Diverse investment teams lead to far better investments outcomes

THERE is a strong correlation between how diverse investment teams that include women portfolio managers and consistent performance as organisations and businesses across the globe adopt and implement the 17 UN Sustainable Development Goals to alleviate some of the world's critical challenges.

The chief executive at Prescient Investment Management, Cheree Dyers, gave insight into diverse investment teams, leading to far better investment outcomes.

“This is evidenced by a study done earlier this year by Willis Towers Watson analysing several investment strategies globally – Diversity in the asset management industry: on the right track, but at the wrong pace – that an investment team with greater gender diversity can add 45 basis points per year in net excess returns,” she said.

Dyers said the global and local progress towards building diverse teams remained frigid, highlighting that industry participants were not yet sufficiently convinced of how important diversity is in achieving superior investment outcomes on behalf of clients.

Consequently female representation in investment decision making remained low and the pipeline of women eager to pursue a career in asset management was dwindling, Dyers said.

She said the problems were highlighted in the EPPF/GIBS Diversity in Asset Management survey released in July, which set out to uncover why the industry was not capitalising on the transformative role women have played in the industry for the past two decades by developing sustainable solutions to clients’ funding problems, reducing costs and simplifying products, decision-making and services.

Dyers said that instead, as the latest 27 Four BEE Economics Survey found, there were still many more male than female portfolio managers.

The EPPF/GIBS survey quantified the extent of the challenge: of the 140 women in non-administrative professional roles, only about 12 were portfolio managers or chief investment officers. The problem is not just a South African one, it’s a global one.

“A recent study by Hendrick & Struggles found that only 20% of executive teams and board members at the world’s top 50 asset managers were women. Even more worrying is that the percentage of women fund managers has stagnated at 14% for almost two decades, according to Morningstar research,” she said.

This slow advancement is not a result of a lack of trying. Dyers explained that women tended to be better represented in investment analyst roles and women graduates outperformed their male counterparts in relevant university degrees.

Many women graduates opted to pursue careers in other segments of the financial services industry and few of those who had become investment analysts had advanced into the industry ‘power seats’, she explained.

The fact is that until the industry acknowledges that females are diverse teams which broadly result in better investment outcomes, progress in the industry will probably remain disappointing.

The EPPF research report aptly summarises this challenge: “It’s really not about men versus women or other demographic markers. Rather it’s about recognising and valuing how differentiated levels of problem-solving, information processing, and implementation combine with differentiated social experiences to contribute a far more effective decision-making process.”

Research found that one of the problems is that the investment industry relies on criteria that are too narrow when identifying investment talent.

“Talent managers predominantly require candidates that have superior mathematical skills and CFA (chartered financial analyst) qualifications.

“Better progress is likely to be made if the criteria is broadened to include social, psychological, environmental and developmental skills.

“With the increase in AI and data science-enabled investing, specialist skills in these fields will also contribute to skills diversity in the industry,” Dyers said.

She explained that if investment managers and their investment teams across the industry welcomed diverse thinking, backgrounds and skills and were ready to embrace a meeting of minds with females and others who have not traditionally been represented in the investment industry, change was unlikely to happen.

The South African investment industry’s experience with black economic empowerment over decades highlights that the need for some form of external pressure to hasten the shift in diversity in the industry.

One option, Dyers explained, was to introduce official targets, as has been the case with BEE scorecards. Another is pressure from clients to build diverse teams to manage their money because they believe this would deliver better outcomes.

“The latter is conceivable in an environment where there’s a shift towards ‘purposeful capitalism’ – generating good financial performance while also making a meaningful social difference – highlighted in the research report.

“The report revealed that clients want more from their investment managers than only a focus on profits and performance track records and instead expect to see them generate sustainable investment solutions,” she said.

Additionally, focusing solely on investment performance addresses another, arguably more pressing issue in achieving gender equality in investment management: there are too few women interested in investing.

“The research report correctly highlights that the industry has a reputational problem and that addressing this requires a major marketing effort to change its image as a desirable profession with the power to make meaningful changes in South Africa,” she said.