The unsinkable Mellody Hobson

As the markets plunged in response to the Sept. 15 news that Lehman Brothers was filing for Chapter 11 bankruptcy and that Merrill Lynch (MER) had been sold to Bank of America (BAC), Hobson, the president of the $7-billion-in-assets mutual fund company, was in her element. She speed-dialed panicky clients to assure them that all was not lost and came across the airwaves as the voice of reason on Good Morning America, Nightline, and World News Tonight.

Hobson, a regular on Good Morning America with her pal Diane Sawyer, wants to teach America about investing.Photograph by Ida Mae Astute/ABC

“It was a bloodbath. It was financial Armageddon. But sit tight,” she said repeatedly. “You know that quote ‘In a crisis, don’t just stand there, do something’? This time I’m saying, ‘Don’t just do something, stand there.’ Don’t sell into this market!”

In a world gripped by fear, Hobson’s words are a welcome tonic. A master networker, she has become one of the most recognizable names in financial services, often sought out by the media to help inform – and these days calm – investors.

Her advice is applicable, she says, to anyone from a single mom trying to get ahead to the investors in Ariel’s funds to even the glitterati, with whom she mingles. Hobson, 39, is close friends with Diane Sawyer, who one day spotted her picture in a magazine and saw, as the co-anchor of Good Morning America puts it, “something in her eyes.” Before long Sawyer had invited her to go on the air. Hobson is dating director George Lucas – although she won’t talk about how they met – has hung out with singer Ciara, throws fundraisers for Barack Obama, and sits on the boards of DreamWorks Animation SKG (DWA), Estée Lauder (EL), and Starbucks (SBUX), as well as nonprofits such as the Chicago Public Library and the Field Museum.

Hobson with (from left) boyfriend George Lucas, Harrison Ford and Calista Flockhart.Photograph by Kristian Dowling — Getty Images for Paramount

A woman who has struggled – she grew up with a single mom in inner-city Chicago – Hobson has cultivated the connections and the savvy to make it big in the white-male-dominated world of investing. “Of all the people I’ve met over the years,” says Howard Schultz, CEO of Starbucks, “I put her in a select few that are professionally so strong and personally without fault.”

At the same time, Hobson has ambitions that go far beyond the world of net asset value. She is on a quest to improve financial literacy for everyone — particularly minorities, who are, according to an annual study conducted by Ariel and Charles Schwab (SCHW) that Hobson initiated, significantly underinvested in the stock market. “I’m trying to make the stock market a subject of dinner-table conversation in the black community,” she says.

Hobson is clearly driven by her experience as a woman who understands what it means to be poor. Yet she is also cognizant of her role as a glamorous personification of what it means to succeed. She has used both financial and emotional intelligence, along with a daunting – if a bit obsessive – work ethic to become the kind of person who moves effortlessly among different industry, racial, and class settings.

Hobson is exhibit A of the kind of people whom author Malcolm Gladwell has dubbed “connectors” — someone who can find common ground with anyone from her pension fund clients to an assembly of first-graders to fans at a Formula One race (where she cheers on Lewis Hamilton, the first black racer) to the A-listers alongside her on the red carpet in Cannes. She is both down-to-earth and a celebrity role model, a kind of financial Dr. Phil in stilettos.

Doing the butterfly at 4 a.m.

With the markets melting down, it has been a rough period for Ariel – and for Hobson – but you’d never know it as she strides into her office, briskly greeting a founder of a nonprofit who hopes that she’ll join his board. Her Chicago office, located high above Lake Michigan, is filled with stuffed and porcelain turtles sitting on her desk and shelves, constant reminders of Ariel’s slow and steady value-investing approach.

It’s 10 a.m. — midday for Hobson, whose morning actually began at night, with a regular 4 a.m. swimming session with her trainer and another Ariel employee, followed by a run. To the great annoyance of Hobson, a hopeless perfectionist who wants to master every stroke before she turns 40, her co-worker can still beat her, despite the fact that his stroke is “flawed.” “I’m like Seabiscuit,” she jokes. “I get angry if I can’t win.”

Mellody Hobson is exhibit a of the kind of people that author Malcolm Gladwell has dubbed “connectors.”

