Citywire’s 2019 ‘Alpha Female’ study[i] reported that only 10.8% of the fund managers in their global database were women; a figure that has largely flat-lined since its first publication in 2016. If we disregard the absurd notion that men hold some form of gender based advantage in the skills required to be a successful fund manager, then this represents a staggering anomaly. There are inevitably deep-rooted societal features* that contribute to such disparities and whilst these are apparent across industries[ii]; there are also features and behaviours specific to asset management – and our perception of what it means to be a talented fund manager – which serve to exacerbate the issue. These must be acknowledged if we are to even begin to remedy the situation.
In her excellent book ‘Invisible Women’[iii] Caroline Criado-Perez highlights the idea of brilliance bias and research showing that “the more a field is culturally understood to require brilliance or raw talent to succeed…the fewer women there will be studying and working in it.” She goes on to make the case that we struggle to associate women with being “naturally brilliant”. Criado-Perez cites areas where this bias presents a major impediment for women including: maths, physics and science, but this group could easily include active fund management – particularly given our long standing obsession with ‘star’ fund managers.
It is unquestionable that we are often in thrall of successful active managers. Given how difficult it is for active managers to deliver excess returns; we are prone to laud those that do as possessing some form of exceptional or even innate investment aptitude (even where it may very well be luck). One of the (many) problems with this is that, as Criado-Perez notes, we are more likely to erroneously associate possession of such inherent talent with men. There is also the complication that nearly all examples of this type of fund manager adulation involves men, which only serves to perpetuate and exaggerate the trope that those truly exceptional individuals able to buck the trends in active management are inevitably male.
Whilst brilliance bias is often focused on opaque and unexplainable characteristics – intangible concepts such as talent – the challenges faced by women seeking to enter the fund management industry are also caused by the wrongful assumption that certain (traditionally male biased) characteristics are associated with fund management skill, and these are often the very characteristics which overwhelm investor decision making. This idea is eloquently put forward by Tomas Chamorro-Premuzic in his paper (and subsequent book) ‘Why Do So Many Incompetent Men Become Leaders’[iv]. Although about executive management positions rather than fund management roles the parallels are stark, and there is one particular trait which resonates pointedly – overconfidence.
We are liable to mistake confidence for competence. This is especially relevant in the fund management industry where identifying the features that are truly indicative of skill is so difficult that we are likely to rely on how compelling or convincing an individual is. Chamorro-Premuzic argues that the advantage granted to overconfident individuals presents two challenges for women attempting to attain leadership positions – they are generally perceived as less confident than men and if they do display ‘extra’ confidence we become concerned that they are not conforming to their gender stereotype.
A related concept highlighted by Chamorro-Premuzic is the influence of charisma, another feature which clouds our ability to judge an individual’s aptitude for a given activity – there are few things more dangerous in fund manager selection than a charismatic manager who has been lucky. Although there is far less research around how gender impacts our perception of charisma, Chamorro-Premuzic argues that there is a circular relationship at play – more leaders are men, leaders are perceived to be charismatic and therefore charisma has come to be considered a male-dominated trait. He goes on to produce a pertinent quote from Margarita Mayo about our attraction to charisma:
“The research is clear; when we choose humble and unassuming people as our leaders, the world around us is a better place…Yet instead of these unsung heroes, we appear hardwired to search for superheroes: over-glorifying leaders who exude charisma”.
I could quite easily replace ‘leaders’ with ‘fund managers’ in the above quote and it would prove an appropriate description of the type of fund managers to which we are often drawn.
A report by capital markets think tank New Financial: ‘Diversity in Portfolio Management’[v] explicitly attempts to identify the barriers to progression for women and those from diverse backgrounds within the asset management industry. One of the 18 highlighted was the ‘loss of performance continuity through leave of absence’- this is a material concern and one which is directly related to our perception and glorification of star fund managers. Our false perception of the archetypal successful fund manager as being a supremely talented individual with a unique skill set not only plays into tired gender stereotypes, but also increases the requirement to have named fund managers and avoid extended leaves of absence. The belief that superior performance must be down to one individual who is constantly poring over the portfolio further raises the hurdle for women, who are more likely to have extended time way from the office due to factors such as maternity leave and the traditional division of childcare responsibilities[vi]. This imperils the ability of a female portfolio manager to develop an undisturbed track record as an individual, which is often valued highly by fund selectors, and seen as a ‘requirement’ for asset management firms to successfully market their funds.
Two other extremely valid issues raised in the report are the lack of meritocracy and the shortage of role models. The meritocracy obstacle in fund management is caused both by asset management firms valuing the wrong characteristics (such as confidence over competence), and also the self-perpetuating tendency of people to hire individuals who are most like them – the mirrortocracy – if most fund managers are men, this becomes an implicit characteristic / requirement for such positions. The lack of role models is a related and also pernicious problem (and by no means just relating to gender) – if the vast majority of fund managers are men, there are inevitably few role models with whom people of other groups can easily identify.
The causes of gender imbalance in the asset management industry are deep and structural, and far more complex than I could possibly hope to convey. The purpose of this post is to highlight how asset management groups and fund buyers can be considered complicit in the under-representation of women in fund management roles because of our desire to identify, extol and sell ‘exceptional’ individuals (unfortunately almost always men) whilst being beguiled by gendered traits such as overconfidence and charisma – which have no proven relationship with the skills required to be a successful fund manager. Until we start taking substantive steps to improve the situation – such as moving to a team based fund management culture rather than one focused on star individuals – progress in this area will remain glacial.
*These vary across region, there is an admittedly UK / US bias to this article.
[iii] Perez, C. C. (2019). Invisible Women: Exposing Data Bias in a World Designed for Men. Random House.
[iv] Chamorro-Premuzic, T. (2013). Why do so many incompetent men become leaders. Harvard Business Review, 22.