FINANCE Ethical finance

Outnumbered but not outpaced: the bold change we need for female fund manager talent to break through

The theme of this year’s International Women’s Day is “Be bold for change.” With women still only representing 7% of fund managers worldwide, it’s time asset management took a bold step towards transforming its own outlook.

In In recent years, the financial services sector has dramatically shifted its approach to diversity with a raft of proactive policies designed to create welcoming, modern and attractive workplaces for men and women from a variety of backgrounds.
One of the main reasons is the compelling business case for diversity. It is now widely acknowledged that companies benefit from a range of perspectives to effectively serve their customer base and avoid risky ‘group think’. But despite the focus on diversity, fund management has remained relatively immune to the trend towards gender balance.

Fund management remains a stubborn outlier when compared with other professions’ diversity. In the UK, women now represent 44% of accountants, 48% of GPs and 24% of solicitors at partner level1. By contrast, research conducted by Citywire in May 2016 found that just 9% of investment managers in the UK are women.
The UK’s paucity is reflected in the global figures – the research showed that only 7% of funds worldwide are managed by women, accounting for just 4% of assets. That figure was marginally improved when funds were included that had at least one woman on the team, but still only reached 14% for funds managed by mixed gender teams.
Continental Europe appears to have made the most progress. In Spain, for example, 27% of fund managers are female, while France and Italy tally 18% and 15% respectively.
Yet in the US, not only is progress stalling, numbers are actually declining. Morningstar research shows that in the US, only 10% of fund managers are women, a figure which has been falling consistently since 2008. Only 2% of US industry assets are managed exclusively by women.
These discrepancies matter deeply for a number of reasons. Placing concerns about fairness of access to a highly rewarding career to one side, the industry is missing out on a huge pool of talent and resources. This pool is not only populated with individuals who are just as capable as those who currently work in the industry, but it could potentially bring an entirely different and valuable skill set into the mix.

One of the reasons gender matters is because the innate behavioural biases of a fund manager contribute to their portfolio’s long-term success. And there is growing evidence to show that these behavioural biases in women may be different – beneficially so.
The tiny proportion of women in the industry presents a challenge as it means there is only a small sample set from which to analyse these biases. Equally, it is impossible to generalise, as each manager’s personality will impact his or her own style. However, both anecdotal and formal studies suggest that women’s behavioural biases are not just broadly different to men’s, but they appear to succumb to less of the damaging biases than men do.
Risk management is one such point of difference. Studies have shown that when it comes to assuming risks, men’s brains are more geared towards risk-taking.
Male brains actually experience a bigger burst of endorphins when faced with a risky or challenging situation.
This tendency is also reflected in physiological and biological differences. The Wall Street trader turned neuroscientist, John Coates, explains that women produce a fraction of the amount of testosterone and the stress hormone, cortisol, that men generate. This means women are less prone to excessive risk-taking when markets are surging or after having taken a series of highly profitable positions. The flipside of this is that women seem to be less susceptible to cortisol-inspired and stress-induced risk aversion when markets take a turn for the worse.
Aside from a more measured approach to risk management, it would seem that women tend to be more analytical in their decision-making. Women appear not to extrapolate perceived trends that more often than not prove to be just a series of random events that look like a trend. That is, women draw more extensively on their thoughtful “System 2” way of thinking and less on their quick fire “System 1” – which in many situations is a distinct advantage, particularly in the face of volatile markets.
A 2013 study of nearly 1,000 brain scans confirmed that there are major differences between the male and female brain including in how they are wired. Women’s brains have more neural interconnections, so the logical and intuitive sides of the brain are highly connected.
As a result, this means women tend to perform particularly well at big picture and situational thinking. Other strengths are listening, analytical reasoning (as the behavioural literature suggests) and the ability to read social situations. It is not difficult to see how these skills would be highly beneficial to a fund manager, who is tasked with translating geo-political and macro-economic trends into asset allocation and stock picking. Equally, a major part of the role relates to meeting and engaging with boards and business-owners, at which point ‘soft’ skills such as listening and collaboration come into their own.

