Inside finance’s struggle to get diverse hiring right. Plus: A top investor explains the growth of private markets, grads are optimistic, and more

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Ivy Jack’s timing was ideal. When she was wrapping up at Spelman College, in the late 1990s, Morgan Stanley CEO Dick Fisher had made it a priority to diversify the firm’s talent pool. 

Jack received a scholarship from Morgan Stanley and was eventually hired as an investment banking analyst alongside two other women from Spelman, a historically Black college (HBCU). They were joined by three men from Morehouse College, also an HBCU.

Jack — who went on to lead a successful career in finance, including stints at Barclays Capital and a co-CIO role at Boston-based NorthStar Asset Management — says she is not sure why Morgan Stanley prioritized diverse recruitment when it did. Perhaps it had to do with the growing pool of research at the time that demonstrated the connection between diverse hiring and business performance, she suggests. 

But Morgan Stanley’s move at the time was a part of a larger, decades-long shift in the world of finance to correct its history of discrimination and bias — both in how it hires and how it works with customers. The work continues today, with signs of both progress and room for improvement across the industry. 

A recent LinkedIn analysis found that the financial services industry has seen an uptick in hiring from HBCUs over the past five years. Hiring in finance from these 112 schools was up each year from 2019 to 2022. 

What drove this increase in HBCU recruitment? The Black Lives Matter movement, spurred on by cases of police brutality including the 2020 murder of George Floyd, likely played a part, argues Denise A. Smith, deputy director of higher education policy and senior fellow at The Century Foundation. 

Nationwide outrage and protests pushed corporations across several industries, including finance, to double down on their commitment to diverse hiring, with several firms making public pledges to do better.

But this progress has been fragile. Finance hiring of HBCU grads declined in 2023, according to LinkedIn data. While finance recruitment decreased across the board in 2023, it was more pronounced among HBCU schools — with a drop of almost 34%, compared to the nearly 16% at all colleges. 

The Century Foundation’s Smith says there’s been a regression in diversity commitments across several industries in the past few years. Smith cites a “DEI backlash,” with some companies removing language around diverse hiring practices from annual reports and other corporate documents out of fear of legal and political fallout. Part of this about-face is related to a 2023 Supreme Court ruling that effectively put an end to race-conscious college admissions policies. While the decision only focused on college admissions, Smith says the ruling has had a chilling effect on diverse hiring practices.

Despite these headwinds, several financial firms have maintained their commitment to diversify their workforces and to recruiting from HBCUs. 

In October 2020, JPMorgan announced a $30 billion commitment to bridge the racial wealth divide, which included scholarship and career support programs in partnership with HBCUs. In 2019, Ally Financial launched an entrepreneurial pitch competition for HBCU students called Moguls in the Making with the Thurgood Marshall College Fund. And in its first five years, Ally hired 42 of the participants as interns and 12 as full-time employees. And Citi hosts a three-day incubator program where 50 HBCU freshmen are invited to the bank’s New York headquarters to attend career panels and financial workshops.    

Finding community, and camaraderie

Despite these financial commitments and support programs, the experience of applying to — and working at — these firms as a minority can feel isolating.

William (Tre) Clayton, who studied finance at Howard and graduated in 2016, remembers meeting with recruiters from prestigious financial institutions like Goldman Sachs and JPMorgan and feeling underestimated at the outset. He recalls how one firm “assumed [he] wouldn’t pass his exams” on the first try, whereas he says one fellow white candidate’s capabilities weren’t questioned. 

Clayton liked the idea of being part of the financial services industry and becoming financially independent. He says he hesitated about going into the industry, fearing that he wouldn’t fit in as a young Black person — especially at a bigger firm. His first job was at a smaller firm, and he says “there was diversity everywhere.” Clayton says he wasn’t sure if that would be the case at a big institution.

“My hesitations were not on my ability to execute or my ability to perform but more so my ability to fit in,” he says. “My only hesitation was how much of myself I had to kill off … in order to thrive in that atmosphere.”

