Go woke, not broke

Amid something of a backlash against the focus on diversity, equality and social justice, there will be those who dismiss new Investec research into investment companies’ performance in this regard as “woke”. But here’s the thing: even if you aren’t moved by the moral case for diversity, a growing body of evidence suggests it is good for your wallet. On those grounds alone, Investec’s findings on the gender split in investment company boardrooms make encouraging reading.

The analyst’s latest research praises the investment company sector for “spectacular progress in improving gender diversity”. Some 41% of investment company directorships are now held by women, up from just 8% in 2010, Investec points out.

There are now just twelve investment companies remaining without a single woman on the board.

To put those numbers in context, the FTSE Women Leaders Review’s target for FTSE 350 companies is that 40% of their board positions should be filled by women by 2025. With two years to go, more than two-thirds of investment companies have already met this objective.

Research into the impact of women on boards looks pretty conclusive. A study from the Cranfield School of Management, for example, found that FTSE 100 firms which showed greater gender diversity were consistently more profitable and that those with women on their board enjoyed higher market valuations. In the US, Harvard Business Review research has shown that firms with more women in senior positions are more profitable, more socially responsible, and provide safer, higher-quality customer experience. Work from McKinsey, Goldman Sachs, Wharton Business School and plenty more has reached similar conclusions.

Why should this be the case? In fact, there are various possibilities. One is simply that organisations with access to more diverse perspectives when making key decisions tend to make better judgements. Some think women are more open to challenging the status quo, which can be important. Others argue that women have very often had to work harder and deliver better results than their male counterparts to make it into senior positions – and that those in these roles therefore have many exceptional qualities.

In many ways, the reason companies outperform when women have more of a say doesn’t really matter – the fact is that they do. So, for investment companies, Investec’s numbers are really important. That investment companies, uniquely among collective funds, have boards whose role it is to hold management to account on behalf of shareholders is valuable in itself. The fact that those boards are far less “male and stale” than in the past provides even more comfort.

One final observation. Investec’s research doesn’t count the number of women fund managers in the investment companies sector. That’s a shame, since there is also evidence that female fund managers often outperform men. There’s less research in this area – not least because there have historically been so few female fund managers – but several studies have identified outperformance by women over extended periods.

Happily, there’s good news for investment company investors here too. Data published by the AIC last year suggested that just over a quarter of investment companies – 26% of those with named managers – have at least one woman running the show. In most cases, those female fund managers were working alongside male colleagues, rather than in total control. Still, given that research from Morningstar suggests women account for only 11% of fund managers across all collective fund types in the UK, the number is encouraging.

All in all, investment companies appear to be punching above their weight when it comes to gender diversity. That only underlines how far the sector has come in recent years, since this was an industry once thought of as conservative and even old-fashioned. For investors, this can only be good news.