Integrated Investing
Page 18
The presence of more women investors who speak out as influential shareholders in companies can make a difference in how products and services catering to women are made and delivered. I believe that if women grow to represent a larger proportion of the investor community and are more vocal in their investments in companies, it will make the difference between women getting what they want in products and services—being empowered and supported as customers—and being told what they should want and risking being exploited.
GENDER LENS INVESTING AND WHY WE INVEST
What motivates men and women to invest is different, and I believe investment advisors and businesses offering investment opportunities must acknowledge this.
Nelli Oster, PhD, a director and investment strategist at BlackRock’s Multi-Asset Strategies group, pointed out that women tend to focus more on longer-term goals and not all of their goals are monetary ones. As a Fidelity Investments guide11 lays out, women generally associate money with security, independence, and the quality of their and their families ’ lives. According to a 2010 Boston Consulting Group study12 examining women ’s experiences with wealth management providers, women tend to focus on longer-horizon planning, like college savings. Men, on the other hand, who tend to be more competitive and thrill-seeking by nature, often focus on the short-term track records of their portfolios.13
GENDER LENS AND IMPACT INVESTING
In Chapter 3 I introduced the idea of impact investing as taking care of the village. Observations I’ve made in the field of investing, as well as anecdotal evidence I have gathered, indicates that women take a more holistic view of investing than men do. They take into consideration how their decisions affect how they take care of themselves, their families, their neighbors, their communities, and the planet.
There is little hard data on gender and impact investing, but some is available through the ImpactAssets 50 database, the first publicly available database of experienced private debt and equity impact investment fund managers. This annually updated list is made up of a mix of impact venture firms, microfinance institutions, community development finance institutions, investment banks, not-for-profits, and includes organizations from around the world. The analysis provides a broad and illustrative overview of the intersection of gender and investing.
A review of the ImpactAssets 50 list in early 2016 revealed that the proportion of women in leadership teams of impact investing organizations was 35%, on a weighted average basis. (If a team of ten had three women on it, a team of five had two women, and a team of eight had three women, the weighted average would be eight out of twenty-three, or 34.8%). The weighted average proportion of women on leadership teams appears to be higher than in conventional venture firms, as noted below, and the representation of women on leadership and senior executive teams is diverse, ranging from 0% to 100%. Though the ImpactAssets 50 list is not a comprehensive list of all debt and equity impact investment organizations, it hints at the low representation of women in impact investment leadership teams (compared to the proportion that women make up of the global population).
Some impact investing teams, however, are made up of 100% women, a statistic that is rare in the conventional and traditional investment industry. This may indicate that there are opportunities for women in the impact space, or that impact investing and its variations are more welcoming or attractive to women compared to more traditional firms.
Barbara Stewart, a portfolio manager in Toronto who advises high-net-worth individuals and families, conducted research focusing on women and finance by asking a hundred women how they spend their personal time, energy, and money, and published her findings in her “Rich Thinking” white paper series.14 She found that the traditional investment model, based on asset classes (that is, equities, bonds, real estate, and cash), did not tell the whole story. Barbara remarked that some women invested in houses, not necessarily focusing on a potential investment return, but rather because houses gave the women a sense of security and feeling of warmth. She also noted that women also invested in their personal causes that gave them a deeper sense of meaning and feeling of doing what is important to them.
Barbara found that women are investing in their families and spending time and energy on them. I was particularly intrigued by her findings that women seek to make a difference in parallel with their daily activities and livelihoods. She also noted that women are investing in themselves by spending time, energy, and money on things that matter to them and enable them to thrive—be it intellectual stimulation, physical challenge, or a way of expressing themselves. Because of this, the traditional model of making a lot of money and then doing something good—philanthropy or angel and venture investing, for example—doesn’t necessarily work for women.
By and large, women are integrating their activities of investing in their families, personal causes, and their selves into their lives and activities as they go along. Barbara’s findings align with the concept of taking care of the village. I am inclined to believe that an integrated approach to investing resonates with women and that they could very well be naturals at impact investing.
GENDER LENS AND VALUES
I struggled to write this section because I wondered if there was a gender lens to our values. I’d like to think we have values in common, irrespective of our gender—values such as freedom, justice, equality, and harmony, to name just a few. However, thinking about it further, I realized that even these values highlight how we are all informed by our gender lens and perspective.
Women have had to fight for the freedoms most of their male counterparts have always had. From women’s suffrage to fighting for the right to own property, have a bank account, or borrow money, there are many examples of women not being treated equally or equitably with men over the course of history. As such, there are things that I value because I am a woman, and I have had certain experiences men have not had as a result of being a woman.
