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African American Owned Hedge Funds That You Must Know About
The asset management industry has traditionally been a bastion of white, male dominance, with only a handful of minorities making it to the top of the field. However, that is beginning to change, as a new crop of Minority-owned businesses and investment firms are making their mark on the investment management landscape.
Among them are African American-owned hedge funds, whose asset managers are bringing fresh perspectives and unique strategies to the investment industry. In this blog post, we will showcase ten of the top African American-owned hedge funds that you need to know about.
To consult with an expert on investment firms and hedge funds, reach out to William Huston, the chief investment officer at Bay Street Capital Holdings, a Black-owned investment firm. For guidance on the stock market, real estate and more, check out our team of experts here.
- A hedge fund derives its name from the institution's ability to minimize (or hedge) high risks in investments while making super high profits
- The type of hedge fund is closely linked to the institution's strategy which range from fund of funds and global macro strategies to risk parity and blockchain strategies
- A number of Black-led hedge funds are at the cutting edge of introducing these new strategies and are paving the way for a better future for the Black community
The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning, financial management, and real estate here. More on disclaimers here.
The survey is done. The numbers are in. And the facts are gut-wrenching.
Data from the U.S. Securities and Exchange Commission (SEC) revealed that African Americans own a mere 8.9% of hedge fund firms in the U.S.
Could it be a matter of qualification or a diversity issue?
Following the murder of George Floyd in 2020, many companies took time to reflect on why there are very few Black people in top positions in hedge fund firms and private equity firms. Many hedge fund companies and hedge fund investors vowed to be more diverse and work with more inclusive firms. Unfortunately, this is still not the case today.
Nevertheless, African American owned hedge funds are changing the narrative in the hedge fund industry with the motivation of leaving a Black legacy.
What Is a Hedge Fund?
A hedge fund is an active and often aggressively managed fund that pools investor finances to invest and earn supernormal profits.
A hedge fund derives its name from the institution's ability to minimize - hedge - high risks in investments while making super high profits.
Regulations aren't as strict on hedge funds, unlike other funds such as ETFs, Mutual funds, or private equity firms, hence, the high-risk investments techniques, such as short sales, money lock-up, derivatives, and leveraging.
While the law doesn't mandate the funds to register under the Securities Act of 1933 and the Investment Company Act of 1940, it limits access to accredited investors, such as high net worth investors and institutional investors.
Furthermore, these institutions and the portfolio managers fall under several statutes:
- The Commodity Futures Trading Commission
- The 1922 Commodity Exchange Act
- Dodd-Frank Wall Street Reform Act of 2010
- Financial Stability Oversight Council
These institutions manage assets worth millions, with the latest numbers showing the total assets under management (AUM) hit a record-breaking $4 trillion in 2022. Hedge fund managers usually receive an annual management fee of 2% of the fund's net asset value and a management fee, which is usually set at 20% of the net asset value's yearly increase.
Hedge Fund Types and Strategies
Hedge funds usually utilize a number of strategies to earn profits for accredited investors. While each hedge fund is unique, they use similar techniques.
Generally, these strategies can be categorized into:
This strategy exploits market long/ short inconsistencies, movements, and trends when choosing the ideal stocks for investing.
A portfolio manager analyzes the directional moves of the market as the expectation is usually that the trend will continue or reverse for a certain duration. With information on the trends, market movements and inconsistencies, hedge fund managers are able to gain a broader market perspective that enables them to choose ideal investment options.
This strategy involves a hedge fund firm purchasing the debts, mostly senior debts of businesses that have filed for bankruptcy or are in financial jeopardy.
In most cases, the portfolio manager uses this strategy when the economy is healthy, and there are numerous corporate activities, such as mergers, acquisitions, consolidations, liquidations and recapitalizations.
Fund of Funds Strategies
It involves investing in other types of funds instead of securities such as stocks and bonds. As the name suggests, this fund's portfolio consists of a collection of portfolios of various funds.
Global Macro Strategies
This investment strategy relies on various nations' prevailing political and economic climate. Portfolio managers act on insights from macroeconomics analysis and how they affect commodities, equities, currencies, and interest rates.
