Female-Inclusive Investment Committees Are Outperforming Their Peers

A new study carried out by HEC Paris Business School and MVision Private Equity Advisers found that gender-diverse investment committees of private equity fund managers have experienced comparatively higher returns against their male-only peers.

The study audited performance data on 2,454 deals executed by 51 different fund managers across 220 investment vehicles, and found that women make up a relatively small portion of executive decision-makers in private equity, occupying just 9.4% of senior positions at private equity firms globally.

HEC Paris Professor Oliver Gottschalg found that companies in the top quartile for gender diversity on executive teams were on average 21% more likely to outperform their peers, and 27% more likely to exhibit substantial value creation.

There’s also a strong correlation in emerging markets between female-inclusive fund executive teams and higher returns. Also, Gottschalg found that the failure rate of private equity deals was substantially reduced when women held consequential positions in deal-making processes.

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“The finance industry is often used as an example of a male-dominated industry, where women struggle to achieve positions of responsibility. While only 10.81% of deals in private equity are led by female investment managers today, the research proves that gender diversity increases investment performance,” Gottshalg said.

Specifically, his research found that gender-diverse investment committees outperformed all-male committees in alpha, TVPI, and IRR by 7%, 0.52%, and 12%, respectively. This is in part due to a broader base of perspectives and the subsequent avoidance of more blind spots.

The data also found that women tend to focus more on investments in biotech and IT, and less on industrials, business services, and technology, media, and telecom (TMT) industries.

Professor Gottschalg is a strategy professor at HEC Paris Business School and academic Dean of the TRIUM global EMBA, and authors the yearly HEC-Dow Jones private equity rankings.

Tags: ESG, HEC Paris Business School, MVisionGender Diversity, Private Equity Advisers

Gucci America’s 401(k) plan fell victim to allegations regarding its investment strategy recently, ending in a $1.2 million settlement against claims that it doesn’t always shoot for the cheapest investment strategies.

Plaintiffs in the case alleged that Gucci exhibited a lack of oversight on the plan’s service provider, TransAmerica Retirement Solutions, leading to the “unreasonable” use of the provider’s proprietary funds and subsequently to conflicts of interest when making investment decisions.

The plaintiffs also alleged that the plan’s management exhibited “particularly egregious” behaviors, typically selecting relatively expensive investment options when cheaper, comparable alternatives were widely available “without any justifiable reason.” The plan also reportedly retained certain investments despite its prolonged underperformance.

Additionally, the plaintiffs claimed there were “misleading and inaccurate disclosures” regarding their asset values and performance. The widespread allegations ultimately won them $1.2 million from the $96.5 million retirement plan.

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Of the settlement, $800,000 will be paid out to class members in the case, with $395,000 in attorney’s fees and $5,000 in class representatives’ compensation. The gross settlement represents approximately 33% of the maximum amount of financial damages incurred by the plaintiffs, and over 94% of the full amount of potential economic damages.

Gucci America, along with co-defendant Kering America, the conglomerate who owns the luxury brand, disputed the allegations and denied liability for any alleged violations of the Employee Retirement Income Security Act. They filed a motion to dismiss the allegations, which was denied in October 2018.

The plaintiffs then mediated the case with a neutral party, which allowed the parties to reach a settlement.

Excessive-fee lawsuits have been making the rounds lately. Health insurer Anthem Inc. just agreed to pay out $23.7 million in a similar case where plaintiffs made comparable allegations to the ones brought against Gucci.

The settlement is awaiting final court approval.

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Tags: 401(k) Plan, Gucci, Gucci America, Lawsuits, Pension