Clayton, who now works as a VP of investment banking at Loop Capital in New York, says some of his earlier jobs after graduating college weren’t as welcoming. He was the only Black person at one of his internships, and he says there were some “growing pains” with “individuals not being very thoughtful.”

Within these large firms, finding a support system as a minority can go a long way. Ivy Jack bonded with the five other recent HBCU grads in her investment banking cohort at Morgan Stanley, forming their “own little community,” she says. They would turn to each other for help with finance-related questions, as well as cultural things like knowing the names of boarding schools where some of their coworkers had attended. And they had role models at the firm like Carla Harris and Marilyn Booker to look to as examples. 

Students are now looking for this kind of community when evaluating prospective post-grad employers, says Natalie Brown, who is a senior director of corporate citizenship at Ally Financial and an architect of its Moguls in the Making program. 

“Students are increasingly interested in learning about a company's culture and commitment to inclusion as they determine who they want to work for,” says Brown, who is a graduate of HBCU North Carolina A&T. “Today HBCU students have an array of options … certainly more than when I was a student. So, it is important that engagement with HBCU students is authentic and consistent.”

Cultural considerations steered Destiny Shaw into a finance career, but not at a bank. The Morgan State University graduate took an internship at Under Armour, and then joined the company’s finance department after graduating in 2018. 

“I have friends that went into the banking industry. And when I was trying to decide between retail and the banking industry, I didn’t get the sense that the banking industry was as focused on inclusion and belonging … just the general sense that it isn’t as much of a priority,” Shaw says. 

What it takes to hold on to diverse talent

Ivy Jack, who worked at Morgan Stanley and Barclays, says recruiting at big firms isn’t the biggest problem — it’s retention and supporting career advancement. 

“Most people I know, over the years, have gone on to these big firms to get experience but they don’t really stay, because the culture isn’t what they’re looking for,” Jack explains.

Some 87% of Black wealth advisors and financial professionals say they face challenges in the industry due to a lack of mentorship opportunities and consumer discrimination, among other factors, according to a 2018 survey from the Nationwide Retirement Institute and the American College of Financial Services.

The lack of mentorship and support has hampered Black professionals’ growth in the field. Only 2.6% of senior leaders in the financial services industry are Black, according to 2021 research from McKinsey & Company. At JPMorgan, the total number of Black employees has sat at around 14% for the past three years, with about 5% in the senior or executive level. 

To improve retention and position Black professionals for growth in finance, firms need to focus more on how they are building community and supporting career growth for these workers, according to Kristi Martin Rodriguez, a senior vice president at Nationwide Retirement Institute. 

“Mentorships, sponsorships, and affinity groups that may surround these younger professionals early on in their career can make a substantial difference,” she says.

“If you have no kind of balancing rails around retention, then you’re really going to miss the mark. And it’s just going to kind of be this endless cycle where you get people in the door, but they’re not necessarily taking the elevator to go up to the next level.”

The private markets — including private equity, private credit, real estate, infrastructure and more — have exploded in size over the past 15 years. To get a lay of the land, The Finance Files caught up with investor Sachin Khajuria, who’s also the author of Two and Twenty: How the Masters of Private Equity Always Win. Check out an excerpt from the conversation below, and add your own take in the comments section below.

As you look across the macro landscape, what are you watching most closely?

I think there are a few factors that everyone should keep an eye on, because they're kind of hiding in plain sight.

Number one — the length of time we've had higher rates is beginning to be quite significant. The consumer, which has really powered the economy for quite some time in the U.S., but also overseas, is starting to slowly see the cumulative impact of higher rates. Even if they have a fixed-rate mortgage, they're still sensitive to high inflation. This length of time is like a tightening vise on the consumer — it's slow, it's not sudden or acute, it's kind of chronic.

Being cognizant of that as you figure out where there are going to be trouble spots in the economy is really key. If consumers stop buying and then you start getting firms reducing headcount as a result, that cycle can spiral quite quickly.

