A fintech startup founded by ex-Vanguard and BlackRock veterans is opening its platform to help recently launched asset managers gain scale and boost diversity in the industry.
The new collaboration announced earlier this month by DFD Partners, a software firm connecting financial advisors and other gatekeepers with funds owned by women and minority managers, and a nonprofit called The Center of Innovation for Diversity, Equity and Inclusion in Finance will give three investment firms access to DFD’s platform for a year at no fee, DFD co-founder Devon Drew said in an interview. Members of the networking and educational group can apply through the organization’s website until Feb. 15 to tap into roughly 2,000 registered investment advisors, 30,000 family offices and 38,000 institutional allocators already using DFD’s technology to identify fund families and products.
Advisors play a pivotal role in asset management through their fund recommendations. In contrast with asset managers who select the stocks, bonds or other securities within a given fund or portfolio, intermediaries like advisors pick which products are the best fit for clients. Firms with female, Black, Hispanic, Asian American or other minority owners currently control just 1.4% of the industry’s assets under management, according to a December 2021 study by the John S. and James L. Knight Foundation. Experts point out substantial barriers that cause many startup funds to fail and make it difficult for founders to navigate due diligence processes that often require a certain level of assets to get in front of allocators in the first place.
DFD founders Bilal Little and Devon Drew are working with The Center to provide “greater transparency by demystifying the diligence process,” Drew said. “For a lot of these managers, they probably have a sour taste in their mouths from going through diligence after diligence with nothing really happening. That’s a common experience. The frustrating part is just not hearing the feedback.”
The Center has reached more than 1,000 members among “asset owners, asset managers, public and private institution trustees, financial services providers, investment consultants, academics and regulators championing the importance of inclusion in the financial services industry,” according to its website.
It started “as an informal conversation” in 2020 that has developed into programs including discussions among experts, research and resources for emerging funds in the industry, said board member Rodney Herenton, the founder of Channing Capital Management. His firm has grown to $3.3 billion in assets under management after launching with just $70 million in 2003.
“It’s a platform that really allows you access to capital and access to allocators,” Herenton said in an interview about DFD and the share of women and minority-owned asset managers in the industry. “We hope to see the needle of that low percentage go up, and we’ll be tracking it.”
That struggle is playing out for many startup asset managers competing against the giants of the industry. Adasina Social Capital has proven more successful than many startups after founders Rachel Robasciotti and Maya Philipson launched their firm in 2020. Roughly two years after the inception of the firm’s largest product, the Social Justice All Cap Global ETF, it has reached about $115 million in AUM, Robasciotti said in an interview.
An existing base of investors at Robasciotti and Philipson’s former wealth management practice and an approach of “speaking to the communities that we intend to impact” pushed the fund over the closely watched $100-million milestone in August, she noted. Robasciotti is “really impressed with” what DFD has built, she said, noting that Adasina is a client.
She called the low percentage of women and minority asset managers in the industry “kind of unbelievable” in 2023 and credited DFD for “blowing open a hole in that wall” for up-and-coming managers. “We need some drastic measures, and I’m excited about their technology doing something to get the people who want diverse managers access to those managers,” Robasciotti said.
Technology carries a great deal of potential for startup managers, according to Liz Fritz, the co-founder of fintech consultancy F2 Strategy.
“The human side and behavioral components of wealth management are more important than ever — and I feel like women and Black, Hispanic, Asian Americans and other minorities have a very differentiated strength in this area,” Fritz said in an email. “Technology will allow them the time to hone their value propositions, streamline their internal processes (allowing them more time) and provide accessible platforms like social media, podcasts, etc. to create a wider spread of their differentiated messages.”
DFD’s collaboration with The Center could aid the newer managers seeking to expand the investments to their funds through resources like lead generation, marketing and other tech tools, according to Drew.
The DFD team and members of The Center will go through the managers’ answers to a questionnaire that’s similar to the industry’s so-called requests for information or requests for proposals to pick candidates. The judges will evaluate “the commercial viability of the manager, how they fit within a broader ecosystem” and other factors, such as potential barriers they face and the level of seed capital sought by the funds, Drew said. At the end of the year of free services, the managers can decide whether to become full-fledged DFD clients.
“The end goal would be to scale the AUM,” Drew said. “We know that, in order to get to that end goal, there’s a lot that has to happen between A and Z.”