Key Takeaways From Our First Diversity in Asset Management Report
Our study found that women as well as Hispanic and Black individuals are underrepresented on investment teams.
The investment performance of portfolios run by women has paced that of portfolios run by men, according to a new study by Morningstar.
Morningstar’s first survey-driven Diversity in Asset Management report examines the changes in diversity at different levels of asset-management organizations, the intersection between gender and race, and the relationship between gender-diverse portfolio-management teams and investment performance. To read the full report, download it here.
The study finds no relationship between gender and investment performance. It also finds that women, as well as Black and Hispanic individuals, remain underrepresented on portfolio-management teams. However, the analyst ranks show a bit more diversity, possibly signaling a future change in the upper ranks. Research has shown that diverse management teams make better decisions. Although less has been written about the performance of diverse investment teams, asset managers say they value collaboration, varied perspectives, and debate as they build portfolios.
From a Bird’s-Eye View: Race and Gender at US Asset-Management Firms
This year’s survey of US asset-management firms represents more than 146,000 individuals who work at 40 different asset-management firms. As of Aug. 31, 2024, these firms collectively oversee more than $16 trillion in US-domiciled fund assets under management, or nearly 60% of total AUM in the region (excluding funds of funds).
Asset-Management Population
The largest demographic groups won’t be surprising to industry insiders. With more than 53,000 members, the white male cohort accounted for greater than one third of all industry participants. Most often, white men occupied prestigious roles such as executive leader, portfolio manager, and investment trader, as opposed to roles in operations and compliance, client service, or administrative support.
How Closely Does the Asset-Management Industry Reflect the US Population?
Comparing demographic data for those employees in race and gender categories that correspond with US Census groups (which included more than 144,000 responses) revealed some interesting differences. Across most racial and ethnic groups, women are underrepresented. For instance, white women in July 2023 comprised 29.0% of the US population and Hispanic women 10.0%, but they account for 25.0% and 4.9% of asset-management roles, respectively. This trend applies with one exception: Asian women comprise 3.2% of the US population but 7.0% of asset-management roles.
Population Comparison: Overall US vs. Asset Management
Within the Black population, both men and women are underrepresented in asset management, but the degree of difference is greater for Black men than it is for Black women. Black men and women accounted for 6.1% and 6.6% of the US population in July 2023, compared with 3.5% and 5.5% of the asset-management industry, respectively, based on our survey. Native Americans are also underrepresented in the asset-management industry, making up only 0.2% of the workforce, compared with 0.7% of the overall US population.
Women Are More Likely to Occupy Senior Leadership Roles Than Prestigious Investment Roles, but the Pipeline Shows Promise
Homing in on specific functions in asset management, the sample sizes get much smaller. Nonetheless, while women make up slightly more than half the US population, in no area did the median values come close to that representation. With that in mind, women saw higher representation in the broader executive and senior leadership and other investment professionals categories, while more-specialized roles seemed more elusive.
Gender Across Investment Roles
The exhibit above shows not only the median figures for women in certain roles but also indicates the range of reported values.
The median percentage of women in the executive and senior leadership ranks high compared with other categories, at 29%, but the range of female representation is the widest, from zero women in such roles up to 67% as an outlier. The range of women as other investment professionals is similarly wide, with a slightly higher median of 30%.
Of note is the low median and range of reported female portfolio managers. Surveyed asset-management firms show 16% as the median percentage of women portfolio managers. One potential harbinger of change is the higher level of women investment analysts, with 25% as the median. Because firms often choose new portfolio managers from analyst ranks, this could be a leading indicator of greater gender diversity to come in the portfolio manager ranks.
Diverse Analyst Benches Could Be Leading Indicators of Future Portfolio-Management Ranks
Another potential signal of change is that investment analysts are among the most racially diverse groups in the sample. These teams are often larger than portfolio manager ranks, and they tend to be common talent pools for portfolio-management openings. This group is thus of particular interest as a leading indicator of the future diversity among portfolio managers.
Investment Analyst Ranks by Race and Ethnicity
Women Have Little Impact as Measured by the Number of Teams and Assets Under Management
Turning from survey responses, each named portfolio manager in Morningstar’s database has a gender category attached. These include male, female, and nonbinary. Generally, gender data is either disclosed to Morningstar or derived from pronouns in portfolio manager biographies.
The exhibit below shows the number of actively managed funds and AUM where gender was either disclosed or derived and where the teams were consistent in their makeup over the three time periods.
Performance Comparison Sample Statistics
In line with the survey responses previously discussed, women run far fewer funds than men. Over the past three years, the number of women-only teams was 54, less than 1% of portfolio management teams for which gender can be determined and for which the composition of the team has been consistent. Even considering mixed-gender teams combined with women-only teams, women are named on roughly one fourth of the funds. The percentages are smaller for longer time frames.
In terms of AUM, women-only teams have a negligible effect: Over the past three, five, and 10 years through June 30, 2024, they stewarded less than 1% of AUM represented in the table.
Performance by Gender Makeup Is a Toss-Up
One way to evaluate the performance of funds is to compare how their risk-adjusted returns rank relative to their respective Morningstar Category peers. The following exhibit shows the quartiles into which the funds landed in each grouping—women-only, men-only, and mixed gender—over the past three, five, and 10 years through June 30, 2024. We used the information ratio, which measures the consistency of a fund’s risk-adjusted outperformance compared with that of an appropriate benchmark. Because this section focuses on manager skills, only actively managed funds are included, and performance is evaluated before fees.
Information Ratio: Category Peer Quartiles
Overall, the distribution of funds across their respective categories was close considering men-only and mixed-gender portfolio-management teams. In both cases and over all three periods, between 21% and 30% of such funds landed into each of the four quartiles, with those percentages more often than not 1 or 2 percentage points away from 25%.
The women-only teams produced more variation: For example, over the past five years, 42% of the women-only funds landed in the top quartile; over the past 10 years, 80% posted top-half results. Yet, the numbers of women-only teams are so small that it’s not right to conclude that women-only teams are superior to other gender makeups.
To read Morningstar’s full report on diversity in asset management, download it here: https://www.morningstar.com/lp/diversity-in-asset-management
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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