Why Shifting Gender Balance in Wealth Brings Ripple Effects

As women take impact investing by storm, the ripple effects are leading to more women in finance assuming leadership roles, with more female entrepreneurs reaping the benefits.

Today, as the United Nations recognizes International Women’s Day 2019 with the theme #BalanceforBetter, the shifting gender balance in wealth shows that when women hold the reins of capital, the outcome is that investments that generate positive social and environmental impacts often win top priority.

Women are guiding female clients’ investments

By 2020, women are expected to hold $72 trillion in private wealth, or 30 percent of the total wealth in the U.S., a huge jump compared to $34 trillion in 2010, according to The Economist. Women will also become the largest beneficiaries of the $30 trillion intergenerational wealth transfer over the next 25 years.

As TriplePundit has reported, gender parity in the financial world is staggeringly poor, with Wall Street heavily dominated by men. Yet while less than 5 percent of women hold senior leadership roles in the asset management industry, impact investing is a striking exception. One-third of the 2017-18 ImpactAsset 50 fund managers are led by women and 41 percent of these funds’ senior management teams are females, according to researchers Suwen Chen and Richard T. Harrison of the University of Edinburgh Business School, writing in the Financial Times.

Supporting female-led start-ups

When that capital ends up in the hands of women, they often turn around and support other women. But there is still a steep hill to climb. As of October 2017, women made up just 8 percent of investing partners at the top 100 venture capital (VC) firms, according to the venture-tracking site Crunchbase.

And as research conducted by the analytics firm PitchBook and the advocacy organization All Raise concluded, female founders received only 2.2 percent of the $130 billion in venture money invested across the U.S.

Lisa Blau and Amanda Eilian, who founded Able Partners, a New York VC firm in 2016, set out to remedy this disparity by investing their own money — without harnessing any outside capital — in early-stage companies led by women.

As they told The New York Times, when they recently invited other women investors to a pitch event to showcase ten of the companies in which they’d already invested, they called the event “the anti ‘Shark Tank’ because everyone is already a winner. We’re just trying to bring more female investors to their cap table.”

The path towards more inclusive investing

These types of inclusive investing practices benefit not only women, but also entrepreneurs of color, according to a recent report from Arabella Advisors, New Venture Fund and JP Morgan Chase & Co. It noted that less than 5 percent of entrepreneurs backed by VC firms are African American or Latino, but that philanthropy had a role to play in unlocking capital in the quest to create an inclusive economy for all.

Arabella found that to address this problem systemically, individual and institutional investors must change how they make their investment decisions, such as increasing the diversity of who makes investment decisions in the context of an investor class that is predominantly white, male and elite-educated.

That diversity is represented by Invest for Better, a new national campaign and open-source, nonprofit impact investing website designed to help women overcome the challenges they may face in becoming effective impact investors.

To that end, Lorine Pendleton, a Portfolia Funds Investment Partner and member of women-focused Pipeline Angels has said on Invest for Better’s website, “I became an angel investor after learning that black entrepreneurs get less than 1 percent of VC funding. I knew the importance of funding and wanted to do something to help level the playing field.”

Women poised to close generational gap in socially responsible investing

The pressure for change is building. A study released this week by Swell Investing shows that women are poised to close the generational gap in socially responsible (SRI) investing. Among those approaching retirement (ages 55-64), 71 percent of women investors are interested in, or are currently investing in, socially responsible or impact investing strategies, compared to only 47 percent of male investors.

That interest in SRI remains high in all life stages, the study found, with 82 percent of mothers stating that companies have a responsibility to create positive social and environmental outcomes in addition to financial returns, versus 73 percent of fathers.

Women are also just as interested in returns, the study noted. Among investors who haven’t yet started investing in socially responsibly equities, 34 percent of women and 36 percent of men say more information about the financial performance of these investments would influence their decision to get started. 

“This is not just a feel-good movement for women; it’s just as important for them to see a financial return on those investments,” Lily Bowles of Swell’s Portfolio and Impact Investment Team told 3p.

Editor's note: Follow today's International Women's Day conversation on social media with hashtag #InternationalWomensDay.

Image Credit: Women of Color in Tech/Flickr