Number two — I'm watching a real differentiation between the U.S. and most of the rest of the world. You have pockets of great activity, kind of golden spots, across the world economy. But there is quite a difference between what's happening in the U.S. and the rest of the world. There was so much liquidity put into the U.S. economy, there was so much deficit spending, that even though there are these higher rates, and even though there is inflation, things are still quite buoyant. There's still a lot of liquidity in the U.S. economy. If you look at the Fed balance sheet, if you look at the approach to quantitative tightening, it has not been that aggressive, in a way where they're taking out so much liquidity from the economy. And I don't think it's the same experience in Europe or elsewhere.

And number three — what is really a shift in how we model the cases for investment outcomes is there just seem to be so many exogenous events of one kind or another. You always paid attention to that downside case, but now the severe downside case gets a bit more attention too. Whether that's a geopolitical shock, an environmental event or something else, I'm paying more attention to that end of the band of outcomes.

What are the dynamics within private markets that stand out to you right now?

I think we're in a new phase right now in private markets, post-COVID. In the '70s, '80s, '90s, you had the development of the industry, and much of it was driven by private equity. In the 20-year period from the millennium to COVID, including the financial crisis, you saw periods of very low interest rates and significant world shocks that elicited huge monetary and fiscal stimulus. You often had periods of very accommodative financial conditions, where private equity really was able to flourish and it was often hard to differentiate between firms and between funds. It just seemed like a generally successful asset class.

Today, I see increasing dispersion in private equity. I see it being easier to differentiate between those firms that are able to consistently beat the public markets and those achieving the median. It's getting less and less true that private equity is one asset class in terms of performance. There are some real heavyweights emerging and outpacing the rest in this environment, because, for example, they can do very large transactions, or be very flexible with the capital.

Private credit has almost become bigger and more interesting than lots of different parts of private equity today. It's about a $2 trillion industry and rapidly growing, and it too is maturing.

In private credit, you have a few things going on. Number one — you have this overwhelming secular trend, this big tailwind, of the rise of non-bank lending. But as it's maturing in this phase, you're starting to find that the same competitive pressures that you saw — if you take the growth curve in the private equity industry — you're starting to see them in the private credit industry. A few years ago, I would talk about how the senior place in the capital structure is so interesting, you can earn 8-10%. And then you had this wave of money coming in within a year or two after that, such that today there’s a supply-demand imbalance where there’s less supply of credit versus demand for credit. And what that's doing is really tightening the terms. If you take the analogy of private equity, you would find that in auctions, terms get tightened, prices get higher and deals get cut at tighter and tighter terms. The same thing has been happening recently in private credit, and it's a function of this increasing, intensifying competition and so many firms raising enormous sums of money. I think they'll benefit in general from that secular trend I talked about, but there are pockets of the market today where, if you look at spreads, they're razor thin. And a lot of deals are getting done in private credit markets that would probably struggle in the public markets.

What's going to fix that supply-demand imbalance to a certain extent? You do see rising default rates — default rates are probably higher in private credit than they are in public credit. If the economy takes a turn for the south, or you have macro shocks, you're going to start to feel that in private credit. That will feed back to the first macro consideration we talked about, which is the increasing grip of higher rates and the lag effect of the Fed's monetary policy, which we’re only really starting to see.

What are the implications of those dynamics on talent in the private capital industry?

The industry has gotten much bigger — north of $12 trillion — and is really dominated by a handful of firms. Those firms have started to hire from places they wouldn't ordinarily hire. If you were a senior credit investment professional at a bank, let's say, 10 to 15 years ago, you wouldn't naturally think to go to a major private markets firm. Today, you would at least consider it, and those firms are starting to recruit from across Wall Street because they've evolved to such a scale and they're covering so much more of the credit market. So you're seeing that cross-pollination across Wall Street increase.

What that growth also means is that real specialist and technical expertise matter. The idea of being a generalist still exists, for example, at the senior level in private equity. But I think that the more and more buckets that firms consider for private markets investing, the more and more specialists they're going to need.

