Supported by Impax Asset Management and Veris Wealth Partners
In this first of a two-part series on gender-lens investing, we take a look at recent inflows and new products coming to market, and why institutional and retail investors alike are starting to embrace this subset of ESG — despite the challenges that such strategies still face.
On International Women’s Day in early March, hundreds of thousands of people — both women and men — marched in cities around the world in support of women’s rights and gender equality. They did it in spite of growing fears of the coronavirus, confrontations with police in some cities and, in at least two countries, violent opposition from religious conservatives.
The massive turnout, even in the long shadows of a viral pandemic and institutional opposition, was inspiring — and it reflects a similar trend in the investment world, where a growing number of investors of all stripes are putting money into companies that have explicitly pro-gender equality or pro-women policies.
This style of investing, a subset of ESG investing called gender-lens investing, is clearly on the rise as investors seek solid returns while also supporting gender equality.
“Things are changing dramatically,” says Joseph Keefe, president and CEO of Pax World Funds and president of its investment adviser, Impax Asset Management, as well as CEO of its subsidiary, Pax Ellevate Management, one of the pioneers in the gender-lens investing space. “This field is really taking off.”
Underlining such bullish statements are moves by groups like the Texas Women’s Foundation. The Dallas-based organization announced in February that it will shift its entire investment portfolio — some $44 million — into funds with a gender-lens focus.
Gender-lens investing, or GLI, doesn’t have one set definition, but it generally means investing in companies that are especially strong on women’s issues. That could entail having above-average numbers of women on the board of directors or in senior management positions. It can also mean companies that work toward paying women equal to men or provide better family leave policies.
Supporters say looking for these factors when you invest isn’t just good for society; it’s good for investment returns too. They point to a wide, and growing, range of research to back up this assertion. As Veris Wealth Partners says in a new report: “Over the past decade, many studies have confirmed the superior financial performance of public companies with strong female representation at the board level and in senior management.”
That’s a key driver behind the investment methodology of the Pax Ellevate Global Women’s Leadership Fund, and Keefe says its long-term performance proves the point. The fund’s institutional share class returned 26.8% in 2019, a hair shy of beating its benchmark, the MSCI World index, in 2019. The fund did beat its benchmark in the prior two calendar years. As of Feb. 29, 2020, the fund has outperformed the MSCI World Index for the 3-year and 5-year periods. “Attribution analytics underscores that the outperformance is being driven by companies with more gender-diverse leadership,” Keefe says.
Investors like the Texas Women’s Foundation believe it too, and are responding by putting increasing amounts of money into GLI strategies. As of June 2019, there was a total of $3.4 billion invested in such products, according to Veris — up from $2.4 billion a year earlier.
Asset managers are responding to the spike in investor interest as well, by rolling out new GLI products at a healthy clip. In 2014, there were only eight GLI investment strategies on the market; by 2018, that figure had grown to 35. Today, “there are now more than 50 publicly available GLI products,” Veris reports. Those products come from asset managers of all shapes and sizes. Besides Pax, managers offering GLI-focused strategies include UBS, State Street Global Advisors, Glenmede, RobecoSAM and RBC.
The funds are getting bigger, too. As of last June, there were 10 GLI products with more than $100 million under management, and six that had more than $250 million, according to Veris.
All this money is coming from multiple sources. As a mutual fund, the Pax Ellevate product is mostly retail dollars. “But we do find increasing institutional interest in it,” Keefe says. More interesting, perhaps, is “a lot of pent-up demand in the marketplace among women advisors and women investors,” he adds. Women understand the concept that firms that are run by women, or that at least have more gender equality, tend to be better-run and thus perform better as investments. “They are looking for a way to invest in that thesis,” Keefe says.
Supply and demand for GLI products may both be up, but challenges persist, including around education. “A lot of the market is still not familiar with the research” that shows the benefits and strong performance of GLI, Keefe says.
There are also misperceptions around the very concept of gender-lens investing itself. “There are still people who think ‘Oh, it’s a women’s fund; they must just invest in Lululemon,” he says with a laugh. “Whereas we actually invest in big, blue-chip, global companies. Our largest holding is Microsoft.” Besides Microsoft, other top-10 holdings of the fund include Best Buy, Bank of America and Kellogg.
(Lululemon actually is in the fund’s top 10 holdings, as of the end of 2019 — but that’s because of the firm’s gender balance and policies, not because its products may be geared towards women.)
Setting these challenges aside, managers should also be careful in how they run their GLI portfolios, warns Erika Karp, founder and CEO of Cornerstone Capital, as she sounds a note of caution about the growth of the space.
“We are seeing an onslaught of managers and funds and ETFs that think they are doing GLI,” she said at a recent CleantechIQ panel discussion. But, she said, not every manager uses proper metrics to select their investments. She advised managers to be sure to look more at factors like supply chain diversity, HR policies around promoting women employees, pay equity and more.
Funds that look at the wrong data, she said, are using “bad analysis and bad due diligence, and those funds may very well underperform.” And that, she said, could reflect poorly on GLI overall and make investors less likely to embrace it — an “unintended consequence” that will “undermine what we’re trying to do,” according to Karp.
(Editor’s note: We’ll have much more on GLI data issues in an upcoming article)
The Texas Women’s Foundation isn’t worried about underperformance. Morgan Stanley’s Graystone Consulting is managing the assets in a portfolio that is “fully diversified across asset classes,” the foundation says, with investments selected through both financial and gender-impact lenses.
A spokeswoman for the foundation says it’s too soon to report on results, or to detail any specifics about the new portfolio. But the organization is optimistic that its move could inspire other investors to embrace GLI.
“We hope that we can inspire others to become part of what is now a global movement around impact investing,” president and CEO Roslyn Dawson Thompson says. “Specifically for women’s funds and foundations, we can demonstrate how, by mission-aligning 100% of our assets with our philanthropy, we can powerfully accelerate the change we seek in the world.”
That change is already underway, Keefe believes. “There is still some skepticism” toward GLI, he concedes “That said, there is no doubt that younger investors, women investors, and more and more institutional investors understand that the better you manage diversity risk, the stronger it’s going to be. We think this is a better way to invest.”