Podcast: Introduction to Gender-Lens Investing

In this Ropes & Gray podcast, asset management partners Melissa Bender and Isabel Dische discuss a subset of impact investing – gender-lens investing. In the course of their conversation, Melissa and Isabel provide an overview of both the objectives and different types of gender lens investments.

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Transcript:

Isabel Dische: Hello, and thank you for joining us today on this Ropes & Gray podcast, the latest in our series of podcasts and webinars focused on ESG, impact investing and corporate social responsibility. I’m Isabel Dische, an asset management partner in our New York office and co-head of our institutional investor practice. Joining me today is Melissa Bender, a partner in our asset management practice group based in San Francisco. Today, we’ll be discussing a very interesting subset of impact investing – gender-lens investing. Melissa, could you tell us a little more about this topic?

Melissa Bender: Thank you, Isabel. While the exact definition varies, the Criterion Institute, a leading think tank exploring issues of structural inequity, defines it as “the incorporation of gender analysis into financial analysis in order to make better investment decisions.” What we’ve seen is that while asset managers and institutional investors have many ways to incorporate a gender lens into their process, gender-lens investing often takes one of two main forms. First, allocating capital to women or companies with women in leadership positions. And second, investing in services or products that improve the lives of women.

The first concept, allocating capital, covers a wide range of potential approaches. One approach we’ve seen is direct investing in female entrepreneurs, whether it’s a female agricultural entrepreneur in Latin America, a start-up founder in Silicon Valley, or even a company with outstanding female C-suite leadership. This approach has the benefit of immediate impact because women today generally lack equal access financial capital in society. For example, only 2.2% of all venture capital funding was allocated to female founders last year. Compounding this problem is the dearth of women in senior positions at asset managers. For example, we know that only 10% of senior positions at PE firms are occupied by women. We also know that female partners at GPs tend to invest in almost twice as many female entrepreneurs as their male colleagues. A gender-lens approach attempts to address this imbalance and the potential downstream effects. 

Isabel Dische: Thanks, Melissa. So we’ve seen that providing capital is perhaps the most direct way to engage in gender-lens investing, but there are other ways to pursue such as strategy as well. These focus on investing in companies that meet certain criteria around recruitment, retention, training and promotion of women. The focus here is on addressing structural barriers inside of companies. Investors can target companies with adequate representation of women at each level of seniority and that have implemented best practices for the advancement of women in the workplace. For example, a recent McKinsey report on over 600 companies shows that men held nearly two-thirds of manager-level positions. The related wage gap has been estimated to cost college-educated American millennial women $1 million over the course of their careers. Gender-lens investing can play a role in reducing these gaps by providing capital to companies that seek to empower and promote their female members. That said, a fair question is why may this of interest to an investor who is seeking to achieve financial returns? Setting aside moral views, various studies have shown that the more diverse teams are, the more innovative and objective these teams are at evaluating data. This strength tends to improve business performance, thus providing an investment rationale for gender-lens investing. This is but one of many different arguments that have been advanced in favor of investing in more gender-diverse enterprises.

Another reason asset managers may want to consider gender-lens investing is client interest. Much as interest in ESG more generally has grown dramatically over the years, interest in gender-lens investing has grown. From 2014 to 2018, assets under management in public gender-focused projects have gone from $100 million to $2.4 billion, and we know this number has increased since then. Recently, the Financial Times reported that 27 gender lens funds had launched in 2018, an increase from 19 launches in the year prior. In addition to mutual funds, other examples of current gender-lens investing products are debt funds, ETFs, PE funds and separately managed accounts. These products apply a range of different approaches to gender-lens investing. For example, one mutual fund invests in the highest-rated companies in the world for advancing women through gender diversity on their boards and in executive management. Given this trajectory in investor interest, however, we expect to see more gender-lens focused fund launches in the years to come.

Melissa Bender: Finally, there is one more category of gender-lens investing that we should mention – investing in services and products that advance and benefit women and girls. By now, it’s widely acknowledged that women are disproportionately affected by structural and economic issues, as well as societal norms and expectations. The products and services covered under this category are broad, and can range from improving health and education to providing safe housing. There is also a broad understanding that this category holds significant potential. According to the Harvard Business Review, women make the majority of consumer decisions, yet companies are failing to deliver on the specific needs of women in the products they bring to market. The categories we’ve just talked about are not exhaustive. Likewise, gender-lens investing is not all or nothing – for asset managers and institutional investors that aren’t ready to embrace gender-lens investing head-on, just being aware of gender diversity when allocating capital is a potential first step. We also know that some LPs are starting to screen GPs and fund sponsors on gender diversity metrics, so there is an evolving business case for managers becoming fluent in gender diversity.

Isabel Dische: Thank you, Melissa. As we’ve seen, for many reasons, gender-lens investing presents an opportunity for asset managers and institutional investors to promote gender equality globally, as well as to potentially achieve added returns. It will be very interesting to see how this space develops over time. We’d also like to say thank you to our listeners for joining us today. For more information on gender-lens investing, and other topics of interest to the ESG and impact investing community, please visit our website at www.ropesgray.com. And of course, if we can help you navigate any of these areas, please don’t hesitate to get in touch. You can also subscribe and listen to this series wherever you regularly listen to podcasts, including on Apple, Google and Spotify. Thanks again for listening.