CSR: The alpha female effect

Helen Avery
Published on:

Gender lens investing is on the rise, and with good reason. Not only do companies perform better with greater female representation on their boards, but a multi trillion-dollar wealth transfer to women and millennials means greater investment focus on social issues like diversity.

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While the gender gap in education may be closing in the US, it has yet to translate into pay equity or senior positions for women in the workplace. According to a UBS white paper on gender lens investing, in 2015 among 25- to 34-year-olds, there were 20% more women than men with at least a bachelor’s degree in the US. 

Furthermore, women now account for almost half of all students in JD (juris doctor), MBA, and MD (medical doctor) programmes – up from 10% in the 1960s. Yet only 4% of S&P500 companies have female CEOs, less than 20% of those companies’ board seats are filled by women, and women occupy just 25% of senior management roles. 

Progress on pay equity in the US has also been painfully slow. According to recent research by the American Association of University Women, in 2015 women earned 20% less than their male counterparts and, at the current rate, the organization estimates it might not be until 2152 that the US finally sees gender pay equity. 

Many women had hoped that a presidential election win by Hillary Clinton, who was championing equal pay, might have speeded up progress. Instead, her opponent Donald Trump, who publicly dismissed the gender pay gap during the election campaign, will become president in January. There is still hope, however, that the needle can be moved on gender discrimination in the workplace even without the president-elect’s support. That hope lies with private investors and the growth in gender lens investing.  

Innovation is shown to improve when women are included in leadership decisions. It’s vital for the competitiveness of any company to ensure they are not only hiring equitably, but supporting women within the business so as not to lose them 
- Natasha Lamb, Arjuna Capital 

Gender lens investing incorporates several strategies. Primarily, funds and trackers invest in firms that have one or more of the following: a minimum female board and/or senior executive representation, pay equity, and maternity leave and child-care benefits. Some strategies include investing in female entrepreneurs or providing loans to women. 

Assets under management in gender lens products are currently around $560 million. That is a tiny amount of overall investable assets, but it has grown five-fold since 2014. The number of funds has also doubled to 16, says Patricia Farrar-Rivas, founding principal and CEO of Veris Wealth Partners, which has been designing gender lens portfolios for clients for two years. 


Patricia Farrar-Rivas,
Veris Wealth Partners

She, and an increasing number of investment managers, believe that gender lens investing is only going to grow. 

Sources say UBS and Goldman Sachs will each be launching a gender lens fund or gender overlay investment opportunities in the coming months. Those will join products like State Street Global Advisors’ (SSgA) SHE ETF that was launched in March this year. It seeks out companies that employ women in high-level leadership roles. Barclays launched a similar product in 2014. 

There are several reasons why gender in investment decisions is gaining ground. The first is that a growing body of research shows that diversity improves company performance. According to UBS’s white paper that was released earlier this year, companies where more than 20% of the board is women demonstrated higher pre-tax margins, higher returns on assets and equity over a five-year period than their peers. Similar research from non-profit Catalyst in 2014 showed Fortune 500 companies with three or more female corporate directors (in at least four out of five years) outperformed those with no women directors.

Stephen Freedman, who headed up UBS’s white paper, says outperformance is now undeniable.

"Research shows that companies that have boards of greater gender diversity had a 1% annual outperformance between 2010 and 2015 – and that was stronger when looking at global stock markets," he says.

Fund managers point to their own gender lens funds as further evidence. 

Jackie VanderBrug, an investment strategist at US Trust and coauthor of the new book 'Gender lens investing’, highlights her own firm’s experience. US Trust set up the Women and Girls Equality Strategy in 2013 for high net-worth individuals. It scores its investment holdings across several metrics.

"We consider pay equity, the number of women on a board, hiring, progression for women with the firm, benefits like family leave and also where companies choose to do business, with who and how they are promoting themselves," says VanderBrug. Over the last three years it has outperformed its benchmark, the S&P1500. 

Why does hiring a more equal number of women pay off? So far, says Freedman, there is not enough evidence to suggest causality, but there is plenty to support the idea that diversity itself is associated with better performance.