Women in Investment Management: The Business Case for Diversity

If you work in the mutual fund industry, take a look around. How many women do you see? My guess: Not too many. In fact, according to a recent Morningstar report, the fund industry’s leadership ranks are less diversified than other comparable professions.

Here are some interesting stats cited in the report: “A woman is less likely to be running a US mutual fund than working as a doctor (37%), lawyer (33%), or accountant or auditor (63%). Women are also better-represented in law leadership ranks: 20% of law-firm partners are women, while 24% of federal judges are women. In accounting, 19% of partners in US accounting firms are women.”

The ranks of female professional money managers remain very small. The Morningstar study, “Fund Managers by Gender,” found that “women are more likely to be managing a fund as part of a mixed-gender team than running a fund alone or with a team of women. Team-managed funds that have managers of both genders run 21% of the industry’s funds and more than a third of the industry’s allocation funds,” according to the report.

At the recent Women in Investment Management Conference in San Antonio, Heather Brilliant, CFA, chief executive of Morningstar Australasia, was asked where women have an investment edge and where their skills are complementary.

She noted that the research that had just been released found there was not much of a performance differential between men and women — but added the caveat that “unfortunately there were very, very few women to study.”

In fact, less than 2% of mutual funds in the United States are run by women only, she said.

But she had some good news to share. “When we looked at teams that were run by men and women together, when we have collaboration and diversity of thought, that was actually the bucket of performance that we saw outperform more than any of the others across both short and long time periods,” Brilliant said. “So I think it’s really confirming that having a diversity of thought and opinion going into portfolio management of the funds that you are looking at makes a really big impact.”

Allison K. Thacker, president of the Rice Management Company, agreed.

“Having a diverse team managing portfolios has a far better outcome,” she said. “That has been my experience running a mutual fund business and then moving over to the endowment space. But I will second the comment that there are so few women to study.”

Thacker said Rice University does not — and has never had — a woman hedge fund manager investing for the institution.

And she shared an interesting anecdote on this: “One of the gentlemen that works for me and runs our private equity book — we invest with over 50 partnerships and over 145 funds — asked: ‘How many women do you think we have in management of positions at our private equity firms?’ And by that he meant senior investment decision-making positions. He looked at the investment committee composition of all of our funds.”

Thacker guessed 15. The number was in fact ONE. Yes, one.

“It’s terrible. It’s very upsetting,” Thacker said. “I think the number was seven if we included general counsels, but nothing against the general counsel role, but that’s primarily a risk-management seat at the table, that’s not someone really making an investment decision. And so if you think about that as an industry, I think it’s very concerning.”

She added: “And so one of the things that I’ve been doing is talking more about it with my partners, talking to senior leaders at the firm about it, and my view is we have to grow the pool because there aren’t enough women to elevate them right now and to change the face of these industries. We have to grow the pool.”

Asked whether she takes diversity into account when looking at hiring managers, Thacker said, “Not in the final decision, but I take every meeting from every women-led portfolio management who has ever called me. I take every requested meeting from women who are interested in starting businesses . . . At Rice University, my primary fiduciary duty is to get the highest possible returns for the university endowment to drive scholarships, and so I can’t make the final decision based on diversity. But I try to bring people into the opportunity set if I can.”

Studies show that mixed-gender teams bring much-needed diversity of thinking to the investment process and improve investment outcomes.

There is a convincing business case for diversity — not just gender and ethnicity, which is how we typically think about it, but even in terms of introverts versus extroverts on boards.

According to an article in The Financial Times last year, New York-based Center for Talent Innovation (CTI) looked at what it termed “two-dimensional diversity,” namely forms of “inherent diversity,” such as gender and race, combined with varieties of “acquired diversity,” such as global experience and language skills. (The research involved more than 40 case studies and 1,800 employee surveys.)

“It found that publicly traded companies with two-dimensional diversity were 45 per cent more likely than those without to have expanded market share in the past year and 70 per cent more likely to have captured a new market,” The Financial Times’s Tim Smedley wrote. “When teams had one or more members who represented a target end-user, the entire team was as much as 158 per cent more likely to understand that target end-user and innovate accordingly.”

It is clear that we have to grow the talent pool, which starts with encouraging more women to join — and remain in — the financial industry, and raise awareness around the business case for greater diversity across the sector.

At the 68th CFA Institute Annual Conference in Frankfurt in April, Paul Smith, CFA, president and CEO of CFA Institute, pulled no punches. “Our profession also has a diversity problem,” he told delegates. “If we are to change we must also change our demographic. For too long our profession has been dominated by middle-aged, middle-class men and I stand before you as one here today. Among the actions we should take, we need to hire and promote more women within our businesses.”

Hear! Hear!

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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