Megan Tobias Neely, a Postdoctoral Fellow at the Clayman Institute for Gender Research at Stanford University, tries to find the reason as to why firms run by white men manage 97 percent of hedge fund assets­—a $3.55 trillion industry. Based on her work, Megan believes the answer lies in a system of patronage organizing the industry. There is a very strong mentorship environment in the hedge fund industry. One generation teaches the next generation who teaches the next generation as there’s a strong sense of loyalty, there’s a strong sense of kinship and family. Megan also says that patrimonialism has widespread impacts that extend beyond Wall Street and into Washington – Ben Bernanke/Alan Greenspan after completing their Federal Reserve stint consulted hedge funds.
Megan says patrimonialism warrants closer examination as elite networks—whether in finance, technology, or government—impact public policy and generate systemic inequality on a broad scale. We need to better understand what can be done to change this system of inequality, and what is at stake if we don’t.
“I’m sorry, but so and so’s brother needed to get hired. Shit happens,” Karen recounted, with resignation, a time her boss denied her a promotion. Karen is a white woman who works at a hedge fund, a private financial firm. She continued, “When there’s big money, greed, power, people protect their own. And sometimes it’s the guy in the parish, the guy in the corner [office], the guy in the whatever.”
Karen’s account provides insight into why firms run by white men manage 97 percent of hedge fund assets­—a $3.55 trillion industry. Moreover, she sheds light on why these elite men have amassed riches. Indeed, I find that gender and racial inequality provide a key to explaining why hedge funds drive the divide between the rich and the rest. Since 1980, U.S. income inequality has skyrocketed, in part due to mushrooming pay in financial services. Hedge fund managers are well represented among the “1 percent” with average pay of $2.4 million. Even entry-level positions earn on average $372,000. ($390,000 is the threshold for the top 1 percent of families.)
Yet, the “winners” of widening inequality—at hedge funds and among top earners overall—are mostly white men. Why is this lucrative industry a bastion of white-male power and privilege? From 2013 until 2017, I interviewed and observed people who worked at hedge funds. I find the answers lie in a system of patronage organizing the industry. In a recent article, I show how patronage allows a select group of men to groom and transfer capital to one another.
Patronage on wall street
In the 1900s, Max Weber defined a patrimonial system of authority as based on trust, loyalty, and tradition. He observed as a new capitalist elite replaced patriarchal monarchies during the Industrial Revolution. Weber predicted that bureaucracy would replace patrimonialism as the organizing fabric of capitalism.
Julia Adams later specified how a patrimonial leader rules “paternally” as a symbolic father. This patriarchal system legitimizes the monopoly of power and resources among men. Does patronage exist on Wall Street today? I find that patronage entrenches inequality at hedge funds. Men identify, groom, and seed future generations of financial elites—usually other men. Gender, race, and class status shape whom they deem to be trustworthy and loyal………..
Jay recognized family-like mentorship as the way to gain the know-how of the industry.
“As you get older, wiser, more experienced, you seek somebody who reminds you of you, who has that same ambition, that same passion, that same drive.” Jay said, “And you teach them all that you know.” I realized the younger men I observed with Jay were his mentees. When I asked, he said, “Yes!”
“How did you build these relationships?” I asked.
“As you start climbing the totem pole, if you will, you start looking for people like yourself.” Jay said, “It’s this organic process whereby you see people that have the same mentality, the same passion. It’s very tough to explain from a data perspective; quantitatively, how do you quantify that? You just see it. You kind of feel it. It’s organic.”
This patrimonial system of white male privilege is not only self-sustaining. It speeds up over time, as the beneficiaries concentrate their power and resources by investing in protégés.
A revolving door
Patrimonialism has widespread impacts that extend beyond Wall Street and into Washington. First, hedge funds have collapsed markets and currencies. George Soros “broke the Bank of England” by short-selling the British pound. The Hollywood hit “The Big Short” exposed how hedge funds profited from the greatest stock market crash in recent history. Second, a “revolving door” exists between Wall Street and Washington. Former male politicians with ties to Goldman Sachs alone, include Treasury Secretary Henry Paulson, Head of the Securities and Exchange Commission Arthur Levitt, House Majority Leader Dick Gephardt, and White House Chief Strategist Stephen Bannon……………….
Patrimonialism warrants closer examination. Elite networks—whether in finance, technology, or government—impact public policy and generate systemic inequality on a broad scale. We need to better understand what can be done to change this system of inequality, and what is at stake if we don’t.”

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