Diversity can improve outcomes

Why are gender diversity policies a priority for our industry?

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Julia Warrander and Russell Waite, of Affinity Private Wealth, reply:

FEWER than one in five portfolio managers at the world’s biggest asset managers are women, despite long-running campaigns to improve gender diversity in the investment industry and research that indicates female investors outperform.

In a recent survey, the Financial Times contacted more than 20 of the world’s largest asset managers and found that while women make up more than 40% of employees on average, they account for just 18% of portfolio managers. This, against a backdrop where UK female fund managers have outperformed men over the past decade. Funds managed or co-managed by women in the IA UK All Companies equity sector returned 98% over the past decade, compared with a sector average of 87%.

Behavioural finance – psychology-based theories used to explain market outcomes and anomalies – is a subject of continued interest to the investment management industry and mature enough that most are aware of common investing biases. This awareness has helped prepare the industry to think more deeply about how behavioural biases affect decision-making more broadly and the benefits of diversity in overcoming groupthink (a phenomenon that occurs when a group of well-intentioned people makes irrational decisions spurred by the urge to conform).

Thankfully, more and more investment firms are recognising that the diversity of their employees can be as much a part of investment management success, as diversification of their investment portfolios. Evidence is building across these firms that a diverse and inclusive culture will be a competitive differentiator for them in attracting top talent.

Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Asset managers need to realise that by not having representative diversity – across all characteristics – they have missed out on cognitive diversity and, quite possibly, failed to provide their investors with the best possible investment outcomes.

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