It’s no secret that gender disparity is still a significant issue in the upper levels of the corporate world. A study by Credit Suisse has shown that women make up only 13.8% of senior leadership in companies globally. At the same time, there is also evidence of a significant correlation between greater gender diversity and improved corporate performance.
BLAIR DUQUESNAY is a staunch advocate of impact investing, and particularly so-called gender lens investing — in other words, investing for a financial return, while also considering the benefits for women.
A Chartered Financial Analyst and a Certified Financial Planner, Blair is the Chief Investment Officer at ThirtyNorth Investments, a registered finance and investment advisory firm based in New Orleans. The firm, which works with high-net-worth investors, runs a portfolio called Women Impact Strategy — a separately managed fund which focuses on companies that have a higher proportion of women in leadership positions.
In this interview, Blair explains how the portfolio works and how she expects it to deliver strong financial returns, as well as helping to improve the gender balance in America’s boardrooms.
RP: Thanks for your time, Blair. Tell me, how did you first have the idea of an impact strategy around this issue of women’s empowerment?
BD: Two years ago we read a piece of research from Credit Suisse that looked at over 3000 companies across the world and examined the performance of companies with more women on their board of directors. The research found empirical evidence that companies with at least one woman on their board delivered excess returns at a command annual growth rate of 3.5% over a period of ten years, and we found that very interesting.
That study led us to do our own research on the S&P 500. We published a white paper where we looked at the board makeup of the companies in the S&P 500, and the subsequent performance of those companies over the next ten years, and we found the same results that Credit Suisse did.
The other thing I should mention is that both the co-portfolio manager Suzanne Mestayer and I are women, and so it became a very personal issue for us. So that also informed our decision to create the Women Impact Strategy, which we offer through a separately managed account.
RP: What’s interesting about the Credit Suisse research is that it was an on-going study, wasn’t it? The outperformance wasn’t just a blip.
BD: Yes, they wrote three reports over six years, revisiting this issue of gender diversity on boards every two years, and they found continual outperformance of the companies that have gender diversity versus those that do not.
This is actually a very interesting investment anomaly. Normally when that type of outperformance is made public to investors, traders will sort of swoop in and arbitrage that extra return away, and that hasn’t happened yet. And that’s why I think that — particularly with gender diversity — there is an opportunity for enhanced return.
RP: So, why do you think firms with more women on the board tend to perform better?
This is a question that we always get asked, and it’s an interesting one. There’s been a lot of research in academia about cognitive diversity, about how different styles of thinking help groups that are working on more complicated issues. And of course, the first way that we divide ourselves as humans is between men and women, so gender is probably the easiest and simplest way to get diversity amongst a group.
RP: In practice, then, why do you think diversity leads to better decision-making?
BD: I think diversity helps a group avoid what’s called “groupthink”, where everybody thinks the same way, and that causes them to have blind-spots, because they’re not asking different questions from different viewpoints. And perhaps by adding women, who think differently to men on a broad level, can lead to there being more questions around the table and therefore more thought going into those issues.
RP: ESG (or Environmental, Social and Governance) investing has become increasingly popular over the last few years. Why do you think that is? And will the trend continue?
BD: I do think that it’s going to continue. What we’re finding is that ESG today is not the same as what we saw with SRI, or Socially Responsible Investing, ten-plus years ago. It’s not about sacrificing return in order to align an investor’s investments with their values any more. Today, it’s more about enhancing return or mitigating risk around ESG issues.
A good example would be Volkswagen and their emissions scandal. With ESG screening, there might have been a way to foresee that type of risk and avoid it. I think that’s why more investors are interested in ESG today.
RP: But what are the risk implications of a portfolio like the Women Impact Strategy? I’m guessing it reduces risk slightly?
BD: There tends to be a jump to conclusions to think that perhaps women are less risky than men and that they might lean towards taking less risk in corporate decisions. But the research on that shows that that’s actually not true. Corporations with more women on the board actually take just as much leverage and just as many risks as those that do not.
So it’s not necessarily that women are more risk-averse, it’s just that by avoiding groupthink and uncovering blind-spots, these companies are potentially avoiding pitfalls they they may not have noticed before.
RP: So tell me more about the Women Impact Strategy. It’s not an actual fund at the moment, is it?
BD: So the Women Impact Strategy is currently offered in a separately managed account, so it’s not a fund that investors can invest a small amount of money in yet. But we are trying to grow the separately managed account strategy.
It’s a portfolio of 50 stocks — 50 companies purchased at equal weight, with a minimum gender screen criteria that there’s at least 20% women on the board of directors and at least one woman in the C-suite. Ours also differs from some other gender products that are in the market that are more index-based, because in addition to gender diversity we also look at factors of size, value, and profitability. We then rank those companies on those three factors, and then purchase a sector-neutral portfolio of 50 companies.
RP: Where do you stand on the active-passive issue as far as ESG Investing is concerned? Somewhere in the middle it seems?
BD: Well I think we’re seeing a blending of active and passive and something in between. I think as more and more information becomes available and we gain the technology to evaluate larger sets of data, we’re more able to create the evidence-based strategies that we’re doing with factor-weighting and indexing.
So I think we’re blending everything together and finding that the traditional active management approach of trying to have a star manager who can look into a crystal ball and foresee the future is not as robust a strategy as looking at all the data that’s available today.
RP: What you’re doing then is neither active nor passive, but it’s definitely rules-based, isn’t it? What’s the advantage, in your view, of rules-based investing?
BD: I think discipline is the most important thing in an investment strategy, and so creating rules, which can be changed and modified over time as we receive more information, is the best way to ensure that you’re sticking to a discipline. Whether I’m an adviser who is picking a fund to invest a client’s money in or creating a fund as we did with the Women Impact Strategy, we have more confidence in a rules-based strategy that will stick to a discipline and that we hope will consequently have better results.
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