There is only sketchy evidence available on how women perform as fund managers relative to men. A study by the French investment funds association AFG in 2009 did show, however, that female fund managers produce more consistent and less volatile performance than their male counterparts. In perhaps a reflection of their more measured approach, female fund managers are rarely among the top performers, but are less likely to be among the bottom performers.
More recently, research conducted by HFR (Hedge Fund Research) to end-June 2015 found that funds owned or run by women outperformed over one, three and five years; significantly so since 2007. Similarly, hedge fund research conducted by consultants Rothstein Kass to end-June 2013 found that women had comfortably outperformed men over the six-and-a-half year period from the start of 2006, with the outperformance appearing strongest during the global financial crisis of 2008. However, once again the data set in both studies was exceptionally small; in the former case only 60 female managers reported to the HFR database, while in the latter only 125 female-run hedge funds did so.
Finally, in considering US manager performances over 12 months to 10 years, Morningstar’s research found that mixed-gender teams were the best long-run performers with little separating men’s and women’s performances in managing mainstream asset classes, despite women typically running more expensive funds across niche areas of world markets. However, where women did positively differentiate themselves was in managing asset allocation, or multi-asset, funds over the medium term.

However sparse the evidence, it is clear that women are just as capable as men when it comes to fund management. Yet as the figures show, they continue to be significantly outnumbered. This matters because compromising diversity can have negative effects on money management.
We have seen evidence that women may produce more consistent and less volatile performance. But diversity of decision-making and approach potentially has its greatest impact in a mixed team environment. In fact, mixed team results generally trump the performance of single-sex managed funds.
Homogenous environments are at strong risk of group think: unchallenged decisionmaking that fails to take wider factors into account due to the limited experience of the decision-making group.
It is not difficult to see the damage this could cause if left unchecked in portfolio construction and money management – success at this task is dependent on being able to see the big picture.

Most individuals who work in financial services are well versed in the multitude of reasons why women have ended up so under-represented in the industry. There is a perception of long hours which are incompatible with family life. Equally, while it may now be in decline, a historic cultural bias against women which placed a premium on long lunches and connections to an ‘old boys’ network’ did little to encourage women to consider fund management as a career or further their progress once within it.
There are undoubtedly signs that this is changing. As Columbia Threadneedle Investment’s Natasha Ebtehadj highlights, even in the past decade, the culture has radically shifted.
Attitudes towards diversity have transformed as companies and policymakers come to see the damaging effects of the diversity deficit. The Women in Finance Charter, launched in 2016 by HM Treasury, is gathering an increasing number of signatories. Columbia Threadneedle Investments was proud to be the first asset manager to sign it.
Women’s networks, mentoring and sponsoring all play a vital role in encouraging the progress of female fund managers, and ensuring we have a strong pipeline of talent to ultimately promote the younger women entering the industry today in years to come.
However, we recognise that we must take more steps to address the imbalance. Asset managers serve a diverse population. At a time when individual investors face increasing challenges, our industry needs a broad mix of experience, ideas and opinions to help us understand and deliver the financial outcomes our customers expect. At Columbia Threadneedle Investments, 29% of our investment professionals in EMEA are women, including four out of 14 senior desk heads. We were the first asset manager to publicly disclose our gender diversity data in 2015 and have set target ranges for female representation across the business.
Targets are an important statement of intent and provide a tangible, accountable goal to work towards. However, we recognise that they must be accompanied by cultural and behavioural change to be effective. We offer unconscious bias training to try and shift mind-sets. Our recruitment process encourages candidate shortlists with appropriate female representation, which will help to ensure that qualified women are getting through to interview. We support flexible working arrangements to ensure that careers can be better balanced with family life.
As Columbia Threadneedle Investment’s Ann Steele explains, technological change means fund management can be built around a more flexible working arrangement – stock picking and research for example are all highly compatible with working remotely. Fund management, in sharp contrast to deal-led work does not command long periods of late nights at the office. Equally, as a performance-led profession, it is explicitly meritocratic as the best managers can be easily identified and rewarded. These benefits need to be extolled to younger women considering fund management as a career path, as well as demonstrating the cultural change, which means it is no longer the exclusive domain of an ‘old boys’ network.’

Fund management can be an excellent career choice for women, and as the evidence shows, the female skill set is tailored to many of the attributes needed to be successful.
There is clearly momentum behind achieving a better gender balance in this industry, and while this is gathering pace, now is the time for us to work together to ‘be bold for change,’ redress the balance, and supply the industry with the talent it needs to thrive in the future.

Alison Jefferis - Head of Corporate Affairs - Columbia Threadneedle Investments