Here's something that puzzled me when I was the chief investment officer of New York City's pension plan: Only 5 percent of the investment firms that managed the city's $160 billion, and only 15 percent of the products the city invested in, were managed by women. The numbers plummeted when counting women of color or asset classes other than public equities.
These vexing statistics aren't performance-related. Over the last three years, my office conducted six manager searches in the stock and bond markets. Of about 550 firms that met the preliminary criteria -- we invited bids from firms with as little as $250 million in assets under management -- only 3 percent were women-owned.
So where are the women investment managers? Investment firms say they receive few resumes from women and are resigned to the lack of diversity on their teams. This isn't going to change unless we work harder to recruit women into the investment business -- and strengthen the rationale for doing so. The solution lies not in prescriptive quotas but in increasing both supply and demand.
A critical period of development appears to be in high school. Almost 75 percent of high school girls identify math, science or engineering as major interests. But the number drops sharply, to about 21 percent, by the time freshmen girls are asked to indicate a college major.
Ability isn't the issue: Girls who grow up in Scandinavian countries, which are rated high in gender equality, match boys' interest and achievement in math and science, even beyond high school. Subtle cultural pressures and a belief, not entirely unsubstantiated, that fewer opportunities exist for girls are probably discouraging them from developing proficiency in these subjects.
Given this troubling reality, what can be done? Well, consider "Girls Who Code," an innovative program designed for middle- and high-school girls. Its goal is to increase the number of female software engineers in the U.S. by mentoring girls in computer science.
Why not start a "Girls Who Invest" program? It could bring successful female investors into high schools to share stories. Investment clubs, similar to math, chess and glee clubs, could help high-school teachers and advisers develop lesson plans and extracurricular activities.
Major investment firms could sponsor stock-picking competitions and contests in which girls pitch start-up business plans. For universities, an annual investment summit could be held on a different campus each year. Investment firms could be asked to commit to diversity goals, including interviewing a set percentage of young women for internships or full-time positions.
Increasing demand is a more daunting proposition. It requires changing the culture, and that requires education. To begin the conversation, we should remind investment managers that a basic tenet of sound investment strategy is a diversified portfolio. It makes sense, then, to have diverse perspectives to make the most informed, balanced investment decisions and to maximize returns.
Encouraging business-school professors to teach gender diversity as part of sound investing strategy would also help. When I was in business school nearly 20 years ago, this wasn't taught. Having surveyed a few of the top U.S. business schools, it appears this is still true. Stock and bond portfolio competitions between gender-specific and mixed-gender teams might highlight differences in thinking and performance -- and help expose biases. Group think, the flaw in many economic, social and political catastrophes, is less likely when the group is diverse.
At a minimum, this approach might debunk unfounded claims, articulated by academic economists and business leaders, that women are less capable than men in quantitative subjects, or that women lose clarity of thought and purpose after pregnancy.
A number of studies have revealed important differences between male and female investors. John Coates, a Cambridge University neuroscientist and former Goldman Sachs Group Inc. trader, found that higher levels of testosterone led to more frequent trading and an increased risk of losses.
Terrance Odean and Brad Barber, University of California professors, also found that men trade more frequently, which can lower performance, especially when transaction costs are counted. LouAnn Lofton, the author of "Warren Buffett Invests Like a Girl: And Why You Should, Too," identified eight traits that women investors share with Buffett, including that they do more research, trade less frequently and take on less risk than men.
None of this means that one gender invests more wisely than the other. Yet it seems reasonable to conclude that gender differences can enhance long-term investing success.
As it turns out, the misperceptions that dissuade investment managers from hiring women provide the strongest argument to employ them: Diversity of thought, investment strategy, investment instrument and asset class can help maximize risk-adjusted returns. It's not just good social policy; it's also sound investment strategy.
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Paula Dwyer at email@example.com