women in fund management

Women are still underrepresented in fund management

Morningstar’s latest look at fund managers by gender paints a discouraging picture overall for the industry’s women, writes Laura Lutton.

Executive summary

• Countries with more women fund managers generally have less-mature and faster-growing fund industries.
• The US and Germany have the worst inclusion rates among larger markets, where women make up 10% and 9% of fund managers, respectively.
• Women appear to be making greater gains in other professions, such as medicine, than they are in money management.

Across 56 countries, just one in five fund managers is a woman, and the percentage of women fund managers has declined since the 2008 financial crisis, according to a research study conducted by Morningstar last year. We have additionally not observed an improvement in leadership opportunities for women in the fund industry during this time period. Furthermore, in countries that have long-established financial centres, such as the UK and the US, women have even worse prospects when it comes to fund management.

The study revealed, however, that there are a few areas of opportunity, especially for women CFA charterholders and employees of large asset-management companies. Female equity and fixed-income fund managers are more likely to have earned the CFA designation; and larger firms – particularly the largest by equity fund assets under management – have better odds of having women fund managers than smaller firms.

“For instance, women are best represented in percentage terms in smaller markets for the traditional mutual fund industry, including Singapore, Portugal, Spain, Hong Kong, and France.”

To study women fund managers, we considered more than 26,000 managers of funds registered in 56 countries, all of which are included in Morningstar’s global database. Morningstar indicated the gender of 16,000 of those managers primarily through information supplied by those managers’ employers. For the remaining 10,000 or so managers, we identified each manager’s gender by examining his or her first name. We ran those first names through an algorithm that assigns the probability of being a woman based on local census data. When the algorithm assigned more than 50% probability that the first name is female, we assumed the manager is a woman.

Our study looked initially at where women are managing funds by geography. We found that women have been more successful at winning fund manager roles in some countries rather than others. Countries with more women fund managers generally have less mature and faster-growing fund industries – even after controlling for growth. For instance, women are best represented in percentage terms in smaller markets for the traditional mutual fund industry, including Singapore, Portugal, Spain, Hong Kong, and France. In larger markets, such as Australia/New Zealand, Canada, Luxembourg, the Netherlands, and the United Kingdom, the percentage of female fund managers ranges from 11% to 14%. The US and Germany have the worst inclusion rates among larger markets, where women make up 10% and 9% of fund managers, respectively. Furthermore, their rates are down from 2008 when, respectively, 11% and 12% of fund managers were women. This is a downward trend we see generally across larger markets. In nearly all cases where data is available, the rate of female fund managers is below that of other professions that require similar levels of education, including doctors.

In the UK, for example, just 13% of fund managers are women, while 47% of doctors are women. To be sure, a fund manager role is a senior position in a firm that one typically is promoted to over time, whereas a physician can earn her title after completing school, training, professional testing and licensing. Even so, women appear to be making greater gains in medicine than they are in money management.

Leadership Opportunities
Our study’s findings support the hypothesis that professional women have had limited leadership opportunities in the fund industry, and the opportunities have improved industry-wide since the 2008 financial crisis. Where women do manage funds, they’re more likely to share that authority or implement an investment strategy that’s more-widely adopted, such as an indexing methodology shared across funds at a firm.

Women have made gains in some areas, however. One of the most statistically significant findings of our study is that a woman is more likely to manage a fund that closely tracks an index than manage a fund that is actively managed. Furthermore, women are more likely to be chosen to run a fund of funds than a fund that buys and sells individual securities. Women also are more likely to share management responsibilities with others, and female managers individually oversee a lower number of funds.

A team-management assignment may seem less appealing on the surface, but academic research suggests that women may prefer to work in teams. Healy and Pate (2011) found that generally “women prefer to compete in teams, whereas men prefer to compete as individuals.” They suggested that the formation of teams may help reduce representative gender gaps. Their analysis specifically looked at the role of teams within competitive environments. Given the fund industry’s unchanging emphasis on performance relative to peers, it is reasonable to expect that women may prefer to work on team-managed funds over the long term.

We found that in cases where a woman manages one fund, her odds of managing a second fund are lower. Her odds get lower still with each additional fund. Specifically, after the first management assignment, a woman’s odds of a second assignment go down to 0.94:1, 0.60:1, and 0.99:1, for equity, fixed-income, and allocation funds, respectively. Regardless of asset class, we saw this trend hold up. Women are named on fewer funds than men. This finding may suggest that women are less likely to be investment-policy leaders or viewed by their firm as star managers who can attract assets to offerings based on their reputations.

