Gender Bias: Part Of The Folklore by State Street Center for Applied Research
The investment industry could learn a thing or two from honey bees. Their communication skills are impressively demonstrated by their so-called “waggle dance,” which details the distance and direction to valuable food sources. They are extraordinarily efficient and even models of utilitarianism, in how they optimize foraging efforts for the overall health and well-being of the hive. Perhaps what’s most remarkable about this group of insects is the precision with which they create perfect geometric symmetry in the honeycombs that beautifully maximize honey storage within the hive.
Nature is replete with such examples of perfect symmetry. Even in our daily lives, human beings are obsessed with symmetry — from facial features to personality traits.1 Lack of symmetry leads to tension, which we alleviate by achieving balance.2 By our own nature, we seek a tranquil balance of yin and yang. However, this balance does not translate to the investment industry. As a whole, the industry has been in a state of dis-equilibrium.
Gender bias in the investment industry
There is no shortage of data that illustrates the gender imbalance within the investment management industry. Our investigation into gender diversity was sparked by a related research study. In “The Folklore of Finance: How Beliefs and Behaviors Sabotage Success in the Investment Management Industry,” we examined a broad set of behaviors that influence investment decisions.
According to that study, the models for success in the investment industry are broken. Investment professionals are failing to deliver alpha on a consistent basis, and they are failing to help investors achieve long-term goals. Could it be that gender specific differences in investing are contributing to the industry’s failure to achieve true success? To answer this question, we must first determine whether the decision-making process differs between men and women. It is a difficult question to answer — not the least because, even if such differences exist, they are not static over time.
Research tells us that there are fundamental differences between the male and female brain that impact how we make everyday decisions — perhaps including investment decisions. Specifically, our brains are shaped by genes, hormones and life experiences. The first two are biological (where we have the least control); the third is environmental (where we have the most control).
As our life experiences become richer and more diverse, we also change. Even the very structure of our brain changes — and hence the manner in which we think and act. Nobel Laureate Eric Kandel discovered that new experiences actually change the anatomy, chemical composition and function of the brain.10 Experiences are literally embedded in our brain, influencing our behavior.
Could these biological and behavioral stimuli impact and be impacted by gender differences? And how would this apply to investment decision making? As in “The Folklore of Finance” study, here we look at a representative sample of individual investors as well as professional investors, including asset owners (pension plan sponsors, foundations, endowments and sovereign wealth funds), asset managers, intermediaries and regulators. Segmenting our research in this way allows us to compare any gender differences across the various groups. We augment this primary research with academic and industry research on the topic of gender diversity.
To begin our analysis, we review demographic results of our primary research, focusing first on professional investors and comparing our own results with those of secondary research. Next we look into gender differences in investment decision making for individual investors, and the potential consequences of a gender gap. We introduce the concept of gender folklore and consider how it may be reinforcing the gender gap. We wrap up our analysis with some thoughts on how the industry can evolve to a more balanced state.
Taking Stock Of The Gender Split
From our survey of 864 investment professionals across 19 different countries, along with secondary research, we easily see a significant gender gap across the professional investment community.
The gender divide is even wider if we look only at individuals who are most influential in the investment industry — portfolio managers, analysts, executives and other investment professionals:
- Among asset managers, only 7% of money managers are women, 93% are men.
- Among asset owners, only 19% of investment analysts are women, 81% are men.
With the gender gap well established, we can move on to the more interesting questions of why women are so underrepresented in the investment industry and how this disparity affects the industry, investment clients and potentially their investment returns. Does gender impact investment outcomes?
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