To quote an old adage, “You are what you eat,” my version would be, “You are how you invest.” Just as your home, your friends, your work, your leisure activities, your philanthropic involvements are all ingredients of what make you you, so too is your investment portfolio a reflection of who you are.
How do we make our investments look like us?
I am reminded of a conversation I had in 2008 with a chief investment officer of a multi-billion dollar foundation who told me that the foundation needed “to invest non-SRI so that we can have better returns and therefore provide more money to our grantees.” The foundation would grant huge sums to environmental causes and, simultaneously, undercut their own grants by investing huge sums in not-so- environment-friendly large companies. If the value of the grant dollar equaled the value of the investment dollar, we could call this a zero-sum game — certainly inconsistent and reactive, at the very least.
But now it’s 2015, and the notion that an investor needs to sacrifice financial returns for social returns has become old-fashioned.
In fact, we are now finding that there is even an economic imperative to link our capital market investments with our values. Let’s explore, for example, the financial advantage to invest with a gender lens.
Do you believe in gender equality? Truly? Then consider the following statistics.
Catalyst found that over a recent five-year period, public companies with a minimum of three women on their boards had a 46% higher return on equity, a 60% higher return on invested capital, and an 84% higher return on sales.1 And yet, only 19.2% of board members of S&P 500 companies are women, a glacial increase from an even paltrier 16.9% in 2013.
Dow Jones reported in 2012 that start-ups with more women in C-suites had double the success rates of start-ups with fewer women in their C-suites.2 And yet, a Babson College survey found that 2.7% of the 6,517 companies that received venture funding from 2011 to 2013 had a female CEO.
The Rothstein Kass 2012 and 2013 reports, covering five-year periods, found that women hedge fund managers handily outperformed their male counterparts.3 Upon hearing these results, only 25% of hedge fund investors planned to increase their allocations to women hedge fund managers.4
We as investors demand that companies position themselves for innovation and set as many standards as possible for financial strength. And yet, when statistics reveal that investing with a gender lens actually correlates to sustainability of company strength in our capitalist structure, most investors stand still. It is not sustainable to limit the candidate pool. These statistics suggest that gender equality measures merit elevation to company strength metrics as much as earnings per share, profitability, or other financial metrics do.
What percentage of female representation is in the company’s workforce, senior management or board positions? And how does the company treat its women employees?
How do we make investing with our values of gender equality a sustainable proposition? Through healthy disruption. Individual and institutional investors need to demand gender equality as a requirement for investment. Let’s reward companies that favor gender equality. Money talks. Recognize that an investment is similar to a vote. To remain quiet is a vote for the status quo—now financially as well as socially.
The movement for gender equality in corporations has the US activates well-known individual business leaders to change the national conversation to focus on gender equality while promoting gender equality within their companies. 2020 Women on Boards enables individual investors and company customers to raise their voices through email campaigns.
It is time for your voice to be heard. Your investment portfolio is not your grandfather’s investment portfolio. It represents you. Old-fashioned may be quaint and comfortable, but in 2015, investors can and need to demand more.
Eve Ellis is a wealth advisor and portfolio manager at the Matterhorn Group at Morgan Stanley. Her portfolios include The Parity Portfolio, the pioneer Gender Lens portfolio, and The Matterhorn Global Sustainability Portfolio. Eve is a CIMA, a CFP, an Accredited Investment Fiduciary and a Yale graduate.
1 Catalyst. The Bottom Line, 2011.
2 Dow Jones and Company Inc. Women at the Wheel: Do Female Executives Drive Start-up Success?
3 Rothstein Kass. Women in Alternative Investments: Building Momentum in 2013 and Beyond, 2012. For example, for the five-year period ending 2012, the Women in Alternative Investments Hedge Index had a cumulative return of 19.6% for the women hedge fund managers versus -14.2% for the HFRX Global Hedge Fund Index.
4 KPMG. Women in Alternative Investments: A Marathon, Not a Sprint. 2014.
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