The Harvard Undergrad Fixing Finance

(Bloomberg Businessweek) -- One morning last June, Angel Onuoha took a train from Connecticut, where he was staying with a friend, to New York City. His summer internship at C.L. King & Associates Inc., a small investment bank, was his first real taste of the finance world outside the student financial clubs he’d joined as a Harvard freshman. It was also a reality check. After a month on the job, he says, he had yet to meet another black employee.

Onuoha knew that Wall Street lacked diversity, but on the train that morning he decided to do something about it. He remembered that his friend and fellow freshman Drew Tucker, whom he’d met through a campus organization for black men, was also interested in Wall Street—and that the two had discussed how the clubs did a poor job recruiting black students. So Onuoha texted Tucker with an idea: What if they started an investment fund that would give students hands-on experience and provide banks with a pool of talented black students to pull from?

Tucker, it turned out, had been pondering something similar. Within days the two began work on what would become BLK Capital Management Corp., a hedge fund that now has about 85 student members. They don’t manage a lot of money—so far, just $92,000—and they haven’t made any investments. But they’ve attracted funding from the likes of Goldman Sachs Group Inc. and JPMorgan Chase & Co. as part of an ambitious effort to reverse a dispiriting trend. For all the talk of increasing diversity on Wall Street, finance hasn’t welcomed people like Onuoha. According to a November report from the U.S. Government Accountability Office, the proportion of black financial managers was a paltry 6.3 percent in 2015, slightly fewer than when the government measured eight years earlier. “The lack of diversity is extraordinary,” says John Rogers, chief executive officer of Ariel Investments LLC, one of the largest black-owned money managers in the U.S. “People have not thought about this problem in creative ways. That’s why there’s been so little progress.”

Traditionally, banks recruit on college campuses to fill internships and entry-level jobs. But the finance clubs that produce top prospects can be exclusionary. For one group, Onuoha had to go through an application process that all but required him to have relevant experience: He had to complete a case study and sit through an interview that included probability analysis. For a lot of kids, those skills are hard to come by. Only 5,300 U.S. high schools offer an Advanced Placement course in macroeconomics. “That’s a great opportunity that black students tend to miss out on,” he says.

Onuoha favors button-down shirts and has a broad, inviting smile. He was born in Colorado and raised with two brothers and an adopted sister by his mother, Tina, who’d immigrated from Nigeria. Tina worked as a procurement manager, among other roles, for Hewlett-Packard Co. Money was tight. At one point, the five of them lived in a two-bedroom apartment in The Woodlands, a Houston suburb. Onuoha attended private school there thanks to financial aid. “My friends would always be going to the movies or going bowling, and I wouldn’t be able to partake in any of those activities because we didn’t have the money,” he says.

Back then, Onuoha didn’t know much about money, but he knew he wanted to make some. As a sophomore, he and a friend pooled $200 to start a sneaker-flipping business. On Saturdays, Onuoha would wake up early to scour online marketplaces for Air Jordans or Yeezys, which they’d then resell at a steep markup. With his profits, Onuoha increased his personal collection to 15 pairs worth about $3,000—that is, until the day his mom strode into his bedroom and chucked the shoes, declaring them frivolous. “Thousands of dollars down the drain,” he says. “It still doesn’t make sense.”

Onuoha moved on from sneakers, but he remained industrious. He applied to five Ivy League schools and was accepted to all of them. He wakes at 8 a.m. most days, the crack of dawn for an undergrad, to swim laps in Harvard’s pool. There are no posters on his dorm room walls because he doesn’t see the point—it’s only temporary housing, so why spend the money? Earlier this spring, he deleted social media apps from his phone so he’d have more time to read the Wall Street Journal.

BLK would have been founded earlier, but when Onuoha called legal services provider LegalZoom to find out how to start a company, he was told to wait until he was 18. The day after his birthday, on July 5, he started the paperwork process. To reach students beyond Harvard, he and Tucker brought on another friend, Menelik Graham, a Princeton student Tucker knew through a leadership program for students from low-income backgrounds. (Tucker will be a market specialist intern with Bloomberg LP this summer.) In November, the trio went to the Black Ivy League Business Conference to fill their ranks.