So, for people who are developing careers, it means that you no longer have one shot to get into private markets just in your 20s. If you're good at your job in another part of Wall Street, you can now look at private markets as a perfectly reasonable discussion to have with a number of firms.

I think what this also reflects is the acceptance — and the reality — that private markets are a fundamental part of not just Wall Street, but also the economy. That wasn't the case going back even 10 to 15 years ago.

78%

Oh, the places they’ll go! The CFA Institute’s recent Graduate Outlook Survey highlights the strength that the current financial market offers to graduate students in economic-growth fields.

In its survey of 10,000 finance students aged 18-25, it was revealed that while there was only a 58% confidence in career opportunities in 2021, currently over 78% of graduate candidates have positive outlooks after graduation.

Significantly, while 81% agree that degrees help access these goals, certificates and credentials in real-world experiences prove more important, with a 95% confirmation that “upskilling” would be a more beneficial tool in their career investment.

Artificial intelligence, notably, is top of mind. Learning and understanding AI and automated technologies has benefits that 97% of students believe will provide a path for their career prospects.

Additionally, 91% of students said they want to create positive social change or environmental contributions through their careers. That means they are seeking out employers with like-minded goals — 88% of students confirmed that their career decisions will be guided in part by firms’ ESG commitments.

The Tulsa Massacre, also known as the Tulsa Race Massacre, was a devastating event that took place from May 31 to June 1, 1921, in the Greenwood District of Tulsa, Oklahoma, a prosperous area known as "Black Wall Street." The violence erupted after a false accusation against a Black teenager led to a mob attacking the community. The mob looted and burned homes, businesses and churches, resulting in the deaths of over 300 African Americans and leaving thousands homeless. Local authorities did little to stop the violence, and the National Guard eventually intervened. The incident destroyed a vibrant economic hub for African Americans, leaving a lasting impact on the community and contributing to the systemic racial inequalities in the United States. Despite its significance, the event was largely omitted from history books and public discourse for decades.

In the latest column for Finance Chief Fridays, I spoke with Boston Consulting Group’s CFO Paul Tranter. 

Here’s a snippet of that conversation: 

🎙️ Are there any surprising similarities in working in the agribusiness sector and working as CFO of BCG?

Successful farmers always think about how to improve the outcomes of their business. That requires understanding the data, the unit economics, drivers of performance and a willingness to experiment successfully. That mindset and approach is an important ingredient for success in any business role. I still miss many elements of farming, particularly the fulfillment of seeing crops grow, but I definitely don’t miss getting up at 5 a.m. to milk the cows.

Find the full interview here.

I also recently chatted with Principal Financial Group CFO Deanna Strable-Soethout. Here’s an excerpt from that convo.

🎙️ What’s the most challenging part of your role?

I would say it's the constant need to adapt to changing market conditions and regulatory environments and to balance short-term and long-term results. The financial industry is ever-evolving, presenting new challenges and opportunities. Staying ahead requires agility, foresight and a deep understanding of technological advancements, macroeconomic trends and industry-specific dynamics. It's a balancing act but one that keeps me engaged and motivated each day.

To read the full interview, check it out here. 

And I spoke with Jennifer Ryu, CFO of consulting firm RGP. Here’s what she had to say.

🎙 What is your biggest piece of advice for a first-time CFO of a public company?

CFOs tend to have visibility across all facets of the business. They are in the unique position to connect the dots between how all the business functions can come together to successfully execute a business strategy, and those can be powerful insights for the business. CFOs of public companies need to be especially adept at maintaining a broad perspective, connecting the numbers to the strategy and becoming good storytellers.

Check out the full convo here.

Financial firms are doing more to recruit from HBCUs. What can be done to retain this talent?

Join the conversation in the comments below.

Lastly, check out the latest Finance Chief Fridays. This Friday, we’ll be joined by Adobe CFO Dan Durn. Don’t miss it.