Picture two financial firms in Manhattan. One is a massive investment bank with tens of thousands of employees, public shareholders, diversity programs, and stacks of disclosure paperwork. The other is a hedge fund tucked into a few floors of a skyscraper, run by a handful of partners who trust each other implicitly and answer to almost no one. Both manage enormous sums of money. But do they hire and promote people the same way?
A team of sociologists at the University of Lausanne set out to answer that question, and their findings, published in The Sociological Review, suggest that the rise of finance over the past four decades has not simply modernized who gets to the top. Instead, a specific kind of firm structure has quietly become a stronghold for a very traditional kind of elite: white men from upper-class backgrounds.
The question behind the research
Fabien Foureault, Lena Ajdacic, and Felix Bühlmann wanted to understand how “financialization” (the growing dominance of finance in the economy since the 1980s) has shaped who holds power at the top of the industry. There were two competing stories in the academic literature. One held that as finance became more technical and bureaucratic, old-boy networks would fade and hiring would become more meritocratic. The other argued the opposite: that new kinds of financial firms had revived the importance of personal loyalty, social background, and trust among insiders.
To test these ideas, the researchers focused on the legal structure of financial firms. Traditional public corporations, with their shareholders, boards, regulators, and formal HR procedures, tend to operate by impersonal rules. The authors treat these as examples of bureaucracy. On the other side sit what they call “hybrid” firms: limited liability companies (LLCs) and limited partnerships (LPs). These structures offer liability protection like a corporation but avoid heavy public disclosure requirements and often operate as tight networks of partners. The authors describe these hybrid firms as “neo-patrimonial,” borrowing a term for organizations that run on trust, loyalty, and personal ties rather than formal rules.
Mapping the legal skeleton of finance
The first step was to see where each type of firm had taken root. Using the Orbis database, the researchers pulled records on nearly 40,000 American financial firms, narrowed the sample to 5,447 firms active between 1980 and 2018, and sorted them into four subsectors: banks, asset managers, private equity firms, and hedge funds. They then checked whether each firm was a public corporation or a hybrid form.
The contrast was stark. Among hedge funds founded during that window, 92% were organized as hybrid firms. For private equity, the figure was 76%. Asset management was more mixed at 29%. Banks, by contrast, were almost entirely traditional corporations: only 2% used the hybrid form. And the share of hybrid firms in hedge funds, private equity, and asset management has been climbing steadily since about 1990. In other words, finance is not becoming one kind of institution. It is splitting into two.
Who founds these firms?
Next, the team zoomed in on the people running the most powerful firms. They built a sample of 806 founders, directors, and top managers at the 40 largest American firms in investment banking, asset management, private equity, and hedge funds as of 2018. For each person they coded gender, race (using US Census categories based on photographs), and social class, measured by whether the individual had attended an Ivy League university. They also collected data on MBAs, PhDs, business or science degrees, and memberships in elite networks like the Council on Foreign Relations.
Of the 63 people who founded these top firms between 1975 and 2006, 97% were white men. Nearly 60% had Ivy League degrees, compared with 46% of managers at hybrid firms and only 37% at public firms. Many founders had previously worked together at the same bank, often in the same department, before striking out to build their own shops. Using logistic regression models that controlled for education and network memberships, the researchers found that being male raised the probability of being a founder by about seven percentage points, and being white raised it by about five points, compared with other top finance professionals.
Who gets promoted today?
The researchers then asked whether these patterns persist in the current generation of leaders. They compared executives at hybrid firms with those at public corporations. After accounting for education and network memberships, men, white individuals, and Ivy League graduates each had about an 11 percentage point higher chance of sitting at the top of a hybrid firm than a public one.
The authors describe a chain of events to explain this. In hybrid firms, there are fewer formal rules, less public scrutiny, and less regulatory oversight. In that setting, hiring and promotion lean more on personal trust. Because investors, partners, and potential hires tend to extend trust more readily to people who resemble them socially, attributes like being white, male, or holding an Ivy League degree function as informal credentials. Public corporations, with their formal procedures and disclosure rules, appear to blunt this dynamic somewhat, though they hardly eliminate it.
What it means for business
For business leaders, investors, and anyone tracking diversity in finance, the study offers a few takeaways. Diversity efforts focused only on large public banks may miss a big part of the picture, since the fastest-growing, highest-paying corners of finance (hedge funds and private equity) operate under different rules and are less transparent. The legal structure of a firm, often treated as a technicality, turns out to be linked to who ends up in charge.
A few caveats are worth noting. The research is correlational, not experimental, so it cannot prove that hybrid structures directly cause elite reproduction. Ivy League attendance is an imperfect proxy for upper-class background. And the sample focuses on the 40 largest US firms, so smaller or newer entrants may behave differently. Still, the overall picture the authors describe is one in which finance has not fully shed its old patterns. It has reorganized them.