For example, consider women in technology, one of the industries in which I work and look for potential investment opportunities. Many women I know who are entrepreneurs working and operating in the technology sector value gender diversity and equity in their sector because it affects how they and their colleagues are treated, it affects what kind of access to opportunities and investment capital they have, and it can affect the progress and success of their ventures. I have heard a real-life story of a male investor who turned away a female CEO because he did not invest in women with young children.
Gender Diversity in Technology Companies
Does having a female CEO make a difference? At Yahoo, 37% of global employees are women, but women fill only 16% of tech roles and 25% of leadership positions.
Global Tech Non-tech Leadership Source
Google 30% 18% 47% 22% 1
Facebook 32% 16% 52% 23% 2
Twitter 34% 13% 50% 22% 3
Yahoo 37% 16% 54% 24% 4
Salesforce 30% 23% 32% 19% 5
LinkedIn 42% 18% 50% 30% 6
Pinterest 42% 21% 66% 16% 7
1 https://www.google.com/diversity /
2 http://newsroom.fb.com/news/2015/06/driving-diversity-at-facebook/
3 https://blog.twitter.com/2015/we-re-committing-to-a-more-diverse-twitter
4 https://yahoo.tumblr.com/post/123472998984/please-see-here-for-our-eeo-1-report
5 http://www.salesforce.com/company/careers/diversity-numbers.jsp
6 https://blog.linkedin.com/2015 / 06 /08/linkedins-2015-workforce-diversity
7 https://blog.pinterest.com/en/our-plan-more-diverse-pinterest
This table shows diversity data reported in 2015. URL s accessed on April 11, 2016.
But it is not just the technology sector where this is true. Gender diversity and equity is an issue in various industries—media and entertainment, financial services, sports, the medical professions, and politics, among others. The issues that matter to you shape your values. If the gender-based issues experienced in these industries and areas are imp
ortant to you, then these issues will influence your decisions and actions.
Equal pay and opportunities for women in industry may be one of your values. Maternal health and women’s rights with respect to their bodies may be another. Women’s right to vote and hold office may be one as well. A gender lens can be applied to all of these issues and more because women and men have historically been treated differently in these areas, and this different treatment continues today.
In 1995, Ann M. Beutel and Margaret Mooney Marini, both professors at the University of Minnesota at that time, conducted research on gender and values. They examined three measures of values: 1) compassion, which reflects concern and responsibility for the well-being of others; 2) materialism, which reflects emphasis on material benefit and competition; and 3) meaning, which reflects philosophical concern with finding purpose and meaning in life.
They found that men and women differed on all three measures. Amongst the people involved in the study, women were more likely than men to express concern and responsibility for the well-being of others; less likely to accept materialism and competition; and more likely to indicate that finding purpose and meaning in life is extremely important. Beutel and Marini observed these gender differences over a period from the mid-1970s to the early 1990s. They found these trends were evident irrespective of social class, religion, or the perceived availability of social support.15
This is research from just one study, and an old study at that, but its findings continue to hold true today: what is important to women is often different from what is important to men, and that shapes their values, which in turn affects their decision making.
Making the Case for Gender Lens Investing
We often hear women being spoken about as an untapped market or underutilized resource. We hear that women control a significant amount of wealth in the world, and that this share is ever-growing. This kind of language appears in the finance industry all the time. From a business perspective, herein lies the case for gender lens investing.
Businesses are increasingly being encouraged to hire more women for roles where they are underrepresented, and their boards of directors are being encouraged to include more women. This is because the business world is finally realizing the importance of understanding how women make economic decisions as business and community leaders and the value that women contribute to the process of making critical business decisions.
We hear about initiatives that engage more women, but what does this actually mean to you as an investor? Simple: it can mean better returns and outcomes.
BETTER RETURNS
Illuminate Ventures, a high-tech venture capital firm based in the San Francisco area managed by Cindy Padnos, published a white paper in 2010 that stated the following:
Women build more capital-efficient businesses, using less capital to achieve the same or higher levels of success as their male counterparts.
Women-led ventures experienced lower failure rates.
Women-led ventures are able to achieve venture-level returns.
Gender diversity improves performance.
If female-led ventures perform just as well as (or better than) their male-led counterparts, why is it that less than 10% of venture capital investment goes to female-led ventures? Illuminate Ventures makes the case that it is time to invest in women-led businesses.
