Diversity pays: A great positive externality with the added bonus of higher returns
Global Investment Insights
with Alexandra McGuigan
Global Development Director, 100 Women in Finance
Chair, Global Investment Institute Virtual Roundtables
Alexandra is the Global Development Director for 100 Women in Finance and is responsible for all business development and corporate engagement. The vision of 100 Women in Finance is to change the demographics of the industry. Vision 30/40 aims to have women represent 30% of investment teams and executive leadership positions by 2040.
“We are specifically focused on this small part of the financial services industry as investment roles and executive leadership positions are the most underrepresented by women and minorities. If we can solve for the most challenging part of the problem, then we will have a greater impact in the demographics of the wider business.
My role specifically as Global Development Director is to work with corporates globally to implement our products and services. When corporates engage the services of 100 Women in Finance they are essentially helping to create this demographic change. The money that we receive from these services is reinvested into further initiatives to help the industry achieve Vision 30/40”, Alexandra explained.
*****
Having diverse managers and teams improves returns.
*****
Addressing diversity has become a major concern for all large global corporations and recently it has moved from the edges to the mainstream.
“It is fantastic that women and minorities who have had difficulty getting in front of allocators historically for various reasons are getting the recognition they deserve”, Alexandra opined.
*****
Diverse groups outperformed those with no gender or ethnic minority employees by 20bps a year on average.
*****
What is really interesting in this though is that having diverse managers and teams improves returns.
Willis Towers Watson said its analysis of more than 2,400 individual investment teams globally found that diverse groups outperformed those with no gender or ethnic minority employees by 20bps a year on average.
Another study showed that women hedge fund managers overtraded less, got less married to positions and their drawdowns were less steep, which demonstrates a totally different approach to investing. With a portfolio of different perspectives, investment outcomes can be improved.
Earlier this year Alexandra hosted a discussion with Erik Serrano Berntsen, Chief Executive Officer, Stable Asset Management, in which he concluded, “diversity pays – because it gives you higher returns – the fact that it is also good for the world is a great positive externality.”
*****
Diversity pays, because it gives you higher returns. The fact that it is also good for the world is a great positive externality.
*****
Alexandra added, “we have a huge diversity issue and as the research supports, diversity in teams, and particularly leadership, creates higher performing portfolios and companies. Diversity needs to be looked at as a business issue rather than a HR issue, as it affects all areas of the business.
If we can get organisations to understand the cost associated with a lack of diversity and the impact on the sustainability of the business as it currently stands, then we can make change. If it is not addressed in monetary terms, then it will not rise to the top of the business agenda and it will not receive the attention and the effort needed for real change to occur.”
Alexandra explained that when diversity is being addressed, it is not enough to have people who look different. This needs to be combined with cognitive diversity also. People who have different life experiences and therefore approach problems and challenges in different ways.
“Companies should not hire diverse candidates for the sake of diversity. This approach is unlikely to produce optimal, desired outcomes. In order to maximise performance, the best candidate should be hired. However, in order to get a diverse range of candidates, a wider net should be cast in order to attract candidates who are sufficiently different to the ‘typical’ candidate. This is how companies can make meaningful cultural change internally, without sacrificing performance”, Alexandra advised.
To achieve demographic change within our institutions at the investment team and executive leadership level 100 Women in Finance is addressing three main issues:
1. Pipeline issue: More young women need to come through the ranks.
2. Retention issue: More women need to be retained within the industry, particularly in investment roles during their child bearing years.
3. Leadership issue: Women need to transition from the Director level roles to the C-Suite.
In Alexandra’s opinion, there still remains a glass ceiling and this is something that needs to be addressed. She believes that we need to have visible role models for young women coming into the industry because as the saying goes, ‘you can’t be what you can’t see’.
Alexandra recanted a personal career story which played a role in shaping her views.
“I was reminded recently of a conversation I had with Ron O’Hanley back when I first started out in my career at BNY Mellon Asset Management. He was on a roadshow to Australia which I had organised for him and we were chatting in the kitchen about the MBA that I was undertaking and where that might lead my career. He told me that I should be a portfolio manager, which I laughed off not knowing really what that meant.
Needless to say, I did not become a portfolio manager, but had I had visible role models at that time, perhaps I would have considered it. I had always been very good at maths and really enjoyed it.
Even though I tried particularly hard to move away from maths and finance in my studies, I found myself back where I started and with what I loved.
100 Women in Finance is working incredibly hard to inspire girls to consider careers in finance. There are many girls out there who are simply not encouraged or have no idea about what a career in finance might mean. We are trying to build the pipeline of talented girls to enter the industry so we can make it a better place for everyone to work. In order to do this we need visible role models though and for that we need companies to hire diverse talent”, Alexandra concluded.
Disclaimer
The views expressed in this publication are solely those of the individual and do not reflect those of their employer organisation.
All information contained within this publication is general advice only, as the knowledge levels and needs of all individual and corporate investors vary greatly this publication should not be used solely as a decision-making tool, further opinions and information should be sought before making an investment decision. It is the recommendation of Global Investment Institute (GII) that you seek the opinions of a fee-for-service, independent investment adviser before making any investment decision.
The authors, directors or guest writers may have a financial interest as investors, trustees or directors in investments discussed or recommended in this document. It has been assessed by the editors that these financial interests have not had an impact on the material contained here within.
All material appearing in GII’s Global Investment Insights is copyright, reproduction in whole or part is not permitted without written permission from the Publisher, GII.
