Why Gender Diversity in Investment Management Matters

The Need for Diversity in Funds Management

The lack of female fund managers is not just a feminist or equal opportunity issue. It's a diversification issue. The lack of diversity, in any form, in investment management can have a significant impact on investment returns. Research has shown that having a combination of perspectives, backgrounds, and biases can lead to better decision-making, resulting in better outcomes for investors. There is evidence to suggest that investors gain significant benefits when women are at the helm of professionally managed investment portfolios.

Studies have shown that, on an individual level, men can be more likely to take risks for personal financial gain, while women are more likely to take risks to protect themselves against financial loss. Men are also more likely to trade investments more frequently, while women are more likely to set goals and seek expert advice. Diversification, therefore, is not just about a portfolio's blend of investments, but also the mix of people making investment decisions on your behalf.

The Benefits of Gender Diversity

Research has shown that gender diversity in leadership and management positions can lead to better performance among financial institutions. In 2020, Rainmaker Information found that Australian superannuation funds with a higher proportion of women in leadership positions outperformed male-dominated funds by 0.6% annually on average over three years.

Having a woman as the chair or CEO also showed performance benefits as it boosted performance by 0.9% annually over three years. An Investment Metrics study found that share funds led or co-led by women posted a median loss of 2.6%, compared to an average loss of 5.9% among male-led teams during the 2022 frightful downturn in equity markets.

The Importance of Transparency

Knowing the gender balance of an investment team would allow more Australians to invest in line with their views on diversity and equality. It's important to note that female-led funds won't always generate the highest returns, while the same is for male-led funds. Nonetheless, investors seeking investment funds where women are well-represented, especially at the top levels, face challenges in discovering information about the fund's leadership. On this score, a little more transparency from the funds management industry and government bodies is needed.

The skills shortage in Australia, along with the COVID-19 pandemic that has opened up greater acceptance of employees (of all genders) working from home, could help accelerate the number of women in leading roles across the investment industry. Corporate culture has become a critical part of recruitment and retention.

Conclusion

Gender diversity in the investment industry can have a significant impact on investment returns. Investors stand to benefit when women are well-represented, especially at the top levels of financial institutions. While it's crucial to understand that diversification goes beyond a portfolio's blend of investments, diversity in any form is critical in making investment decisions that result in better outcomes for investors.

It's time for the financial services industry to prioritize transparency and diversity. With greater visibility into the gender balance of an investment team, investors can make decisions that align with their values, resulting in a more inclusive and equal industry that benefits everyone.