Historically, Black-owned investment firms have faced systemic racism and a host of structural barriers that hinder their chances of success. But it seems like the tide may be turning.
The resilience of Black-owned businesses has stood the test of a global socioeconomic crisis. Despite being among the hardest hit by the pandemic, the number of Black-owned businesses was 28% higher in the last quarter of 2021 than pre-pandemic—a trend that is set to continue with the support of forward-thinking investors.
And that’s not the only reason there’s a humbling and optimistic atmosphere at Bay Street Capital Holdings. The team is seeing the fruits of their labor pay off, starting 2023 on a high note with a new advising relationship with a like-minded single family office. This places Bay Street into the top 10 largest black-owned investment firms with assets totaling over $480 million.
While this is great news for the team, and a testament to their patience, unfortunately, it’s an exception rather than the norm in the investment industry.
Let’s take a look at the history.
African American people have played a crucial role in the finance sector since the nineteenth century. In 1874, the activist and abolitionist Frederick Douglass became the president of Freedman’s Bank — the first African-American bank — shortly before it closed due to mismanagement by its white board of directors.
Throughout the twentieth century, Black pioneers continued working to break down barriers in the finance industry — like Maggie Lena Walker, who became the first African American woman to charter a US bank in 1903, or June Middleton, who in 1964 became the first Black female stockbroker to be employed by a member of the New York Stock Exchange.
But while a handful of Black finance leaders have managed to find success in the sector, Black investors have historically faced significant challenges. The investment industry is rife with unconscious bias and structural barriers that Black investors must overcome in order to succeed and grow.
The first and most obvious is that many aspiring Black investors lack the capital resources that others may have access to, as roughly 20% of African Americans are born into poverty, compared to just 8% of white and Asian people.
The average first-time entrepreneur raises $10,000-$150,000 in the ‘friends and family’ funding round—the first step necessary to get your business in front of venture capitalists. But how can you raise that kind of money if your friends and family lack excess wealth to invest in you?
Even if a lucky few manage to make it to the pitching stage, they’re faced with other hurdles. For example, most VCs are risk-averse and prefer to back what they consider safer bets — usually, white male-owned startups and businesses — so it’s more difficult for Black-owned investment firms to get funding.
Unfortunately, the old adage “it’s not what you know, it’s who you know” still rings as true today as ever. While most successful founders tap into the existing white-dominant investment networks to get their business off the ground, these very networks crowd out and systematically discriminate against African American founders. This limits the number of opportunities available to them and impacts their ability to attract clients and secure investments.
Plus, with the investment industry traditionally dominated by white males, Black founders can find their pitches fall on deaf ears. White investors don’t share their experiences, perspectives or pain points, so it can be hard to convince them that the problem really exists — and that the proposed solution is needed.
Despite these challenges, it is possible to succeed as a Black-owned investment firm — as a few trailblazers are proving. These companies are not only doing outstanding work, they’re also paving the way for the next generation of Black investors and financial advisors while fighting a legacy of systemic racism that has historically made investing inaccessible for people of color.
Take Ariel Investments, for example. Founded in 1983 by John W. Rogers Jr., it was the first Black-owned mutual fund company on Wall Street. Since then, it has weathered the markets and grown to manage $15 billion in assets, inspiring other Black investors along the way. The firm focuses on funding minority-owned businesses so they can set up and scale while providing financial literacy education for people of color.
In 2021, Ariel Investments launched Project Black, a fund that aims to close the racial wealth gap by investing in middle-market businesses that are not currently minority-owned and transforming them into minority business enterprises.
Another example of a Black investor success story is Brown Capital Management, one of America’s most established asset management companies, which was also founded in 1983 by Eddie Brown.
Raised by his laborer grandparents in Florida in the 1940s before moving to Philadelphia, Brown’s rags-to-riches story has made him one of Wall Street’s most successful African American financial advisors and inspired a generation of Black investors.
While barriers to entry still exist for aspiring African American investors, these successful firms prove that it is possible to succeed as a Black investor.
Not only does investing in Black-owned firms help close the racial wealth gap — it also makes good business sense for investors, who reap the profits from diverse businesses that outperform their peers.