Hobson (pg. 2)

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 (SJM) and Clorox (CLX, Fortune 500), 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.

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."

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 - 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.

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."

NEXT: The unsinkable Mellody Hobson (pg. 3)

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