At a crossroads: Coronavirus upheaval threatens progress on gender diversity in investment industry
The asset management industry has reached a critical period for nurturing gender diversity, industry experts have advised, as investment firms choose how they will adapt to new challenges caused by the coronavirus pandemic.
Baroness Helena Morrissey says the investment industry has always been “slow to shift gears” in the face of problems, including gender diversity and transparency over fees.
Baroness Morrissey founded the campaign group the 30% Club in 2010, which targeted a minimum 30 per cent female board members, in addition to being the former chief executive of Newton Investment Management and chair of the Investment Association.
She now chairs the Diversity Project, which works to improve diversity in all dimensions in the investment and savings industry and serves as a peer in the House of Lords.
Recent progress has been “very tentative”, with the share of women in fund management roles reaching 11 per cent in 2020. In 2016, women accounted for 10.3 per cent of fund managers.
Citywire estimates that at the current rate of promoting women to senior roles, it will take two centuries before female fund managers achieve parity with their male colleagues.
Baroness Morrissey believes that even the slow progress the industry has made to hire and promote more women could slide backwards, if firms fail to make positive efforts now.
“It's too soon for it to withstand a body blow in the form of people just taking their eye off the ball at this point,” she says.
The Diversity Project recently announced new targets for gender diversity in the asset management industry, which include halving of the industry's gender pay gaps, and 30 per cent of fund manager roles being held by women, by 2030.
The coronavirus pandemic may add a new layer of difficulty in meeting this target, as women have so far been disproportionately affected by lay-offs at their companies.
This fact has been explained mostly by the higher proportion of female employees in the travel and hospitality sectors, which suffered as a result of restrictions to tame the spread of the pandemic.
But as government schemes that support employers start to roll back, economists including RBC Global Asset Management’s Eric Lascelles have warned of the risk that this will spill over into a broader “she-cession”, since women working from home have been taking on more additional domestic work than men on average, including childcare and care of elderly parents.
“I suspect we'll see a chipping away at the number of women in fund management,” says Baroness Morrissey, but that this won’t be “seismic” since there “aren't many women to lose their jobs in our industry when it comes to fund managers”.
She adds that unless the asset management firms step up their efforts, it is unlikely there will be any further progress towards closing the industry’s gender pay gaps, which are the second largest of any UK sector.
At the same time, the investment industry is facing accelerating existential threats and is also navigating new ways of working, leaving many firms to believe gender diversity is “the last thing you should be fussed about when you've got such other fish to fry”.
Baroness Morrissey says that there are other investment management firms who recognise that “this is an opportunity for the industry to modernise”.
Breaking with tradition
Luba Nikulina, global head of research at Willis Towers Watson, points to one of most established traditions in asset management that may need to change in order to make the industry more inclusive of women: the “sacred” track record.
“Before you become a portfolio manager, you will be asked whether you have already managed money for a few years. Obviously, if women were not represented in the past, even at 11 per cent, then it's really hard to find this talent.”
The track record also means money managers need to be “constantly on” and may feel unable to take a career break because it would lose them their track record.
Fund managers tend to face a cut-off point of around three months’ break before losing their track record.
This is starting to change, says Nikulina, as firms recognise the disproportionate effect this policy has on female fund managers: “What we have seen some firms implementing is actually being a bit more open about [the track record] when they do their mid-level hires, or even starting to practice a co-portfolio manager system.”
Falling star fund managers
Teams of co-portfolio managers, as opposed to one “star fund manager” with a distinguished track record, provide more flexibility for managers to take extended parental leave, but may also improve investment decisions as a wider range of ideas and opinions are taken into account.
Over the month of September, four out of the ten best-performing mutual funds were managed by teams that included at least one woman. This included the top performer, JP Morgan Japan, which, according to data from Morningstar, returned 10.7 per cent over the course of the month.
Nikulina continues: “One of the other significant trends that is happening in the industry is the move from this star portfolio manager approach more towards teams.”
The idea of a “star” portfolio manager has dwindled in popularity since the shutting down of Neil Woodford's fund in 2019, who had once been dubbed “the man who can’t stop making money”, but whose risky investment decisions led to collapse.
“In the past, this whole concept of accountability and holding one generally white man responsible for the track record was very much ingrained in the mindset,” she reflects.
Nikulina believes that the abundance of information these days has made it “pretty much impossible” to build a competitive advantage based on a team of investment analysts that support one hard-working manager, who makes the investment decisions.
“You really need to build a system where you have this diversity of perspectives, and prior experiences coming into the decision making, and ensuring that this process is not dominated by one person. You really need this variety of perspectives to be able to maintain the competitive advantage and being able to generate alpha,” she explains.
Others in the industry see dangers in allowing too many voices enter the decision-making process. Henrietta Pacquement, Head of Investment Grade, for Wells Fargo Asset Management’s Credit Europe team, says there ought to be “someone who has final say”.
“I think that's beneficial if you're managing money. You need a mechanism, in case of disagreement, to make sure a decision is made on whether an investment goes into the portfolio or not.”
Baroness Morrissey agrees that shifting away from the idea of the all-important track record and “star fund managers” would be healthy for the industry, not only because it would help women return to managing money after any family related career break, but also because it would reduce the temptation for managers to take outsized bets.
Returning to work
Baroness Morrissey also recalls being passed over for promotion early in her career as a bond fund manager, because she had taken five months’ maternity leave to have her first child, and says many women struggle to break back into asset management after taking time off.
One example lies with the “returners” programme she launched with The Diversity Project in April, to help employees return to work after an extended career break including parental leave, with participating employers including BlackRock, BNY Mellon, Fidelity International, Legal and General, State Street, Schroders, and Willis Towers Watson.
There was overwhelming demand. “We had 30 places for our first cohort, and we had 900 applicants,” notes Baroness Morrissey.
In addition, the Diversity Project has been collaborating with pension fund consultants and regulators, aiming to make the industry “happy with the idea that you can have a gap in your track record rather than you lose it”.
This does not diminish the importance of performance, she argues. “Fund management should all be about results – both business results and investment results – and not hours spent at the same desk.”
The long view
The spirit of greater flexibility could be a long-term positive for gender representation. Post-coronavirus, Nikulina expects a “hybrid model” to win out in the end, with the bulk of research, thinking and writing done from home, while discussion and innovation happen with a team assembled in an office.
“The lack of flexibility here is hugely important for improvement of the gender balance, and a flexible working policy is something that we were asking for, and now it has become so much more accepted. As a result, we will probably have, in the longer term, a positive impact on gender representation in our industry,” she says.
The problem that Baroness Morrissey says has kept asset management from making real progress in the past, is that gender diversity has “never felt business-critical in the industry”.
“It's never a do-or-die moment – but it needs to feel that way if we’re going to see real progress,” she argues.
The coronavirus has been a call for investment firms to modernise, by forcing a raft of changes from old ways of working. Gender diversity may end up being carried along with the tide of modernisation. If complacency continues, it could get lost in the noise.