The Investment Impact of Gender Folklore
A Q&A with Nidhi Shandilya
Women represent about half of the US workforce and college graduates with a business degree.* Yet the percentage of women across the investment industry doesn’t come close to that.** Nidhi Shandilya, a member of State Street’s Center for Applied Research, talks about the importance of gender diversity in the investment industry and what investors can do to successfully manage the impact of gender folklore.
Q. Your research highlights gender imbalance in the investment management industry. What do you think is causing this?
A. When we did the research for our recent report, “The Folklore of Finance: How Beliefs and Behaviors Sabotage Success in the Investment Management Industry,” we looked at behaviors that influence investment decisions. With this new paper on gender folklore, we dove a little deeper to look at how decision-making differs between men and women. Research tells us there are fundamental differences between the male and female brain that affect every day decision-making. It’s only natural this also applies to investing.
Q. What are those differences?
A. On the surface, data tells us men tend to be more risk seeking, while women are a little more conservative and focus on long-term goals. There’s also a difference in the way both genders define skill. Women see it as understanding the market. For men, skill is proven by higher returns.
However, recent research also shows us that when financial knowledge and confidence are used as experimental controls, risk aversion tends to diminish in women. And in some cases women are shown to be less risk averse than men. This suggests a lot of gender differences are not static but dynamic. Therefore we need to be careful about such behavioral labels.
Q. How does this affect their investing style?
A. Our research tells us that currently women focus more on understanding, articulating and incorporating client goals, while men focus more on metrics and deliverables. Both points of view add value to the investment process and may also change with time as biological and behavioral stimuli influence actions.
Q. What’s the impact to the industry?
A. Well, there tends to be an unconscious bias. We see it in the stereotypes that often surround female investors and the perception of gender differences. Our research shows we need to move beyond these tendencies. If you think about how you make your own investment decisions, you probably have the best outcomes when you make a decision by looking at it from every angle.
Q. What needs to change in the industry to disrupt the gender folklore?
A. Affecting real change will require a cultural shift. First, we need to acknowledge that gender folklore exists, and we need to begin to question our hidden assumptions and beliefs. We also need to recruit more women leaders. Finally, we really need to manage gender folklore like any business problem. That means making it a priority to change the gender imbalance. A commitment to action is really one of the most important steps we can take.
*Julie Coffman, Orit Gadiesh and Wendy Miller, The Great Disappearing Act: Gender Parity up the Corporate Ladder, Bain & Company, white paper presented at Davos, January 2010. See also: Laura Goode, 2010 Heralds Female Majority in the American Workforce, New America Media, January 5, 2010.
**State Street Center for Applied Research, The Folklore of Finance: How Beliefs and Behaviors Sabotage Success in the Investment Management Industry, 2014.