Table 1

Out of all the factors examined in our model, turnover ratio is one that has been written about extensively in the media, often through a lens of overconfidence. For example, there have been several popular articles arguing women may be better fund managers than men because they do not suffer from overconfidence. Such articles cite the Barber and Odean (2001) brokerage data study that found men trade 45% more than women, indicating that women tend to hold on to their investment positions longer. Our study supports Barber & Odean’s finding. We found that women fund managers hold their investment positions longer than men fund managers, and this trend is significant and persistent for all three asset classes. The most meaningful effects are among equity and fixed income funds.

Building the pipeline
For women to increasingly be named to fund manager roles, the industry needs a strong pipeline of candidates, and the percentage of women CFAs is one measure of potentially eligible candidates. In the UK, 20% of CFA charterholders are women – a higher rate than the percentage of women fund managers. CFA charterholders aren’t guaranteed to be top analysts or portfolio managers, but the professional designation suggests experience and expertise in the field.

One positive for women CFA charterholders is the higher frequency of the designation among women managers of equity and fixed-income funds. Morningstar’s data showed that the odds that a woman fund manager holds a CFA charter relative to a man is 1.07:1 for equity funds and 1.04:1 for fixed-income funds. If it is more likely for women fund managers to be CFA charterholders than men, women are demonstrating a basic qualification for the role more often than men.

A darker interpretation of the data, however, suggests that women need to be more credentialed than men to win a fund-management role, reflecting a potential hiring bias. The CFA designation may be an objective measure that helps women overcome employers’ implicit stereotypes about gender and analytical ability. For example, one 2014 academic study (Reuben, Sapienza, & Zingales) studied discrimination by gender during the hiring process. They found that “men are more likely to boast about their performance, whereas women tend to underestimate it,” which makes it tougher for women to win leadership roles. The CFA designation, however, may provide tangible proof of a woman’s readiness for the job – regardless of how she markets those skills to her employer.

There are a few counterarguments. In recent years, the CFA charter has risen in importance as a credential for fund managers, so that might explain the higher rate of CFA charters among women. We did, however, control for manager age in our study, and the effect still holds. A second criticism is this effect does not hold for the average allocation fund manager: a woman allocation fund manager has lower odds of having her CFA charter relative to a man by 0.76:1. This suggests there is a different hiring standard for allocation fund managers relative to equity or fixed-income fund-management roles. Because allocation funds focus more on asset allocation and manager selection rather than individual security selection, those portfolio management roles may require different skills and implicit biases. As with the findings on women portfolio managers’ lower turnover ratios, allocation fund managers display diverging traits relative to equity and fixed-income managers. The industry would benefit from additional research on the different skill sets and hiring biases for funds by asset class.

“The larger the firm, the larger the number of funds, the larger the number of people managing funds, the more opportunities for a woman to be named to a management team.”

Women CFAs are more common among fund managers, and women also have relatively more opportunity at larger firms. Women had better odds of being an equity fund manager at a large firm rather than a small firm, and we found that larger is better. Among funds at one of the top ten largest firms by global equity assets under management, a woman’s odds of being named an equity fund manager are 1.83:1 relative to earning the same role at a smaller firm.

Intuitively, this makes sense: The larger the firm, the larger the number of funds, the larger the number of people managing funds, the more opportunities for a woman to be named to a management team. There may be more jobs available to women at large firms, but it is worth noting that incremental change at a small firm increases a woman’s odds of management considerably. Let us say a firm offers ten equity funds. If just one of those funds has women portfolio managers, the firm’s rate of women managers already meets the global average, and if a second woman gets a fund-management role, the firm has doubled the global average.

The fund industry has much room to diversify, and a strong case to do so. Active fund managers are increasingly losing assets to passively run funds, a trend driven by cost and performance. As the industry looks for ways to improve its performance, it may benefit from a broader diversity of backgrounds and, thus, ideas among its managers. Morningstar has found some evidence that diverse management teams produce better returns, a concept we’ll explore in future studies.


Laura LuttonLaura Lutton is director at the Manager Research Practice at Morningstar. Prior to assuming her current role in 2016, she was director of manager research for equity strategies. She is a founding member of Morningstar’s Women’s Initiative and co-chairs the group’s professional development committee. She joined Morningstar in 1999 as an equity analyst and moved to the fund research team in 2001. Before joining Morningstar, Lutton was the Chicago bureau chief for American Banker. She holds a bachelor’s degree in government and international studies from Colby College and a master’s degree from Northwestern University’s Medill School of Journalism.