Earlier this month, companies in the UK released their annual gender pay gap statistics as required for any company with 250+ employees. The data shows that progress is being made – slowly. While the gap is at its lowest point since reporting began 7 years ago, four out of five British companies still paid men more than women last year.
Some industries fare better than others. Construction, a traditionally male sector, has a 22.8% pay gap. But in other traditionally male sectors – take fishing for example – some companies have made significant progress toward gender pay parity.
Some investment firms, on the other hand, recently reported gaps of over 50% and rising.
What these numbers mean is that a woman in fishing is, on average, likely to earn the same as a man, and in construction, she would earn about 80% of the men, but that in investing, she could be earning half or less.
How does this come about? In an industry like investing, the compensation is very skewed toward those who manage the most money. Much of the compensation comes in the form of bonuses which can far outweigh the salary.
And in these bonus pools, there is an enormous gender pay gap. Wellington, for example, reported a mean bonus pay gap of 79.6%. In other words, women received almost 80% less than men in bonuses on average. In industries like construction or fishing, where there may be skewed ratios between men and women in terms of headcount (6:1 in construction and 3:1 in fishing vs. 1:1 in financial firms), the pay is not nearly as skewed toward the few at the top – who are generally men.
In these gender pay gap disclosures, many firms take pains to point out that they are paying men and women the same for the performing the same role. Of course, “equal pay for equal work” is required in most countries and has been for decades. The challenge is that even if the numbers are “equal,” the system can’t be seen as meritocratic if the same group is always at the top.
Take the example of another historically male-dominated sector – healthcare. Go back a few decades and most, if not all, of the doctors you find in any given hospital would be men; most or all of the nurses women. Of course, the doctors earn more since they have more education and more responsibility. But we also know that women were barred from becoming doctors so had no opportunity to rise.
Today, the health sector has one of the lowest pay gaps – 1.5% in 2023. And there is no question that all our healthcare would suffer if we still had a system that didn’t allow half of the talent to become doctors.
In investing, the key to narrowing the gender pay gap is also opportunity – in this case, to manage money. If the management of the money is extremely skewed towards men, even if others in the firm perform important roles, the money managers will, like doctors, rightly earn more.
So, let’s look at how the assets are managed instead of just the pay. Using US data as an illustrative example, asset management firms owned by white males oversee 98.6% of assets under management. Even leaving private equity aside, 84% of public equities are managed by men according to reported data – and the actual number is probably more skewed than the reported number.
Any experienced investor knows that diversification is critical to success – the only “free lunch” there is. Most investors would not want their portfolios 90% exposed to any particular factor – even the US dollar. But there is an unintended risk in having 90% of their assets managed by decision-makers of one gender.
The solution is to consider the demographic diversity of a portfolio, just like one would consider any other sort of diversification across currencies, asset classes, time horizons, or other factors. And while it may not be easy to build demographic diversity into portfolios today, some investors are doing so – because it makes investment sense.
Capital allocation to diverse managers can be a real difference-maker for long-term investors, and can be achieved practically. Some of the world’s leading investors, with billions of AUM between them, are already acting to improve decision-making diversity at their organizations.
The California State Teachers’ Retirement System (CalSTRS) offers an emerging diverse managers program, through which they establish relationships across a network of investment managers, companies, and industry associations to foster diversity. They report on their progress, and disclose diversity in AUM, annually.
Carlyle, in collaboration with the Milken Institute, launched the Initiative to Increase Diverse Talent in the Asset Management Industry in 2021. Through this initiative, they’ve committed to taking concrete steps to address the impediments to investing in asset management firms with diverse founders.
TPG NEXTiShares Exponential Technologies ETF
was created in 2019 with the aim of investing in the next generation of underrepresented alternative asset managers. With the California Public Employees Retirement System as an anchor investor, TPG NEXT launched its inaugural fund in 2023 to raise third-party capital to seed new managers, strengthen their access to capital, offer business building expertise, and provide strategic advisory support to chronically underrepresented talent.
The data from the UK serves as a stark reminder of the persistent barriers within the workforce, especially in the investment world where disparities remain glaring. However, these efforts show there can be a clear pathway forward, and that addressing the demographic diversification of portfolio can be a strategic advantage.
If healthcare, construction, and even fishing can address the gender pay gap – and improve performance by doing so – investing can also. It’s time for investors to consider the unintended risks of a lack of gender diversification – and increase assets managed by women, thereby reducing the gender pay gap.
Let’s cut the fish tales on the progress that’s being made – the numbers tell the real story.
