Why the funds industry needs its own 30% club

By Andreea Papuc

The asset management industry has a serious gender problem. The number of women managing funds has virtually stagnated in recent years. One way to start fixing this is for large investors to demand that more diverse teams manage their money.

The share of women overseeing funds has risen less than two percentage points since 2016 when Citywire — with a database of about 18,000 active managers — began publishing on gender in the industry. It rose a paltry 0.1 percentage point to 12.1 per cent in the past 12 months, according to the latest report released in September. Even more worrying, the number of funds run by sole female managers dropped from 1,508 to 1,490, a record low. In contrast, those managed by single male managers went up from 12,659 to 13,110, a 4 per cent increase.

It is no longer enough to talk about an internal culture shift — initiatives that fund houses should take to recruit, hire, compensate and promote women consistently. It must also come from outside stakeholders. What this subset of financial services needs is its own version of the 30 per cent club. The campaign started in the UK in 2010 to increase diversity on boards and in senior management teams. At the time, women accounted for 12 per cent of FTSE 100 board members. That number is now inching toward 40 per cent, and the initiative has been successfully taken up in other countries.

Money managers should train the same gender lens they apply to investments on the teams managing them externally. They have a lot of clout to spearhead change: Global pension assets stood at around $48 trillion at the end of 2022, the OECD estimates.

“Large allocators should focus on allocating more capital to women-led companies and funds where women own more than 50 per cent of the economics and are not just the ‘token woman partner,’ which is something we see frequently,” Supriya Batra, a partner at Los Angeles-based Bel Air Investment Advisors, which oversees over $9.5 billion in assets for high-net-worth families and individuals, and foundations, told me.

Chart showing growth in number of female fund managers has virtually ground to a halt.

HESTA is an Australian pension that oversees about $49 billion in assets for its members in health and community services. Its team is 42 per cent women. Chief Investment Officer Sonya Sawtell-Rickson, in a recent interview, called for more female fund managers but stopped short of saying the fund won’t work with managers who failed to show they were making inroads on diversity, even though it was increasingly applying a “gender lens” to investments.

To be fair, it is not easy to allocate large pools of cash to diverse teams. Women continue to be overlooked for fund launches, and are more likely to manage smaller, niche funds. The average size of portfolios run by females is half that of males. Because of their risk mandates, that can prevent large institutions from giving capital to unseasoned managers.

To Batra, who has worked in wealth management for 20 years, “this leads to a self-fulfilling cycle where current fund managers, who are primarily male, are the recipients of capital since they have existing track records.”

Encouragingly, Citywire found an increasing trend toward teams that consist of both women and men. But that is overshadowed by the fact that the industry is still struggling to retain talent and looks for it in a narrow pool of candidates. There is also the issue of flexible work, which would attract more women, disappearing as firms expect employees to be in the office more.

There are some green shoots. In the US, public pension funds are leading the way when it comes to building more diverse investment teams and seeking out similar managers — perhaps because they need to be more accountable to government regulations on diversity, according to Morgan Stanley. But that was uncommon among private-sector funds.

Graph showing men run twice as much as women, on average.

There is a key reason why it’s imperative to get the ball rolling on gender parity in asset management: the vast amount of wealth women will possess in coming years. By 2030, American women are expected to control much of the $30 trillion in the financial assets of baby boomers, McKinsey & Co. estimates. It doesn’t necessarily mean that they will ask for female advisers, but they will want relationships more aligned with their investment needs. The logical assumption would be that you need more women to play an integral part in investment teams, and manage products to be more in tune with the clients they are serving.

As Manuela Froehlich, co-founder of Fondsfrauen, a professional network for women in funds sector that started in Germany, told Citywire: “If there is pressure from investors or a monetary drawback, these women will suddenly be found. Surprise!”

In the UK, there is already an organized push to lift the number of female fund managers. Perhaps not surprisingly, the Diversity Project’s Pathway program is the brainchild of Helena Morrissey, who established the 30 per cent Club 13 years ago. There is still resistance in the industry: Morrissey told Citywire some asset management firms were concerned about positive discrimination toward women and the backlash if they participated in the program.

“If we had taken this approach when we were trying to get more women on boards from less than 10 per cent in 2011, there is no way we would have shifted the numbers to 40 per cent today,” the former chief executive officer of Newton Investment Management and member of the House of Lords said.

That’s precisely the point. It must start somewhere; build and they will come. The Pathway program could be replicated in other markets in the same way the 30 per cent Club has been. The industry could also highlight returns from diverse managers (diverse teams have been consistently been shown to have better risk returns than solo managers, male or female), track the progress toward diversity targets, offer opportunities for smaller and more junior teams, and require consultants to maintain a list of diverse managers.

We now insist on gender-balanced panels at conferences, and there is no going back on female representation on boards. Funds management is in dire need of its own campaign.