Women and minorities are locked out of some of Wall Street's most lucrative positions, managing just 1.1 per cent of the US$71.4 trillion (NZ$104 trillion) of the industry's assets, according to a report.
The difficulty in attracting investments comes as firms with diverse leadership teams match, and sometimes exceed, the profits of their competitors, found the study commissioned by the John S. and James L. Knight Foundation and the Bella Research Group.
"This study, and our experience, confirm that there is no legitimate reason not to invest with diverse asset managers in the 21st century," said Alberto Ibargüen, president of the Knight Foundation, which has an endowment of more than US$2 billion (NZ$2.9 billion).
Wall Street has long fought its reputation as a place where women and minorities struggle to succeed. In the complex world of asset management, where firms are given billions of dollars to invest by pensions, endowments and wealthy investors, the disparity is particularly stark.
Only 5.2 per cent and 3.8 per cent of all mutual funds are owned by women and minorities, for example. The figures are similar in the hedge fund industry, where women and minorities manage less than 1 per cent of the industry's assets, the report found.
The industry's diversity has improved in recent years, but women and minorities remain woefully underrepresented, the study found.
Only one woman appeared on Institutional Investor's Alpha magazine's annual ranking of highest-paid managers last year. Leda Braga, who founded Systematica Investments in January 2015 and made US$60 million (NZ$87 million) in 2015, ranked 44th among the top 50 hedge fund managers listed by the magazine.
The highest-ranked managers made more than US$1b (NZ$1.4b) that year.
A recent report by Morningstar Research found that only 1 in 5 mutual funds has at least one manager who is a woman, a figure that has not improved since the global financial crisis of 2008.
The disparity is likely rooted in a perception that investing with women or minorities is riskier, officials say. When a company or university is looking to increase its diversity, it may reflexively hire an African American-owned firm for construction work but not to manage its money, said John Rogers, founder of Ariel Capital Management, the largest minority-run mutual fund firm in the US.
"Close your eyes and picture an investment banker and what comes back is a white male that looks like George Clooney," Rogers said.
This study, and experience, confirm there is no legitimate reason not to invest with diverse asset managers in the 21st century.
Women and minorities are also less likely to have the connections to raise enough money to start their own firms, industry officials said.
"People do business with people who they have built relationships with. People of color have had less opportunities to build these multigenerational relationships that lead to business opportunities," Rogers said. "Our community hasn't been as exposed to the financial services careers. ... We don't have the grandfather to leave us money and to talk about the stock market at the dinner table."
The lack of diversity contributes to women not receiving proper attention when investing money or planning for retirement, said Wall St veteran Sallie Krawcheck.
"The truth is that Wall Street has done a poor job for women forever. So much so that it calls women a niche market," said Krawcheck, who owns the Ellevate Network, a professional women's group. "We don't invest to the same extent that men do and Wall Street has been laser focused on its core client - a middle-aged male - and women have not been well served."
The Knight Foundation began looking into the issue in 2010 when its managers realized that just US$7m (NZ$10.1m) of its $2b, (NZ$2.9b) in assets were being managed by executives who were not white males, in this case an African American-owned private equity fund. "I was shocked," Martinez said.
The foundation has since moved about US$472m (NZ$686m) of its endowment, or 22 per cent of its assets, to firms owned by women and minorities.
"We made a conscious decision to change our approach - and we urge our colleagues to do the same," he said. "Our managers have performed very well. There is no discount associated with minority and women managers."