It will not be news to anyone that financial services has a gender diversity issue, and manager research and asset management are no exceptions.
When Citywire USA analyzed the breakdown of its readership, it found that just 15% of online and magazine subscribers were women. This number is slightly higher than the results of a recent survey of gatekeepers we conducted, in which just 10% of respondents were women.
This latter number is in line with the wider asset management industry average. Citywire’s 2017 Alpha Female study into the number of women portfolio managers globally found that just 10% of the profession in the US were women. Work by Morningstar puts this number slightly lower.
US Bank’s Lisa Erickson
What’s interesting about this is that manager research in particular does not seem to discriminate once women have picked it as a career. It is typically a meritocracy and is thought to be a corner of financial services that had avoided some of the macho culture that plagues Wall Street’s less enlightened corners.
As Kathy Blake Carey, director of private wealth management research at Baird, told Citywire in a recent interview: ‘I find it a great place where you can be judged on your merit. If you are picking good stocks or managers, that will come out in the numbers.’
This is borne out in practice too. Of the nine women gathered in Manhattan’s Meatpacking District that crisp March morning, four were heads of manager research at their firms.
Morningstar’s Laura Lutton
So why are women so underrepresented? ‘It’s all about the pipeline,’ said Laura Lutton, director of manager research practice for North America at Morningstar. Kristine Mogollon, director of investment product management at Thrivent Financial, echoed this sentiment, noting that while there was no shortage of qualified women, most of them tend to pursue careers outside the investment industry.
‘There are plenty of professional women, but the [number of] ones who are actually choosing to pursue investments and research is just not as high,’ she said.
And she’s right. According to the CFA Institute’s 2016 Gender Diversity Report, women represent 57% of college graduates and make up about 50% of all Certified Public Accountants, 48% of medical students and 47% of law school students, compared with just 18% of CFA charterholders.
Thrivent’s Kristine Mogollon
'If the majority of CFAs are men, it’s going to be harder to have diverse leadership,’ Lutton added.
Meanwhile, Mogollon said she stayed active within the CFA Society’s Minnesota chapter in an effort to fix the issue.
Blake Carey pointed out that undergraduate university classrooms also provide clues as to why the pipeline for women in investments is not as strong.
‘It feels like the numbers have been stagnant for a while,’ she said. ‘For example, in accounting programs at universities, you walk in and there’s a ton of women, but you walk into the finance classes and there’s just not as many.’
Edward Jones’ Katie Martin
This then leads to a small pool to hire from and low overall numbers. ‘I’m the only female on my team, and while we certainly try to recruit and hire more women in the role, it is very limited,’ said Carrie Clasen Porter, manager of research and due diligence at Bank of Oklahoma Financial.
Who’s calling the shots?
A lack of diversity on a team can certainly have an effect on how decisions are made.
No one at the roundtable suggested that any one gender made better decisions than the other, but they did highlight the benefits of at least having both represented at the table.
‘What I have found to be critical to the team is the diversity of thought and experience. So it’s about being able to look at it from a different perspective and to offer a different point of view. That [diversity] does more to push our team forward,’ Clasen Porter said.
Cetera’s Suehyun Kim
Suehyun Kim, investment director at Cetera Investment Management, agreed, referring to some characteristics that women in the investment industry have demonstrated that can contribute to overall performance.
‘An observation I’ve made is that women are often more deliberate in their decision making under pressure and less likely to take marginal risks, requiring more conviction to voice an opinion, get behind a decision or vote. That inclination can certainly serve to diversify perspectives on an investment team,’ she said.
‘Also, in general, women are less likely to speak off the cuff and more likely to require analytical evidence before pounding the table on something,’ she added.
‘More often than not, I am the only woman in the room, which sets me apart to begin with, so I do find myself wanting to go that extra mile to ensure I am prepared to speak knowledgeably.’
Talk soon turned from diversity toward how the various firms represented at the roundtable incentivized their analysts.
‘Our philosophy is that everyone is accountable,’ said Lisa Erickson, head of the traditional investments group at US Bank.
She said the bank tracked the performance of analysts’ picks over three years – a timeframe that she admitted was not perfect.
‘Unfortunately, you don’t have a whole market cycle to prove yourself,’ she said.
Lutton agreed that it was difficult to incentivize in the short term, while thinking further into the future. ‘It can be a challenge, especially when you want everyone to stay long-term-focused,’ she said.
A forthcoming survey by Citywire into professional buyers’ compensation shows that while the bulk of analysts’ bonuses are dependent on the overall performance of the wider firm, a component for many is decided by the performance of manager picks.
Where this was the case, the most common measure of performance was a manager’s category ranking and the most common timeframe was three years.
Katie Martin, a senior area analyst within mutual fund research at Edward Jones, said that professional buyers at the firm were rewarded based on their overall ‘quality,’ not just fund performance.
‘The majority is tied to the quality of the analysis,’ she said. ‘We track the performance of our managers, and a portion of the bonus is tied to the performance of the recommendation. It is a way we stay aligned with clients and that is very important to us,’ she said.
Sage Lincoln, senior research director at Wells Fargo Investment Institute, said that tracking analysts’ picks also helped to teach the team where it had gone wrong and to improve future performance.
‘We have flagging mechanisms every quarter, so if the strategy outperformed or underperformed we’re being diligent in writing attribution so that everyone has that accountability,’ she added.
‘Providing more transparency – why something did well or did not – will better equip us to answer the question: “Are they actually adding value?”’
However, Lincoln said that that being a good analyst was about more than just picking winners. ‘Curiosity and an ability to connect the dots, strong analytical skills and drive [are key],’ she explained.