Two veteran wholesalers who raised tens of billions of dollars for Vanguard and BlackRock left the giant investment firms for their own technology platform connecting financial advisors and other asset allocators with funds and strategies owned by women and minorities.
Devon Drew started
Currently, companies owned by women and minorities manage just 1.4% of that AUM and make up only 12.2% of asset managers, according to a December 2021
That's where DFD will come in to work on the one side with the underrepresented managers through a tiered subscription fee and on the other with advisors, wealth management firms, asset managers or other intermediaries accessing the software, according to Little and Drew. DFD is in talks with some of the largest wirehouses about starting pilot programs, according to Drew. He pointed out that the sheer size and resources of giants such as BlackRock, Vanguard and State Street pose high barriers to entry.
"If you're a smaller, diverse manager, how in the heck do you cut through the noise and punch above your weight class if those are the companies you're going up against?" he said. Wealth managers face challenges from the country's changing demographics that could hurt them in the long run, too. "Large institutions are losing business because, quite frankly, they don't represent the values, the morals and the culture of the end client," Drew said.
Advisor Alex Chalekian of Pasadena, California-based Lake Avenue Financial has created a profile on DFD, which he described as similar to some social media platforms in the way that users' data introduces them to each other. For example, advisors can use the software to search for funds owned by Black women, which isn't possible through many research sources that simply list managers' names without any disclosure of the companies' demographics.
"This platform is totally data-driven, which allows the advisors and the asset managers to unlock a lot of different connections," Chalekian said in an interview. "I'm able to put those prompts in and specifically be connected with them and, in essence, support those asset managers and look more deeply into what they provide."
The Knight Foundation team, led by Chief Financial Officer Juan Martinez, has been leading the way in boosting the diversity of its asset managers over the past decade. While the organization is a nonprofit research foundation rather than a financial firm, it also invests its assets and lists the
In 2010, only about $7 million out of accounts spanning more than $2 billion went to women or minority-owned investment firms, according to Martinez. Now, $1.07 billion out of Knight's total $3 billion is managed by funds owned by underrepresented groups. In portfolios across foundations and other nonprofit charities, diverse managers handle $1 out of every $6, which is significantly higher than the average ratio of $1 for every $100.
Organizations that "can leverage research expertise, that are able to identify value-added managers, are using these firms at a higher rate," Martinez said in an interview.
"Efficient markets require information," he said. "To the extent that information is available, I think you can get more efficient markets and people can make broader and better decisions."
About 25 asset managers with a combined $800 billion in assets under management are working with DFD, according to Drew and Little. The firms include
Little met Chalekian while running BlackRock's Los Angeles wholesaling division, and he spent the last half dozen years out of his 16 in the industry as a director at the world's largest asset manager. Drew's industry tenure includes time as an advisor with Merrill Lynch, as well as time with J.P. Morgan Chase and American Century Investments. He had been a senior executive at Vanguard, where he worked with advisors on distribution of the firm's ETFs and other mutual funds. Between them, they have raised more than a combined $50 billion over their careers.
The so-called great wealth transfer will lead to the transition of more than $84 trillion in inheritances and charitable donations over the next 25 years,
"The face and profile of wealth is changing," he said. "Purpose is going to be a decision made over profits."