BLK is a nonprofit 501(c)(3), so any earnings are rolled back into the fund. This means that contributors—in addition to JPMorgan and Goldman, others include Point72 Asset Management, Bank of America, Bridgewater Associates, and Dodge & Cox—can write off the donations as charity. For the inexperienced student investors, $92,000 is a decent amount to handle, but for Wall Street firms their share barely registers as an expense. Earlier this year, Bank of America gave more money to the Civil Rights Institute Inland Southern California than all sponsors combined have given to BLK.

Still, the money provides the students with a pipeline to recruiters and an in-the-trenches financial education. Aside from a small leadership group, everyone in BLK is an equity analyst focusing on a different sector of the economy. When someone feels confident about a prospective investment, she submits a pitch to the executive board for vetting. Then Onuoha, the CEO, gets final say. Because he wanted the students to learn the fundamentals, he picked a simple long-short investing strategy. BLK takes a long position on stocks it thinks will appreciate, and short positions on equities it expects to lose value. BLK plans to invest in smaller firms that analysts cover less and therefore might be under- or overvalued, and returns will be judged using the Russell 2000 Index as a benchmark.

BLK got about 450 applicants; they accepted about one-fifth of them. Strangers messaged the co-founders on Instagram and Twitter asking to join. Serious candidates faced an intensive application process that included an interview and a case study that was adjusted for prior experience. BLK pulled heavily from the Ivies but also from schools such as Stanford and the University of Virginia. Being part of the fund takes commitment: Everyone in BLK is expected to join a two-hour conference call on Sundays. There’s also about five to seven hours of homework a week, which might include practicing, say, a discounted cash flow analysis.

On a mid-April afternoon in a wood-paneled meeting room at Harvard, eight club members gathered to discuss why they’d joined. They wore blazers and cardigans, with one sporting a Harvard Business School vest. (Asked if they normally dressed this nicely, the answer was a resounding no—Onuoha had asked them to do so.) Naomi Vickers, a freshman, said that when she joined one of Harvard’s finance clubs, she realized that out of more than 100 people at an intro meeting, she was the only black woman. It diminished her confidence: “I was like, OK, this is what I have to do. I’m going to learn finance. It’s OK if it’s a white world. I’ll get through it. Two weeks in, I’m like, I have no motivation to do this.” Now she’s BLK’s chief operating officer.

Recently, Steven Cohen’s Point72 signed a seven-year partnership with BLK. Point72 wants internship and job candidates “who generally have been historically underrepresented in our industry,” says Jonathan Jones, head of investment talent development. In the past, Point72 recruited almost exclusively from investment banks, which tend to be racially homogeneous. (The firm declined to disclose its employee diversity numbers.)

Point72 invited BLK members to its Manhattan office for an investment pitch competition in late April. Nine groups of students spent three hours trying to sell Point72 representatives on stocks they’d researched, such as Tractor Supply Co. and human resources service provider TriNet Group Inc. Afterward, the students sat quietly as a talent developer offered them feedback. The winners, three Harvard students who’d pitched the health-care cybersecurity company CynergisTek Inc., won new iPads. Onuoha says BLK will consider CynergisTek as a possible first investment, while Point72 will consider the winners for summer internships. That would be a big deal for any college student: Point72 accepts few undergrads for its investing internship every year.

The idea that you have to be a member of an Ivy League hedge fund just to get a look as a black student isn’t lost on Onuoha. “Obviously, it’s unfair,” he says. “That’s one of the biggest adds of our organization—to develop that preprofessional aspect.” It seems to be working. This summer, Onuoha will intern at Goldman.

To contact the editor responsible for this story: Bret Begun at bbegun@bloomberg.net

©2018 Bloomberg L.P.