Diversity and Inclusion
Work and Organizations

Who is hedged in and hedged out in the elite world of finance


In an industry dominated by white men, a narrative of trust, loyalty, and even a workplace family keeps opportunities limited to a select few, with women and racial minorities often “hedged out,” according to research presented by Megan Tobias Neely at a recent Celebrating Clayman Institute Authors event. Neely is an associate professor in the Department of Organization at Copenhagen Business School and a former postdoctoral fellow at the Clayman Institute. She is also coauthor of the book Divested: Inequality in the Age of Finance.

In her recent book, Hedged Out: Inequality and Insecurity on Wall Street, Neely focuses on the hedge fund industry, in which a private investment fund pools sums from multiple institutions and individuals to invest in the market. The numbers are staggering. Entry level salaries at hedge funds average $680,000, and globally, about 10,000 firms manage $4 trillion in assets. In a recent year, one hedge fund manager made $3 billion. Within this powerful industry, hedge funds run exclusively by white men at the executive or partner level manage 97 percent of the industry’s investments. She noted the rise of another type of inequality – the U.S. wealth gap, which began to grow rapidly with a move to deregulate Wall Street in the 1980s. Two central questions emerged for Neely: Why are the wealthy elites a bastion of power and privilege for white men? How do gender, race, and social class bolster this reality? 

"In financial services where risk is really high, trust is a powerful currency. And we also know that people are more likely to trust people like themselves with respect to race, class, and gender.”

From 2007-2010, Neely worked in the finance industry herself. When she began her dissertation research in 2013, she returned to the industry as a scholar. She collected data from interviews and field observations at professional events and workplaces, oversampling to create a group that is more diverse than the industry overall, so that enough women and racially minorities were represented.

Given the volatility of market investing and the large assets at stake, hedge fund employees have high motivation to protect their interests. “What is perhaps unexpected is how they build communities to do this,” she said. While one might think such employees stay focused on numbers and results, Neely found they talk about being a family, mentoring, investing in one another, and sharing opportunities and resources. “We wouldn’t expect this of elites,” she said, “and they emphasized how trust and loyalty were key in building this community and protecting themselves from risk and uncertainty.”

"In financial services where risk is really high, trust is a powerful currency,” she said. “And we also know that people are more likely to trust people like themselves with respect to race, class, and gender.” These insiders become bonded to each other, often describing their colleagues as families or fraternities.

Viewed another way, industry insiders create boundaries that favor their exclusive group, often composed of others similar in race, class, and gender, and hoard the best opportunities for that group, creating a cycle of higher reward and promotion over time. “This hedging in and hedging out created and sustained a system of inequality,” she said.

Two other features of hedge funds further lead to inequality: the division of labor and structures of accountability. A distinct difference between “front and back office” often places men in positions to more directly reap the rewards of investing, while women are more likely to be recruited for client services or support roles, even when they have market expertise. White men also are often tapped for “general” investment roles, which tend to the U.S. and Europe, while ethnic minorities may be paired with markets that match their background, such as emerging markets in Asia, thus associating them with higher risk investing. Regarding structure, Neely noted the emphasis of funds on their flat or anti-bureaucratic organizational models, which they touted as important to innovation and flexibility. Looked at another way, the lack of formality or human resources oversight gives managers considerable discretion for hiring, firing, and funding individuals, with a risk of breeding favoritism, exclusion, and even authoritarianism. 

At the author event, Neely spoke in conversation with Theresa Iker, a doctoral candidate in U.S. history and recent Clayman Institute graduate dissertation fellow, whose research focuses on men’s rights and the rise of the far right movement. Iker’s questions opened a conversation about masculinity in the industry. Neely found in interviews a ready acknowledgement of gender inequality, but noted that notions of racial disparities were hotly contested as antithetical to the meritocratic ideals of hedge funds. She theorized that gender difference could be explained away by such ideas as women taking time for motherhood, while racial difference had no easy justification.

Further, she found mention of higher compensation for men because they are fathers with families to support, though no such rationale seemed to accompany discussion of women’s compensation. Regarding an audience question about the coexistence of masculinity and competition, Neely recalled descriptions of fierce competition among traders as “bonding rituals” rife with military metaphors. While those interviewed appeared to value an equal playing field, many loaded comments about personality and aggression clearly disadvantaged women and racial minorities. In an intense environment with an emphasis on trust, she observed, “Gender, race, and social class status influence who is deemed trustworthy, loyal, and knowledgeable.”