Dressed in a white linen Dolce & Gabbana suit and bright orange heels, a tangle of silver bracelets and a huge men’s Rolex draping her forearm, Hobson looks more like a fashion executive than someone at the helm of a mutual fund company. (Hobson says clothes, to her, “are art.”) Then there’s the rather obvious fact that she’s neither white nor male in a sector that is almost entirely both; Hobson says she can count the number of senior African-American women in finance on one hand. But when she starts talking markets, you quickly realize that she has found her calling. This morning, one of the few days she’s in the office this week (she’s on the road constantly, meeting with clients and attending board meetings), Hobson has already spent some time with a local pension fund, where she helped persuade it not to pull its money out of Ariel’s accounts by emphasizing her firm’s long-term record. “We talked about how cheap the portfolio is on a historical basis, and the fact that whenever it’s been extraordinarily cheap, a much stronger period follows. Now is not the time to leave.”

Hobson has been a stalwart supporter of value investing since she joined Ariel as an intern in 1987. That approach, adopted by Hobson and Ariel founder and CEO John Rogers Jr., 50, who makes the investment decisions, has taken a beating in recent years. In 2008 alone the value-oriented firm has lost more than a third of its assets as investors, frustrated by the decision to stay out of a booming commodity sector and to hold on to plain-vanilla names like Smuckers and Clorox (CLX), pulled their money out. Three-year returns as of Sept. 30 for Ariel’s three funds—the Ariel fund, Ariel Appreciation fund, and Ariel Focus fund—are down 5.6%, 2%, and 0.11%, respectively, compared with a 0.2% rise for the S&P 500. All three funds, however, have significantly outperformed their indexes since the price of oil began to fall in July. For all of Hobson’s confidence, she recently had to lay off 20% of her 100-strong staff, the first reductions in Ariel’s history.

“I’m trying to make the stock market a subject of dinner-table conversation in the black community.”

Over the long term—which is the way Ariel prefers to be assessed—its conservative approach has paid off. Ariel sailed through the dot-com meltdown, with its Ariel fund returning 43% from April 2001 through September 2002, while the S&P 500 declined by 44%. Since its inception in 1986, the Ariel fund has returned 11% annually, more than a percentage point better than the S&P 500. “Sometimes I feel like a chorus of one, but we remain confident in them,” says Michael Breen, senior analyst at the mutual fund research firm Morningstar. “They are a fund company that seeks solid, absolute long-term results, and they still have that.”

Flight to Safety

The Ariel way is attractive to Hobson in part because of her upbringing. The youngest—by nine years—of six children born to a single mom on Chicago’s North Side (she’s met her dad, a former police detective, twice), Hobson never enjoyed much financial security. Her mother, Dorothy Ashley, supported her family by buying old buildings and fixing them up, then renting them out to low-income tenants who couldn’t always pay. That meant a life of frequent eviction for Hobson, who was forced to move so many times in her childhood that she can’t remember the exact number. “I was devastated,” she says. “I wanted to have a house, a phone—not a phone number that changed all the time.” Hobson‘s mother managed to remain in neighborhoods where Hobson could attend the best public schools, stressing that education would propel her into a new world. As a member of a minority, she was acutely aware of her own identity but also forged close relationships with people from other classes and races—something she has managed to do, consistently, throughout her life. “She finds a way to find a connection with virtually anyone,” says David Geffen, co-founder of DreamWorks.

Although Hobson counts as close friends the likes of Vagina Monologues playwright Eve Ensler and DreamWorks’ Jeffrey Katzenberg, when she was younger she had a lot more interest in books than people, says her sister, Pat Hamel. “She was totally a nerd,” Hamel says, laughing about the contrast with her über-fashionable image today. “She was the type of kid that put on stripes and plaids [together]. She would cry if she couldn’t go to school.” Hobson attended a parochial school, St. Ignatius, then applied to both Princeton and Harvard. She got into both, but it was an alumni interview with Rogers, a recent Princeton grad and basketball star who had started his own fund company, that changed Hobson‘s life forever. After her sophomore year at Princeton, she took an internship at the fledgling Ariel, working closely with Rogers, and then signed on full-time when she finished college. The relationship was mutually beneficial; Rogers, acting as her mentor, introduced her to the likes of former Atlanta mayor Maynard Jackson, Senator Bill Bradley (D–New Jersey), and Ebony’s John Johnson. Rogers also suggested that Hobson write to Time Warner chairman Dick Parsons (TWC)—then at Dime Bank—asking for a meeting. After reading a profile in which Parsons confessed that bacon was his favorite food, Hobson wrote that she’d bring a few slices if he’d agree to see them. Ariel got an investment—and Hobson got a friend and colleague who has supported her throughout her career.

“No one assumes Galveston, Texas, will never come back,” says Hobson. “The only way to get rich is to be contrarian.”

