UK Fund Managers Lagging Board Diversity Targets

KPMG finds just three of 16 fund managers have any female executive directors.

The UK’s investment management sector is “suffering from a severe lack of female representation”, despite several initiatives to improve diversity, according to KPMG.

A survey of annual reports issued by 16 financial services companies found that 15% of company board members were women, and only 4% of executive directors were women.

The low numbers come in spite of a number of initiatives aimed at improving the gender balance on company boards. The European Commission has set a target for female representation on boards of 40% by 2020, while the 30% Club—chaired by Newton Investment Management CEO Helena Morrissey—has been working since 2010 for a similar cause.

“We will only really take a quantum leap towards better gender balance when organisations treat this as a mainstream, not a ‘diversity’, issue.”—Melanie Richards, partner and vice chair, KPMG

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Specific to the UK, in 2011 Labour peer Evan Davies published a report into female representation on boards that claimed it would take 70 years to achieve gender balance at the top corporate level, given the current rate of change.

Lord Davies set a target of 25% by 2015, but KPMG said UK asset managers still had “some way to go to meet such aspirational targets”.

Aberdeen Asset Management led the way, according to the new report, with four female directors on its board, or 29% of board members. Of the 16 listed fund management houses analysed, only one—Impax Asset Management—had no women on its board.

However, at the executive director level, only three groups had any female representation: Aberdeen, retail investment broker Hargreaves Lansdown, and currency management specialist Record.

Melanie Richards, partner and vice chair at KPMG, said “considerable progress” had been made towards greater diversity: “There is not one member of the FTSE 100 without female representation in the boardroom, the proportion of companies edging closer to Lord Davies’ target is edging up, and changes are clear to see in many of the UK’s leading industries.”

Richards added that companies were beginning to realise that “greater inclusivity opens doors to a wider pool of talent”, which in turn could lead to improved performance as boards reflect the make-up of their target markets more accurately.

“Our report reveals that UK investment managers still have some way to go to match these levels, yet we will only really take a quantum leap towards better gender balance when organisations treat this as a mainstream, not a ‘diversity’, issue,” she said.

A separate survey, published in November by think tank New Financial, painted a more positive picture in the pensions sector. According to the firm’s data, four of the five largest European financial institutions with the best top-level female representation were pension funds.

Home > News > Manager Selection > How the World’s Largest SWF Gets the Best from Active Managers

Manager Selection December 1, 2014

How the World’s Largest SWF Gets the Best from Active Managers

Bespoke equally-weighted benchmarks are the way forward for active management, says the world’s biggest sovereign wealth fund.

Norway’s sovereign wealth fund has proposed a new approach to benchmarks that it claims can boost the benefits of investing with active stockpickers.

In a discussion note published on its website, Norges Bank Investment Management (NBIM)—which manages the €689 billion ($860 billion) Norway Government Pension Fund Global—explored in depth its use of bespoke equally-weighted benchmarks.

“By lowering the concentration of capital in the largest stocks, the more even distribution of weights allows for a better representation of relative views taken by the portfolio manager,” the report said.

As well as equally weighting stocks in the benchmark, NBIM looked at the number of stocks in a given benchmark and the effects of volatility, correlation, and dispersion. The report concluded that, by giving a portfolio manager a bespoke benchmark from which to select stocks and against which to measure performance, investors can get a better impression of a manager’s ability to add alpha.

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Using the European banking sector as a case study, NBIM found that by equally weighting stocks and reducing the number of them, a bespoke benchmark can be created that is sufficient to give an accurate marker for a portfolio manager while also being aligned to the investor’s requirements.

“Our simulation framework can be applied for other sectors to arrive at the appropriate levels of diversification and is sufficiently versatile to reflect sector-specific characteristics and portfolio management styles,” the report said.

Benchmarks can double as research lists for the managers and can be focused on factors such as market cap or volatility—i.e. excluding the smallest or largest companies in the list—but when used as a performance barometer the list is equally weighted.

“The practical implication is to build tailored research lists for the active managers according to their specialisations which will form the universe of stocks for the design of the custom benchmark,” NBIM said.

“Given time and resource constraints in terms of coverage, a typical research list constitutes a subset of names in a given sector specialisation and generally excludes the smallest names in the original benchmark.”

As a result the two “key decisions”, NBIM said, were choosing the size of the research list and selecting how the stocks were to be weighted.

“In broad terms, an optimally diversified sector benchmark should incentivise each portfolio manager to utilise their stock-picking skills, and at the same time to be able to enhance the fund’s overall performance in a scalable way,” the fund’s report concluded.

The full report can be read downloaded from NBIM’s website.

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