increased funding opportunities for underrepresented founders and businesses. This transformative period has seen the rise of investment funds led by diverse teams, all committed to supporting a wide range of diverse businesses, with a particular focus on Black founders.
This positive trend follows nearly a decade of steady growth in the number of new investors, with a sixfold increase in diverse managers with assets of less than $100 million since 2014. Many of these newly minted investors have embarked on mission-driven journeys, leaving behind corporate roles or previous positions at investment firms to actively support the funding of Black founders and other underrepresented groups. Importantly, a growing number of individuals and organizations have recognized that investing in Black businesses not only aligns with social responsibility but also makes sound business sense, which could ultimately contribute to a significant boost in GDP.
While there have been some challenges along the way, such as economic fluctuations, inflation concerns and Federal Reserve actions to control inflation through interest rate adjustments, the commitment to improving diversity within the financial services industry remains steadfast. Private funds organizations, including venture capital and private equity firms, have stepped up their efforts to enhance diversity and inclusion. Initiatives targeting Historically Black Colleges and Universities (HBCUs) and students from diverse backgrounds have proven to be fertile grounds for recruiting and nurturing talent. As these emerging financial professionals assume roles as associates, analysts, fundraisers and scouts, the prospects for increased investments in Black founders are more promising than ever.
One noteworthy example of these efforts is AltFinance, generously funded by private equity firms such as Oaktree Capital, Ares Management, and Apollo. They have pledged over $90 million to create a talent pipeline from HBCUs nationwide into various financial services careers, including investment banking, private equity, venture capital, and more. Their work, along with the contributions of organizations like the American Investment Council and the National Association of Investment Companies, reflects a shared commitment to expose individuals from diverse backgrounds to opportunities in the finance sector.
To sustain and encourage this growing wave of diverse investments, effective public policies are needed. The Biden Administration and state governments should consider implementing incentives to support newcomers and seek the cooperation of existing investment businesses. Policies should be aimed at strengthening investments to bolster small businesses. One way in which the administration has made progress on this front is through the State Small Business Credit Initiative. Under the Treasury Department, the federal government works with states to get funding into small lending institutions and investment funds to support small businesses. On another front, you have state public pension plans and comptroller offices establishing set aside programs aimed at funding emerging and diverse investors. These initiatives demonstrate the tangible benefits of thoughtful public policies that strengthen the finance industry and should be expanded where possible to support the growth of small businesses.
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