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Slow Progress on a Very Long Arc

Women make small gains in an industry that needs them.

Don Phillips, 04/03/2017

Morningstar first looked at the issue of women in investing in the 1990s. Our examination of the subject was informal and somewhat anecdotal, but what we saw was alarming. By our take at the time, well less than 5% of all mutual funds were run by female managers. We did, however, see that the percentages were somewhat higher in two categories, municipal-bond funds and emerging-markets funds. As these were two of the newer growth areas of the fund industry, we hoped that what we were seeing was a newfound acceptance of female fund managers and that their numbers would gain share as the industry blossomed.

When we dug a bit deeper, however, we found that the marginally better acceptance of women in these two newer areas didn’t necessarily signal an increased eagerness in the industry to turn over management of funds to women, but instead could likely be traced to earlier career decisions made by managers in those two categories. Many of the municipal-bond managers who were women, for example, started their careers in local government and only later migrated over to municipal financing and from there to investment management. For emerging-markets funds, we found that many of the early female managers there did not set out for finance careers, but instead majored in foreign languages or cultures in college. Many of these women began as translators or working as cultural liaisons. Some, naturally, were hired to help with the linguistic challenges of international business and from there added investment skills to obtain their roles as female pioneers in international investment management.

While investment management was a secondary career for many of these groundbreakers, we were optimistic that from these modest starts there would be substantial progress in the years ahead, as their success inspired others to follow. After all, several psychological studies had shown that women have advantages in patience and risk mitigation over men in running money, and many of the managers we most respected then and now were women. Sadly, the progress has not been what we’d hoped. In a much more rigorous study, Morningstar’s Laura Pavlenko Lutton and Erin Davis revisited the topic in 2015 and found that less than 9% of fund managers in the United States were women and less than 2% of industry assets were overseen solely by women.

While that does mark some modest improvement over what we saw in the 1990s, and doubtless it takes time to inspire, train, and develop a new generation of managers, the numbers still seem far short of the progress one might have expected for in the ensuing two decades. There is a ray of hope, however. Women do seem to be making better inroads into the executive ranks of providers of exchange-traded funds.

The problem of the dearth of female managers is not lack of ability. In addition to charting the slow progress women have made in securing jobs in asset management, Morningstar’s 2015 study also looked at the efficacy of female-managed funds. What our team found was notable. The tiny percentage of funds run solely by women performed essentially as well as those run just by men. More significantly, the study found that funds run by teams including both men and women had performed better than funds run solely by men or solely by women.

These findings suggest that diversity of thought leads to better decision-making. It seems likely that the industry serves investors better when its managers better reflect our broader society.

It’s worth noting that the lack of female fund managers cannot be blamed on the unwillingness of the public to accept women in such roles. A 2016 study led by Morningstar’s Madison Sargis found that having one or more women on a fund’s management team improved the odds that a new fund launch would attract enough assets to be successful. Clearly, the investing public will embrace female managers.

Fortunately, women have made greater progress in the fund industry outside the United States. In a 2016 follow-up study, Sargis and Lutton found that roughly 20% of funds globally have at least one female manager, with the probability of a woman running a fund higher in smaller countries. There are also promising trends, described in this issue: The biggest inroads were in passive funds, funds of funds, and team-managed funds. (The latter trend perhaps reflects Morningstar’s earlier finding that more diverse teams produce better results.) These are all areas of growth for the industry, which suggests that women will be better represented going forward.

Asset management still sorely lags many other industries in advancing women into leadership roles. Sadly, its record on racial integration, which has not been as well studied, is almost certainly worse. These are self-inflicted wounds that undermine the industry’s promise. Ultimately, the money management industry needs to reflect more fully the clientele it serves. The longer it takes to get there, the longer it will be until this profession realizes its full potential.


Don Phillips is a managing director of Morningstar, Inc.

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