Hobson, for her part, became the public face of Ariel. At the age of 25 she told Rogers that she thought Ariel would do better if it were independent from the social investment fund company the Calvert Group (the two were in a joint venture). “We wanted to stand for value investing, and they wanted to stand for social investing,” Hobson says. “I felt the message was getting muddled.” Rogers was initially taken aback by Hobson‘s suggestion—not to mention her moxie—but ultimately agreed. “She went out and did a lot of heavy lifting and convinced our board and myself it was the right thing to do,” says Rogers. Hobson decided to prove her commitment to Rogers by borrowing $1 million, which she put directly into Ariel stock. It was during that period, she says, that “Ariel became my firm.” By 2000, when Hobson was 31, she had worked her way up to president of Ariel. Mutual fund compensation is not publicly disclosed, but Hobson says she owns about 10% of the business, worth an estimated $25 million. And despite his title, CEO Rogers says the two are equal partners in the leadership of the business—not to mention best friends.

Hobson has also been an important brand ambassador for Ariel, thanks in part to her regular gig commenting on financial matters on Good Morning America and in columns for Black Enterprise magazine. Some might see a conflict in the notion of a fund executive giving personal finance advice, but Hobson says she rarely recommends particular stocks and never pushes Ariel funds. She does acknowledge, however, that investor calls expressing interest go up on days she’s on the air. “As a byproduct, it strengthens the Ariel brand,” she says, “but that’s not why I do it.” Hobson‘s profile also has grown because of her increasing presence on the film and awards circuit on the arm of Lucas, whom she has been dating seriously for about two years. The two were an item at the Cannes Film Festival this year, and Lucas accompanied Hobson to this winter’s Hip-Hop Summit Action Network awards dinner, where she was honored for her work with the black community, along with the likes of rapper Snoop Dogg—not exactly a regular on the financial rubber-chicken circuit.

Hanging With the Obamas

Politics and education are Hobson‘s twin passions. She hosted her first fundraiser for Barack Obama back in 1995, when he was running for the Illinois state senate, and worked on friend and fellow Princeton alumnus Bill Bradley’s campaign for President in 2000. In the current cycle she’s been an active fundraiser for the Obama campaign and openly supports him for President, as does Rogers; the two held an event at Ariel’s offices in July, with Warren Buffett as a special guest. Some have hinted that Hobson—or Rogers, who is very close to Michelle Obama’s brother—could end up with an economic advisory role in Washington; Hobson demurs, saying only that she’d “never be so presumptuous,” and underscoring the fact that she is loyal both to Ariel and to her mission to improve financial literacy for underprivileged groups. “I’m the only one of my Princeton classmates who still has the same work phone number I had after graduation,” she says. “That’s not an accident.”

In 1996 she and Rogers, working with a Chicago public school district, started Ariel Community Academy, a public school on the South Side of Chicago focused on financial matters. Using money provided by Ariel, the school has developed a curriculum that teaches investing and grants each class $20,000 to manage. By the time the students are in sixth grade, they control the entire portfolio. When the kids graduate from eighth grade, the principal is returned to the first graders, who reinvest it. Profits are split between the kids and a charity they choose (although Ariel gives an extra $1,000 to each student who agrees to put his share of the profits into a fund for college). Although the class that graduated in 2008 made almost $8,000—only a 4.3% average annual return—the impact goes beyond the kids. “Mellody was really instrumental in teaching me and several of the teachers about personal finance,” says Lynnette Coleman, Ariel’s principal. “She’s been like a mentor to a lot of us here.”Hobson visits the school frequently and invites students to the office; she donates her pay from appearances on Good Morning America directly to the school.

Hobson, at the South Chicago School she helped found. The kids learn to invest using real money.Photograph by Victor Powell

Although Hobson relishes her role as a trailblazer for both women and minorities in her field, she also admits that it is not often easy. She says she refuses to be defined by race or gender, yet she feels that some people still judge her that way on a regular basis. “I can’t tell you the number of times I’ve been in a room, and the expectations are so low. I see people looking at me, going, ‘Oh … she is smart.'” Her role—and her perfectionism—also put more pressure on her to succeed. “We cannot afford to fail,” she says. “I feel pressure to not disappoint the community. A lot of people sacrificed for us to get here. So if I screw up, it’s on me.”

If those feelings lurk below the surface, it’s not obvious a few weeks later, as the markets go into free fall and investors begin to wonder whether they should pull their money out of the market and put it under the mattress. Cool as can be, radiant in a red suit, Hobson looks straight into the camera from the set of Nightline and utters the kind of soothing words people want to hear. “No one assumes that Galveston, Texas, will never come back,” she says. “The only way to get rich is to be a contrarian.”

Hobson’s investors, who have put billions in her care, are betting that she’s right.

A version of this article originally appeared in the October 27, 2008 issue of Fortune magazine.