Book Review: Undiversified

Undiversified: The Big Gender Short in Investment Management. 2021. Ellen Carr and Katrina Dudley, CFA. Columbia University Press. Columbia Business School Publishing.

The authors astutely grab their title from a core principle of investing — diversification. Readers immediately think of the consequences of undiversified investment portfolios and quickly get the drift of the authors’ discussions of an undiversified workplace. Ellen Carr and Katrina Dudley, CFA, are both seasoned portfolio managers, an adjunct professor of finance and a guest lecturer, respectively, at Columbia Business School. From their vantage point as professionals with fingers on the pulse of the industry, they have crafted a timely study with conclusions and plans for action in the form of a Money Management Manifesto that is actually a broad social mandate.

What mainly differentiates Undiversified from other studies and articles is that it is up-to-the-pandemic fresh and proposes solutions to mitigate the imbalance in the investment management workforce. Where does the issue begin? And how does it conclude? Straightaway, the authors reveal that only 10% of portfolio managers are women and investment management firms that are majority owned by women manage less than 1% of global investable assets. They question why investment management culture produces underrepresentation of women, as do certain other gender-imbalanced areas, such as Silicon Valley. Carr and Dudley explain how to implement gender diversity, not only because it is fair but also because it makes good business sense. Gender diversity, in their eyes, can help investment management firms better respond to the twin threats of passive investment management and technological innovation. It can improve investment results.

The book wisely launches with an overview of the active investment management industry and the roles of the portfolio manager and analyst. This summarization might seem redundant to most CFA charterholders, which the authors acknowledge. The overview serves as a comprehensive introduction to the industry, focusing particularly on portfolio managers’ key attributes and career path opportunities.

Carr and Dudley contrast financial literacy with investment literacy. Financial literacy helps light the way, providing quantitative skills that increase women’s confidence in pursuing a path in investment management. Confidence in working with numbers, a trait more important than possessing advanced quantitative skills, is, however, only one of the main personal characteristics associated with portfolio management. Among the others are intellectual curiosity, analytical ability, and courage of conviction.

Next comes a diagnosis of the industry’s gender imbalance. This discussion is difficult because of the near impossibility of pinpointing where this imbalance begins. If a little girl’s mom or auntie is a portfolio manager, that girl practically grows up knowing what the profession is all about. But not many girls do. To get a handle on this issue, the authors conducted more than 100 interviews with undergraduate and graduate students, as well as current and former industry practitioners. They debunk myths such as the impossibility of achieving a work/life balance, men’s superior suitability for the job, the lack of female role models, the requirement of outstanding and intensive math skills, and the “Wolf of Wall Street” as the archetypical investment management corporate executive. Certain facts emerged in a large survey, cited by the authors, as to why undergraduate women do not choose to work in investment management:

• They view it as a male-dominated profession.
• They are less likely than men to consider investing as a career path.
• They are less knowledgeable than men about the industry and the jobs available to them.
• They are less confident in their ability to land one of those jobs.

The authors open readers’ eyes to real-life situations in which women students at top graduate business schools are not familiar with investment management firms and their recruiting practices, such as the necessity of preparing a well-developed stock presentation. Those of us associated with CFA Institute are familiar with the CFA Institute Research Challenge and the opportunities it provides to undergraduate and graduate students for research, learning, writing, and presentation. The truth remains, however, that too few female students have access to an opportunity as exceptional as this one. 

Readers (whatever their gender) will enjoy the authors’ tales of their lives in the investment business and in the classroom. Both benefited from luck and, naturally, from hard and joyful work. And I particularly love this quote: “Investment management is a terrific career, with substantial financial upside, intellectual stimulation often lacking in cookie-cutter financial jobs like investment banking, and in most cases, a reasonable quality of life relative to other careers.” Yet another key reason so few women seek jobs in investment management after graduation is the shift to passive share investing. The United States has only 20 or so large investment management firms, and even the mid-size group is shrinking through consolidation.

Carr and Dudley’s solutions consist of reversing the cycle that has relegated women to a minority within the industry:

• Few senior leaders
• Few female recruits (entry-level analysts), which depresses female retention rates
• Fewer females retained
• Fewer women than men in middle management and even fewer in senior leadership

The objective is to bring women in and keep them in. How will this goal be achieved? Carr and Dudley propose that the process begin with such actions as increasing the visibility to women of investment management careers, addressing existing image problems, and providing more on-ramps to careers in the industry. It also includes improving women’s investment literacy, changing recruiting criteria, and supporting organizations that improve the pipeline. Once women represent 30% of the field and have an acknowledged voice, they and their employers must deal with persistent challenges, such as promotion delays, equalized pay, equalized culture, robust networking opportunities, and boardroom representation.

I was a bit distressed to see that the organization that provided my launch into investment management more than 40 years ago, the Financial Women’s Association (FWA, established in 1956), was not mentioned at all. The FWA has created extraordinary programs to introduce talented women into investment management, especially through its Baruch College (undergraduate) Mentoring Program. Positively, the book’s appendix highlights many newer organizations that I was not familiar with, such as Women in Investing.

On the whole, I find Undiversified to be captivating and a valuable reference work. I will recommend it to many colleagues, young and old, regardless of gender. The book is highly useful not only to women but also to other groups that are underrepresented in investment management. In addition to thoroughly covering gender nondiversity, it provides a unique overview of a profession to which few have access until they delve into it.

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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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