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Still some way to go

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15 November 2019

David Prosser examines female representation on investment company boards.

‘Has improved but could still do better’. That would be a fair characterisation of Investec’s latest study of female representation on the boards of the UK’s investment companies.

Covering just over 300 closed-ended funds, the study reveals that women now account for 27.9% of all investment company directorships. That represents significant progress since 2010, the first time this study was undertaken, when the corresponding figure was only 8%. Less happily, 14% of investment companies still have all-male boards – that’s 43 funds, which is down from 68 in May 2018, but still disappointing.

Critics of the sector will also point to the faster progress being made in some parts of broader corporate life. The Hampton-Alexander Review is now targeting 33% representation for women on the boards of the UK’s 350 largest stock market-quoted companies. Members of the FTSE 100 Index are already at 30.5%, well ahead of investment companies. Across the FTSE 350 as a whole, though, women accounted for 26.7% of directorships according to the most recent official review, so the investment company sector can’t fairly be accused of lagging, at least in aggregate.

Why do these figures matter? Well, apart from the moral case for more gender parity, the business case is compelling. Boards with good female representation report that their discussions are richer and deeper – and that their decision-making is better as a consequence.

Such anecdotal evidence is backed by a substantial body of academic research, with clear links established between female leadership and corporate outperformance. In one study, conducted by the accountant Grant Thornton, researchers found that publicly-traded companies with wholly male boards could be missing out on £430bn of investment returns each year. Credit Suisse research has found that the average return on equity of companies with at least one woman on the board is four percentage points ahead of the returns generated by those with no female directors.

In the investment sector specifically, there is also evidence that women bring additional value to the table. Indeed, several studies have found that women fund managers perform better than their male counterparts, particularly in certain disciplines. For example, a US study published in 2013 found that women pursuing value investment strategies “significantly outperformed” male peers investing in the same way.

There are good explanations for these results. Businesses with leaderships that better reflect their customer bases are bound to have a better understanding of those customers. And with research suggesting that women are the prime influence in 80-85% of the spending decisions people take around the world each day, operating without the benefit of female insight seems pretty daft.

Coming back to the investment company sector, the prognosis for further progress is encouraging – not least thanks to the AIC’s efforts to persuade boards to make consideration of diversity and inclusion an annual exercise.

In fact, some parts of the industry are already doing better than others. Amongst equity-focused funds, female board representation is now at 31%, while alternatives funds have so far managed only 23%. The pressure is now on the laggards – and particularly those funds with no female directors at all – to catch up. At those that fail to do so, investors and advisers are entitled to demand an explanation.