Frontier and Growth Markets | June 10, 2019

Female fund managers make the case for ‘gender alpha’ in emerging markets

Dennis Price
ImpactAlpha Editor

Dennis Price

ImpactAlpha, June 10 – One way to seize the global growth opportunity in women’s equality: Back female fund managers with financial chops and deep understanding of underestimated entrepreneurs and underserved consumers.

Female founders receive only 7% of emerging market private equity and venture capital. Trillions could be added to global growth if women’s economic participation equalled men’s. 

More female fund managers is part of the solution. Investment firms with female fund managers are twice as likely to back women entrepreneurs in emerging markets, according to the International Finance Corp. Yet women account for only 11% of senior teams at emerging-market private equity and venture capital firms.

“It is absolutely essential that we increase investments in women fund managers in order to benefit from their increased access to women entrepreneurs, women impact businesses, and insights about women’s markets, and to realise the dividends of diverse decision making on teams,” gender-lens advocate Suzanne Biegel told ImpactAlpha.

By under-capitalizing women-led fund managers in emerging markets, limited partners are also leaving returns on the table. Venture capital and private equity funds with gender-balanced teams perform 10% to 20% higher than their homogeneous peers, according to the IFC. Companies with gender-diverse leadership teams that received equity funding outperformed by about 25%.

The gender gap presents an opportunity for early movers. Female partners are investing with a gender lens in at least 20 venture funds in Latin America, the Middle East, sub-Saharan Africa, and South and Southeast Asia. A quick scan by ImpactAlpha found firms with at least one female partner have raised or are raising as much as $1.3 billion to deploy in local markets.

Target sectors include agriculture, healthcare, education, financial services, energy creative industries, basic consumer goods and services, yes, women’s empowerment.

Fund of funds Capria Ventures has backed a half-dozen women-led funds out of a total of 19 local fund managers in Latin America, Africa and Asia. We also scanned Project Sage’s list of 87 venture capital funds investing with a gender lens curated by Wharton Social Impact and Biegel. Biegel has identified at least 10 others other women-led private equity and venture capital in emerging markets.

Gender alpha

“Throughout the world, local fund managers stand at the nexus of identifying, funding and supporting the most promising entrepreneurs and companies,” write Capria’s Uma Sekar and Kate Loose. 

Capria has raised $33 million to invest in local, often first-time fund managers in emerging markets. “Most of their investments have a disproportionately positive impact on women and their families, and many of our fund management teams have women leadership.”

Breaking into a male-dominated industry like venture capital may well be an indicator of ability to invest in underdeveloped markets.

“We feel that being where we are, as women fund managers, demonstrates our strength, productivity, tenacity as well as our ability to put ourselves in other peoples’ shoes,” says Terra Global Capital’s Leslie Durschinger as part of a series of a series of interviews with Capria Network female principals and partners. The Colombia-based firm is raising $40 million to help small farmers transition from coca to cacao. “These are all distinct qualities that give us an advantage.”

If grit is one important quality of female fund managers, emotional intelligence is another. “As women fund managers,” says Durschinger, “we believe that we have the financial power and the emotional understanding needed to deeply integrate gender into our investment strategy.”

About half of India’s 1.3 billion people, and customer base, are women, says Unitus Ventures’ Radha Kizhanattam, yet there are few women-led companies serving them. Unitus is raising its second fund of $45 million for healthcare, education and fintech solutions that reach India’s masses. “Having women on leadership teams helps teams understand ‘women as customers’ better and more importantly ‘pick winners’ that serve this population better.”

“Women have a unique capacity to get close to the unknown and transform a hunch into a better investment decision,” says Capital Invent’s Jana Boltvinik. The firm is raising a $60 million fund to invest in fintech, edtech, software-as-a-service, and e-commerce in Mexico.

Added up? “Diverse approaches lead to better investment decisions as they avoid ‘groupthink’ and allow the analysis of a single issue (or investment opportunities) from many different angles,” says Brightmore Capital’s Ndeye Thiaw.