The manager will settle in the asset class best suited for their investors based on global trends like interest rates, economic cycles and currencies.
This strategy exploits the mispricing of related or similar securities or benchmarks. The portfolio manager relies on analysis to identify undervalued and overvalued assets and purchase or dispose of them accordingly.
The manager takes a short position in the overvalued asset and a long position in the undervalued asset expecting them to return to their fundamental value
Relative Value Arbitrage Strategies
Relative value arbitrage strategies make use of the relative price differences between securities whose prices are predicted to either converge or diverge over a certain time period. Some strategies that fall under this main strategy include fixed income arbitrage, convertible arbitrage, equity market neutral positions, among others.
Risk Parity Strategies
This strategy is an excellent alternative to the traditional portfolio consisting of 60% stocks and 40% bonds or other fixed income. The stocks section of the conventional portfolio carries a 90% risk.
Risk parity equalizes this risk by investing more broadly and maximizing profits through financial leveraging.
Blockchain funds invest in buying and selling cryptocurrencies. Additionally, they deal in crypto securities, private equity, and venture capital for startups dealing with cryptocurrencies.
This investment area is young, with only $4 billion in assets under management as of 2022.
Responsibilities of African American-Owned Hedge Funds
Black-owned hedge funds not only have an active corporate role to play, but also social and financial responsibilities by virtue of being minority owned and serving underrepresented communities.
Their responsibilities go beyond making profits. Some positive contributions that they can make as Black-owned hedge firms include:
- Boosting diversity and inclusion in the industry by engaging more Black investors and also employing the millions of unemployed but qualified Black professionals and those from other minority groups.
- Managing more funds, being more prominent and significant. A Knight Foundation report indicated that minority-owned firms handle a meager 1.4% of assets under management. Black-owned hedge funds firms can work towards acquiring more assets to manage in order to take up more space in the hedge fund world.
- Investing in exceptional growth companies (EGC) led by founders in the BIPOC community that have the potential to make impressive returns but cannot do so.
- Driving the wheels of the economy by providing employment, investment, and other crucial opportunities to people in the BIPOC community.
- Corporate responsibility by giving to charitable organizations and nonprofits to benefit marginalized communities.
- Providing retirement security for people of color. Many investors start investing at a young age so that they can have enough funds to cushion them when they retire. Additionally, U.S pension schemes invest billions in hedge funds securing retirement for various workers, such as teachers, and firefighters, to name a few.
- Catering for education. Many Black people and young professionals may not have knowledge about hedge funds easily accessible to them. Since these firms have both theoretical and practical experience, they can be a great source of education foundations, endowments, and scholarships made possible by the billions educational institutions invest in.
Top African American-Owned Hedge Funds and Asset Management Firms
Advent Capital Management, LLC
Founded in 1995 by Tracy V. Maitland, the New York based firm has a unique bottom-up technique with a mission to preserve and grow their clients' capital.
With over $9 billion in assets under management in 2022, Advent Capital offers traditional strategies, alternative strategies and closed-end fund to its institutional investors and private clients when it comes to investment management..
The firm is also a signatory to the UN Principles for Responsible Investment (UNPRI) and supporter of the Task Force on Climate-Related Financial Disclosures (TCFD).
With approximately $16.1 billion in assets under management in 2022, Ariel Investments was founded by John W. Rogers, Jr. and is America's largest Black-owned asset management firm. It has attained this immense wealth and presence through its nine separate account strategies and five mutual funds since its inception in 1983.
The firm is 94.9% owned by employees and board members and 82.5% minority owned. The firm champions for diversity, equity and inclusion and continues to serve its community by making financial literacy a priority.
Attucks Asset Management, LLC
Attucks Asset Management is an entrepreneurial and minority-owned firm whose mission is to discover and engage emerging managers and develop customized solutions that deliver great returns.
The firm was founded in 2001 by Les Bond, and is headquartered in Chicago. The firm manages investor portfolios and allows institutional investors to invest with minority and women-owned and emerging investment managers in a risk-controlled environment.
In 2022, the firm has $4.5 billion in assets under management.