Meredith Jones is an alternative investment consultant and the author of Women of the Street: Why Female Money Managers Generate Higher Returns (and How You Can Too) . She has been researching and writing about women investors since 2012, focusing on managers of alternative investment funds. She developed the Kass Women in Alternative Investments (WAI ) Hedge Fund Index, a metric used to track the performance of a group of women-run hedge funds and measure how well the funds are doing year after year. In her 2013 white paper, “Women in Alternative Investments: A Marathon, Not a Sprint,” she found that for the six and a half years ending in June 2013, the WAI Hedge Fund Index performed better than the S&P 500, a US stock market index based on the 500 largest companies listed on the New York Stock Exchange or on NASDAQ and the HFRX Global Hedge Fund Index, an index of over forty hedge funds, created by Hedge Fund Research Inc.16
GREATER IMPACT
The benefits of investing with a gender lens go beyond financial returns. It helps elevate women as leaders and creates new role models, shapes what products and services are created, helps businesses determine how to serve people better, and paves a path toward diversity.
Deloitte, an international advisory and services firm, published “The Gender Dividend: Making the Business Case for Investing in Women” in 2011. In its paper, Deloitte quotes Scott Page, professor of complex systems theory at the University of Michigan, who says that when it comes to solving complex problems or innovating, a diverse group of competent performers almost always outperforms a homogenous group of star performers by a substantial margin.17 The authors of “The Gender Dividend” encourage collaboration amongst men and women, citing that the real power is in collaboratively using their respective strengths and experience to solve complex problems and innovate.18
The Rise of Women Investors
Women as investors are an important aspect of a gender lens. We haven’t heard a lot about women’s successes and experiences as investors in the media in the past, but that is changing now.
Women and Wealth
Global business consulting firm Boston Consulting Group published their findings from a 2010 study they conducted.19 In it, they discuss how women controlled an estimated 27% (or $ 20 trillion) of the world’s wealth in 2009, and North America and Western Europe accounted for more than two-thirds (or $ 14.3 trillion). This amount was expected to grow at an average annual rate of 8% from 2009 to 2014.
This has resulted from a number of factors, including greater activity by women in the workforce, increased involvement of women in managing household finances, women’s longer life expectancy, and the increasing amount of wealth women are inheriting.
From 1980 to 2008, the number of women in the global workforce doubled to 1.2 billion. Although an income gap between men and women still exists (a woman earns, on average, $ 0.77 for every dollar a man earns), the gap has declined over time. As it has, the proportion of women whose wealth is entirely self-earned has increased.
Meanwhile, more women are also inheriting wealth today. According to Boston College’s Center on Wealth and Philanthropy, women will inherit 70% of the $ 41 trillion in intergenerational wealth transfer expected by 2050.
Women and Angel Investing
In their annual study of angel investors in the US , the Center for Venture Research at the University of New Hampshire found that, in 2015, 25.3% of angel investors in the US were women. Five years earlier, it was estimated that less than 5% of angel investors in Europe were women.
EBAN , the European Trade Association for Business Angels, Seed Funds and Early Stage Market Players, has hypothesized about how the angel investment sector would benefit if 20% of angel investors were women. EBAN believes that the total number of angel investors would increase, leading to an increase in the amount of investment and number of deals being funded. They also believe that a more diverse investor base would attract a wider array of underrepresented business propositions in the areas of services, consumer goods, and social and sustainable entrepreneurship, diversifying beyond just high-technology businesses. It could also lead to diversified expertise for funded businesses. Angel investors provide more than just money to the businesses they invest in—they bring expertise, experience, and a network of contacts to support their investment—and more women investors could mean the possibility of tapping into a more diverse base of knowledge and expertise. All of this could lead to societies and economies that grow and thrive better, more sustainably and with greater diversity.
In 2010, EBAN researched why there are so few women investors in Europe. These are their findings:
Women tend to underestimate their fina
ncial capacity for risky investments.
Women perceive angel investing as requiring a large capital outlay.
Women’s myriad of duties with family and community impact their schedules differently than those of men, and they may rely on professional advisors or investment funds when it comes to wealth management in an effort to save time and energy.
Because of their different backgrounds and skill sets, women come to angel investing differently than men.
Women lack exposure to the asset class of venture.
There is a lack of established cohorts of women business angels.
Current services in the angel network industry are marketed by men, for men, to men.
Women are less likely to be networked to other investors.
While there is not a lot of research into why there are disproportionately fewer women investors compared to men in the US , possible reasons are likely similar to those uncovered in the European research. Many people like to hypothesize that women lack the risk appetite or the financial capacity to become angel investors. Women are risk aware; however, there may be some truth to the disadvantage in lack of financial capacity. Typically, angel investors have come into their money as successful entrepreneurs who sold their stake in their businesses, or as well-paid executives of successful companies. But if women are not able to access the same financial and business opportunities as men as a result of systemic gender inequity, then it makes sense that there would be a domino effect, resulting in fewer women investing or fewer investment dollars controlled by women.