Investing, especially when you are managing third-party money, is a huge responsibility - one that is assumed only towards the people whose money you manage.
Fund managers on fiduciary duty, often end up following a rather narrow approach. That brings us to the question: Is our responsibility, as Fund Managers, solely towards our investors or does it extend to our people, society, and planet?
Studying the team construct of various fund managers, I have observed three common traits:
(1) The teams are gendered (at least in senior/decision-making positions).
(2) Most team members come from a similar socio-ethnic, economic, or educational background indicating a preference for general consent.
(3) in a rapidly changing environment, many feel uncomfortable when their authority is challenged, especially by youngsters.
In an ideal world, ‘investments’ should be gender agnostic. However, research shows that diverse teams, gender diversity included, are more effective and innovative in problem-solving and decision-making. Evidently, having more women as part of the investing team creates better balance and is more effective.
Recently, as part of a jury evaluating start-ups, it was refreshing to see an equal representation from both genders on the panel of jurors (a rare mix in today’s environment).
During the process, we found ourselves in a unique predicament where not only the outcome of the jury was split (again common in many jury discussions) but it was clearly split by gender.
The start-up being evaluated came with a strong business proposition with the promise of great bottom-line metrics. Still, it seemed to have a significant negative impact on the livelihoods and health prospects of society. No prizes for guessing how the jury was spThe lit!
The crux of the matter, having women in investment teams can help in more responsible investment decisions owing to the social value orientation they bring to the table.
At our fund, we strongly believe in diversity, more so because we invest in Bharat, and we focus on building inclusivity within teams. We encourage all our team members to share their views openly as we need to understand what ‘young’ India thinks.
Risk management is a critical area of focus for any fund manager. Particularly ESG (environmental, social, and governance) investing involves considering long-term risks and opportunities that may not be immediately apparent from financial statements alone.
Women tend to exhibit risk aversion while taking investment decisions and a longer-term perspective can be particularly valuable in identifying and managing ESG-related risks.
A survey by UBS found that women are more likely to consider ESG factors when investing, where 58 percent of women said they consider ESG issues when making investment decisions compared to 48 percent of men (this explains the hung decision in the case above!). The survey also found that women are more likely to feel that ESG investing is important and that it can have a positive impact on society and the environment.
According to a 2020 study by Morningstar, funds managed by women were more likely to consider ESG factors, with 65 percent of funds managed by women receiving high ESG scores, compared to 42 percent of funds managed by men.
The study found that female fund managers were more likely to invest in companies with diverse boards and management teams and also highlighted that funds managed by diverse teams, including women, tend to have better risk-adjusted returns.
Sallie Krawcheck, the former head of Bank of America's Global Wealth and Investment Management division, recognized as one of the most powerful women in finance, is known to have publicly spoken about the importance of gender diversity in finance and investing in companies that prioritize diversity and social responsibility. She founded Ellevest, a digital investment platform that focuses on helping women achieve their financial goals.
Barbara Krumsiek, the former CEO of Calvert Investments, under whose leadership Calvert Investments grew to become one of the largest and most successful ESG-focused investment firms in the world, once quoted, "Companies that are doing good for society and the environment are more likely to succeed over the long term than those that are not. By investing in these companies, we can help to create a more sustainable and just world for all."
One can extol the virtues of having more women investors but it is also important to note that not all women are socially conscious investors and there is a great deal of diversity within any group of investors. Additionally, it is possible for anyone, regardless of gender, to be a socially conscious investor.
However, based on empirical data and anecdotal evidence one can suggest that women may be more likely to consider ESG factors and prioritize investments that align with their values and social goals while meeting the fiduciary duty of managing capital.
(The author is Partner at Aavishkaar Capital)
Disclaimer: The views and recommendations given in this article are those of the analyst. These do not represent the views of MintGenie.