BLK Capital Management Corp
BLK Capital is a 100% African American-owned non-profit hedge fund. The firm was founded by three students from Harvard and Princeton University in 2017 with an aim of changing the culture within the financial services industry.
The fund aims to change the scene in the financial sector by educating black students on the numerous investment possibilities. The fund even has a scholarship program, The Onuoha Fellowship to cater to African-American high school seniors who portray academic excellence, leadership qualities, and a passion to change the world with groundbreaking entrepreneurial ideas.
Brown Capital Management
Founded in 1983 by Eddie Brown, Brown Capital is one of the oldest African American-owned asset management companies in the U.S.
In 2022, the firm had approximately $10.6 billion in assets under management, split between separately managed accounts and mutual funds. Brown Capital, which is 100% employee-owned, seeks and invests in exceptional growth companies (EGC) with the potential for impressive returns.
Channing Capital Management
Channing Capital is headquartered in Chicago and the firm serves institutional investors. Founded in 2003 by Rodney B. Herenton and Wendell E. Mackey, CFA the firm is among the nation's largest Black-owned hedge funds. In 2022, it has approximately $3.2 billion in assets under management.
In July 2021, the firm hit a milestone after launching its first publicly traded mutual fund, the Channing Intrinsic Value Small-Cap Fund (Ticker: OWLLX). The mutual fund boosts institutional and retail investors' access to the firm's small-cap strategy and strengthens its presence in the asset management and investment sector.
Earnest Partners is a fund that has more than $20+ billion of assets under management. Founded in 1998 by Paul Viera, the firm is headquartered in Atlanta, Georgia and is an independent and employee-owned company.
They use equity, fixed income and structured investment strategies with the aim of preserving their investor's capital and offering them great returns.
Piedmont Investment Advisors
Based in Atlanta, Piedmont Investment Advisory was founded in 1989 by William C. Brookshire to provide investors with long term capital growth while limiting the risk of loss. They do this by careful selection of investment opportunities and active asset allocation. They invest the portfolios in a combination of long equity positions, short equity positions, bonds, and cash equivalents based on the current market environment and the account objectives.
The company provides portfolio management services for individuals, foundations, retirement plans and an investment partnership.
StoneRidge PMG Advisors
StoneRidge Advisors is among the largest minority-owned prominent minority-owned fixed income investment management firms in the U.S.
It focuses on an active fixed-income portfolio to its institutional clients including public funds, pension plans, Taft-Hartley plans, endowments & foundations and a combination of top-down and bottom-up investment approaches.
In 2022, the firm has $1.4 billion in assets under management.
Vista Equity Partners
Founded in 2000 by Robert F. Smith, Vista Equity has since accumulated more than $94 billion in assets under management.
The firm has acquired those assets by investing exclusively in enterprise software and several IPOs over its lifetime. Its operational guiding principles are empowerment, excellence, and evolution.
The presence of more Black-owned and minority-owned hedge funds is vital in the hedge fund industry to ensure that marginalized communities are also well represented.
There's still a long way to go and so as an investor, choosing to work with a Black-owned or minority-owned hedge fund goes a long way in increasing diversity in the hedge fund industry.
Bay Street Capital Holdings
Bay Street Capital Holdings is an independent investment advisory, wealth management, and financial planning firm headquartered in Palo Alto, CA. They manage portfolios with the goal of maintaining and increasing total assets and income with a high priority on managing total risk and volatility. Although many advisors may focus on maximizing returns, they place a higher priority on managing total risk and volatility.
Our founder, William Huston founded Bay Street after 13 years of supporting the United States' largest retirement plan ($650B) Thrift Savings Plan. He is recognized as Investopedia’s Top 100 Financial Advisors for 2021. In California, only two black-owned firms out of nineteen firms received this recognition.
In Scottsdale Arizona, Ekenna Anya-Gafu CFP, AAMS is recognized among the Best Financial Advisors for his responsiveness, friendliness, helpfulness, and detail. Bay Street was founded to advocate for diverse and emerging fund managers and entrepreneurs. In 2021, Bay Street was selected as a finalist out of over 900 firms across the US in the category of Asset Manager for Corporate Social Responsibility (CSR).