Want to close the generational wealth gap? Invest in minority-owned private-equity firms.

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In the private equity industry, the need to have money to make money acts as a filter that lets through only those who come from wealthy families or have relationships with wealthy friends who are willing to take a chance on them. That filter blocks young Black and Brown professionals who want to start a firm, and who are less likely to have either moneyed friends or family, from even getting a foot in the door.

It’s tempting to say that pensions, endowments and investment consultants should do better at hiring diverse money managers, and it’s true—but that alone won’t level the playing field. The reality is that they have a fiduciary responsibility to protect their investors’ money, and they will not bring in more diverse but less experienced fund managers at the risk of their investments.

But what can happen is for government entities, such as states and cities, to carve out more funds for minority financial services entrepreneurs to launch and scale their private equity ventures. If lack of a track record is what’s holding entrepreneurs back, that’s something we can fix.

Providing entrepreneurs with capital to invest will help them establish the track record of success they need to raise equity from institutions, pension funds, endowments and investment consultants, growing their assets under management—thereby unlocking access to even greater capital. Equity is very much like a snowball: If we can give capable entrepreneurs a bit to start with, they can nudge it along and make it grow.

Some funds like this already exist. The Illinois Growth & Innovation Fund seeds minority-owned venture capital firms while earning returns for the state, creating jobs and furthering development in the state that ultimately attracts more private sector dollars. It’s a win-win model that needs to be scaled and duplicated around the country. And there are firms like Ariel Alternatives that are using these investments to strategically invest in minority businesses that serve as suppliers of choice to Fortune 500 companies.

I’ve known many minority entrepreneurs and independent sponsors who had good models, great instincts and excellent judgment but lacked the wealthy family members to close an equity gap on a good deal. Every time, I can imagine all the positive downstream effects that won’t happen. The community organization that was instrumental in the entrepreneur’s life when she was a kid won’t get that big check from her five years down the road. The small minority-owned businesses the entrepreneur was going to invest in back in her community won’t be hiring as many people—or perhaps won’t even exist. She won’t be able to hire the capable Black and Brown talent who may have been overlooked by larger private equity firms or investment banks.

It’s not enough to say that we need to do more to close the gap when we continually kick the can down the road to the next generation. The ripple effect and opportunity costs to our society are too costly. We have the power—and the capital—to make real, sustainable change right here and right now.

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