Gender Smart | December 19, 2018

The Gender Alpha: Year in Review

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Greetings, ImpactAlpha readers!

The Gender Alpha

If the cascade of #MeToo revelations and heightened awareness of continuing gender inequities raised the questions, gender-lens investing in 2018 started to provide at least some of the answers. It at least felt like the conversation shifted from whether to fully integrate gender considerations into business and investment decision-making, to how.

  • Go deeper: After #MeToo and #TimesUp, #GenderLens investing has its moment.

The ImpactAlpha: After #MeToo and #TimesUp, #GenderLens investing has its moment

It’s clear that gender considerations implicate everything from access to capital for women-led companies, to human rights in the supply chain, to the material risks of gender-based violence, to women’s leadership in management and boardrooms. It’s not a stretch to say that success on shared global goals – from ending poverty (Sustainable Development Goal № 1), to ensuring healthy lives (№ 3), to urgent action to combat climate change (№. 13) – all depend on SDG № 5: “Achieve gender equality and empower all women and girls.”

  • Dig in: Women’s leadership delivers a prize for all: long-term sustainable growth.

Women’s leadership delivers a prize for all: long-term sustainable growth

Seeing through a gender lens helps investors become “gender smart.” Catalyst at Large Suzanne Biegel brought together hundreds of leaders and practitioners for the first Gender-Smart Investing Summit in London last month. In our Agents of Impact conference call, Biegel ticked off at least a half-dozen ways being gender-smart pays off:

  • A governance and leadership dividend comes from true diversity and gender awareness in the boardroom and senior management.
  • Women entrepreneurs and co-founders can deliver an innovation dividend.
  • Companies savvy about women’s increasing power over purchasing decisions are set to realize the size-of-the-women’s-market dividend.
  • The revenue boost for companies that better understand what all their customers want and need – and are willing to pay for – might be called the customer-insight dividend.
  • The reputational-value dividend can be realized in both share prices and talent-acquisition. People want to do business and work for companies that are good for women – and for everybody.
  • And, finally, investing issues that disproportionately affect women and girls delivers a powerful social impact dividend.

The gender tidal wave transforming global finance is still in its early stages. FOMO is a powerful motivator, and the early-mover advantage is still available for entrepreneurs and investors who shift capital toward that future of gender equality and justice. Women remain undervalued. Revaluing gender (h/t Joy Anderson) unlocks financial and social returns that are not yet reflected in market prices – gender alpha, if you will.

Investors are betting on women…

  • …to capture “gender” alpha. Research is mounting: Companies with women in at least half of leadership positions deliver higher sales growth, earnings per share growth and return on assets. Female investors also seem to outperform. Portfolio churn rates of female fund managers are lower, boosting net returns. Female hedge fund managers have outperformed a general sample over 10 years.
  • …to mitigate risk. Attention to gender is required to mitigate material risk. One firm in Papua New Guinea told the UK’s Overseas Development Institute that an estimated 26,200 days per year were lost as a result of domestic violence. Says International Finance Corp.’s Shalaka Joshi, “The entry point is rarely, ‘Is there gender-based violence?’ It’s ‘What are the business challenges you face? Let us help you tease out how to address those challenges.’” In public equities, higher gender diversity at companies reduces stock price volatility.

Shalaka Joshi: The case for embedding gender in business decisions

And spotting opportunities in…

  • …ethical fashion in Indonesia. An understanding of gender bias in the booming global fashion industry helped Patamar Capital and Kinara Indonesia surface investment opportunities in companies tackling workers’ rights and environmental challenges.
  • …post-hurricane Puerto Rico. Pipeline Angels, a network of more than 300 female angel investors, recruited U.S. and Puerto Rican investors for an investor bootcamp in San Juan this summer to explore post-hurricane opportunities in agriculture, food, education, healthcare, energy, jobs and… women..
  • …micro- and small businesses. Women’s economic empowerment is an anti-poverty, economic inclusion strategy. Women’s World Banking is planning new, larger fund for women’s financial inclusion… OPIC committed  $50 million for Global Partnerships’ base-of-the-pyramid fund… Incofin committed $10 million to Mexico’s Financiamiento Progresemos… Kashf Foundation secured $17 million for gender-lens microfinance in Pakistan.
  • …venture investing. Cities like Singapore, Austin, Mexico City are tapping the talent of women entrepreneurs… Sundial and Unilever created the $100 million New Voices Fund and invested in three dozen businesses run by women of color, including Beauty Bakerie and Envested…Backstage Capital looks to raise $36 million for black female founders.

Backstage Capital looks to raise $36 million for black female founders

To unlock gender value…

  • …in making loans and investments. Investors from Root Capital to Small Enterprises Assistance Fund to Alphamundi are applying lessons learned from gender-lens initiatives across their portfolios. One finding: women-led businesses tend to be undervalued in comparison to companies run by men. That suggests there may be gender bias in negotiations over term sheets and valuations (ya think?).
  • …throughout the investment cycle. Dalberg’s Rachna Saxena identifies key points in the investment cycle to apply a gender lens: defining the mandate, developing a strategy, conducting due diligence – and assisting portfolio companies.
  • …in portfolio companies. “Gender mainstreaming” means using gender-based data to surfaces opportunities for women as suppliers, employees, leaders and consumers, driving both gender equality and business growth, explain MEDA’s Carolyn Burns and Devon Krainer.
  • …in public equities. Tools like shareholder advocacy group As You Sow’s Gender Equality Funds can help individual and institutional investors apply a gender lens to often-opaque mutual and exchange-traded funds. (Of note: ImpactAlpha found State Street’s high-profile SHE ETF got mediocre scores across a dozen indicators of gender diversity and balance.)

Some high-profile gender equality funds get low scores…for gender equality

And deliver benefits for all.

Well-being. Affordable access to women’s healthcare products and services has spillover effects on education, productivity and safety.

Economic growth. Women may be better at tapping the economic opportunities represented by the Sustainable Development Goals. More women on managerial teams can boost a firm’s ability to spot new technologies, business models, products, and services for solving complex social challenges.

By women, for women: The new economics of menstrual pads in Africa

The market begins to stir…

  • …in private equity. Project Sage found more than two dozen new private gender-lens funds that launched in 2018, bringing to 87 the number of private equity, venture capital, and private debt funds making bets on women. The funds have raised $2.25 billion and backed 828 companies. As many as 60 were raised by first-time gender-lens fund managers.
  • …in public equities. Veris Wealth Partners identified nearly three dozen publicly traded gender-lens vehicles that hold $2.4 billion in investor capital, up 85% over last year. Part of the increase: the Ontario Municipal Employees Retirement System seeded RBC Global Asset Management’s RBC Vision Women’s Leadership ETF with $100 million. The much bigger category of managed and institutional assets that take gender issues into consideration may be as much as $1.7 trillion, according to US SIF.
  • …and in fixed-income. Community Capital Management is finding fixed-income gender-lens opportunities in mortgage-backed securities, taxable municipals, and asset-backed securities. Gender-lens investment managers, including Rood Capital and Calvert Impact Capital, are raising capital through fixed-income products.

Total assets in public and private gender-lens products double to $4.65 billion

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December 19, 2018.