Asset Managers, Consultants, Defined Benefit, Endowments/Foundations, ESG/SRI, Institutional Investors, Pension Funds

Cambridge Report: Gender-Lens Investing Delivers Differentiated Investment Edge

Cambridge Associates has released a new report, Gender Lens Investing: Impact Opportunities Through Gender Equity, which offers institutional investors insight into investing using a “gender-lens” approach as a way to make a mission-related impact as well as diversify their portfolio’s risks and returns. “Diversity of thought and perspective can give you different opportunities and deliver diversification of risk and returns to a portfolio,” said Deborah Christie, a managing director at investment consultant Cambridge Associates and a coauthor of the report. “Investors are always looking for a differentiated edge when investing,” she said.

New York City Comptroller Scott M. Stringer, who heads the New York City Pension Funds, which has $195 billion in assets under management, also sees the attributes of making diversity a priority. “Diversity is not just the right thing to do–it’s a strategy for economic success. Delivering long-term value for our beneficiaries goes hand-in-hand with supporting MWBEs (Minority and Women Business Enterprises) diversifying boardrooms, and leveling the playing field for qualified managers of all backgrounds,” he said. (see related article)

Cambridge’s goal in publishing this report is to educate investors that “There are opportunities out there that are not as well covered, so it’s just another lens from which to look at the investing platform out there,” Christie said. By taking a gender-lens investing strategy approach, institutional investors may find opportunities they would have otherwise missed, Christie noted. For many investors, these opportunities allow them to make an impact that aligns with their organizations’ mission while also providing a benefit from an investment diversification perspective, she said.

Deborah Christie, managing director, Cambridge Associates

Still, finding the assets or products in which to invest that fit this approach is not always easy. As of 2017, only 16% of board seats and 4.4% of CEO roles across Russell 3000 companies were held by women–even though by 2020 women are projected to control $72 trillion of wealth, or 32% of the world’s wealth, according to the report.

Report highlights

Cambridge reached its key findings by compiling the reports of a variety of third-party studies on the topic. Highlights of the report found that:

  • Sales growth, earnings per share growth and return on assets were all higher in companies where women comprised 50% or more of leadership positions.
  • Start-ups founded by women generated 10% more revenue than male-founded counterparts.
  • The performance of venture capital firms improves as the ratio of investment in women-led businesses increases, despite these businesses receiving less funding.
  • Female investors are less likely to churn portfolios, which helps net returns, whereas male investors trade 45% more than women, which lowers net returns.
  • The overall intelligence of a team or company increases when women are included, due to more perspectives and fewer blind spots.
  • According to an analysis of 37 female hedge fund managers, female-led hedge funds outperform a general sample of hedge funds over a ten-year period.

Proof is in the results

The rates of return of companies that make the promotion of women within their organization a priority have been impressive, to say the least. According to Cambridge’s research, companies with three or more female board members had higher returns on equity, return on sales, and returns on invested capital than firms without any women on the board. Firms with strong women leadership demonstrated 36.5% higher returns on equity compared to other companies. From the end of 2002 through 2014, companies with a female CEO produced stock market returns three times higher than firms led by men.

The report’s findings also showed that the mere presence of women in the C-Suite significantly correlates with a firm’s profitability. Companies with high gender diversity had lower stock price volatility and fewer drawdowns than similar companies with less gender diversity.

Changing the status quo

In some ways, the report’s results represent a stark contrast to the ways in which many women in the industry say they have been treated. Christie cited the example of a female asset manager she spoke with at a female-owned fund. The asset manager revealed that she often downplays the fact that she is a woman, when talking to perspective investors. In her experience, institutional investors often assume that choosing a female manager means they will have to sacrifice quality and returns. The manager said she has found that investors often make these assumptions without looking at her performance record, and despite her 30-years in the industry chasing alpha.

Her story aligns with the often mal-informed views some investors have of environmental, social & governance (ESG) funds. In fact, today, while many ESG portfolios are showing stellar returns, some investors still assume they must give up on profit by investing in these funds, in order to “do-good.”

Implementing a gender-lens strategy?

So how do institutional investors formulate a gender-lens strategy for their funds? One way is to establish a goal of hiring female-led asset managers to manage some of their portfolios. They could also set up initiatives to invest in female entrepreneurs and take advantage of microfinance and small-business lending opportunities that favor women. Another approach is to implement strategies to invest in companies that promote gender-equity policies and that have a certain number of women in senior management positions and/or on their board. Funds could also make a point of investing in product and services that benefit woman and girls, for example through venture capital funds that invest in areas such as healthcare that benefit women and girls, Christie suggested.

Currently, the number of gender lens investing strategies available to investors are far and few between. They are becoming more numerous, however, according to Christie. Cambridge Associates monitors about 30 strategies in the public markets that are considered gender-lens investments, that amount to $1 billion in aggregated assets. Project Sage, a landscape conducted by the Wharton Social Impact Initiative, at the Wharton School of the University of Pennsylvania, found 58 private equity, debt and venture capital investment vehicles with a gender-lens focus totaling $1.3 billion in aggregated assets, as of October 2017.

The Wharton Social Impact Initiative released its report, “Project Sage: Tracking Venture Capital with a Gender Lens” in October of last year. A follow up report, Project Sage 2.0, will be published this fall. The Project Sage report includes only funds that explicitly assert a gender-lens approach. There are, however, suspected to be other funds in the market that are using a gender lens, but are not talking about it, according to the report.

The Global Impact Investing Network (GIIN), an organization dedicated to increasing the scale and effectiveness of impact investing worldwide, compiled data from a variety of sources on the state of gender lens investing, last year. The data it cited included the McKinsey Global Institute‘s 2015 report, The Power of Parity: How Advancing Women’s Equality Can Add $12 Trillion to Global Growth, which found that if women participated in the economy identically to men as much as $28 trillion could be added to annual global gross domestic product (GDP) in 2025. Women are, in fact, expected to control 75% of discretionary spending globally by 2028. According to the GIIN’s report, The State of Impact Measurement and Management Practice, one-fifth (24 out of 124) of survey respondents said that they allocate capital to address gender equality. Total assets in gender-lens investing strategies invested in public market securities has risen 41% to $910 million in the 12 months ending June 30, 2017, according to the report Gender Lens Investing: Investment Options in the Public Markets, put out by Veris Wealth Partners in 2017.

Who’s on the bandwagon?

Overall, Cambridge has found that pension funds are continuing to show an interest in diversifying their portfolios to invest in more women-owned funds and diverse mangers, and have been doing so for some time. However, “While some endowments and foundations have always had a mission to positively impact the lives of women and girls, products that directly invest with a gender lens [are part of] a nascent market,” Christie said. “Fossil-fuel free investing has been around a longer time, but the social equity investing initiative is newer; the products focused in this area are young and are just taking off,” she said.


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