By now it is not news that the investment management industry has a diversity problem. Having attended a handful of industry events recently it is quite clear that women are underrepresented. The numbers also back this up. A recent study by Morningstar demonstrates that women fund managers are “scarce” both in the US and worldwide. They also find that the problem is not getting better in any meaningful way. You can download the report in its entirety.
None of this should be surprising to readers of this blog. This issue has been one we have been focusing on for some time now. (See links to previous posts below.) Fortunately there has been some traction in the meantime. For example, the CFA Institute’s Women in Investment Management Initiative is making the case for greater diversity in the profession.
The roll out, and expansion of, emerging manager programs at some of the nation’s largest pension funds is another step in the right direction. Ashby Monk at Institutional Investor writes:
You don’t have to be a libertarian to figure out that these biases against people of color and indeed women has commercial and financial consequences for institutional investors. It’s for this reason that I’ve been a fan of emerging manager programs…they are a mechanism for rolling back the inherent bias in the system to stop backing the same pattern fitting managers and start backing the best managers (full stop).
All of these initiatives are welcome. I now wonder whether an emphasis on the traditional money management business is the correct one. One key finding in the Morningstar report gave me pause. By emphasizing the gender disparity among active money managers are we missing the bigger picture? From the report Fund Managers by Gender: The Global Landscape:
Women have better odds of running funds in areas of industry growth–passive, funds of funds, and team-managed funds. Likewise, it appears more difficult for women to win management roles in the more established parts of the fund industry: actively managed funds and solo-managed funds.
It isn’t news that every industry trend shows active management in relative decline. Maybe we should focus less on the the task of active management and more on areas that we should expect to see future growth. This is exactly what Charles D. Ellis, author of The Index Revolution, proposed in his 2011 article “The Winner’s Game” in the Financial Analysts Journal. In this article Ellis notes three major problems with the investment industry.
The first of which is the error in defining our jobs as “beating the market.” Ellis effectively notes the challenges. Second Ellis talks about how the economics of the investment business, i.e. fees on assets under management, has effectively blinded us to the needs of clients. And third he notes how the investment industry has missed out on the opportunity to provide clients with rigorous investment counseling. Ellis writes:
The most valuable professional service we could provide to almost all investors is effective investment counseling. With far too few exceptions, most investment managers currently ignore this important work. Such inattention to the one professional service that is most clearly needed by investors, that would be most valuable to investors, and that would, if done thoroughly, enjoy high probabilities of success is more than ironic. It is the largest problem and the best opportunity for our profession going forward.
The point being that a narrow focus on gender disparities on active management misses the point. If the industry itself is broken, why bother trying to shoehorn into it? What clients need isn’t a few more basis points of alpha. It is clear that men and women are both equally adept at managing money. What clients need is investment counseling that effectively helps them solve their most pressing needs.
Our industry, and society as a whole, should look to eliminate these gender disparities. However by taking a variant view of the industry as a whole we can see potentially see a way forward for both greater gender diversity and better clients outcomes. In short, a win-win.
Previous posts on the topic:
- Ongoing gender disparity in money management
- The case for blind auditions in money management
- Unconscious bias and differentiated returns
- The death of female money managers: a market failure
- Gender, bias and manager motivation
- Investment decision making: diversity over biology
- Book except, “Invest more like a woman.”