Article: "Gender Diversity and Investment Fund Performance" (التنوع الجندري وأداء الصناديق الاستثمارية)

نُشر في صحيفة الحياة
English version below

تسعى الدول الخليجية إلى تعزيز مساهمة القطاع الخاص في الاقتصاد وإلى تمكين المرأة، وهما هدفان منفصلان شكلياً. لكن ورقة بحث جديدة كشفت أن إعطاء الإناث دوراً أكبر في قرارات الصناديق الاستثمارية، يتسبب بتحسن في أدائها، بالتالي يجب على الحكومات والقطاعات الخاصة الخليجية، أن تنظر في نتائج ذلك البحث كجزء من تنفيذها لرؤاها الاقتصادية.ـ

المزيد

All the Gulf countries are trying to increase the contribution of both the private sector and women to the economy—two nominally separate goals. However, a new research paper suggests that giving women a bigger role in decisions of investment funds improves their performance. Consequently, Gulf governments and private sectors should examine the results of this study as part of their efforts to implement their economic visions.

The study’s authors are economists Paul Gompers and Sophie Wang, both of whom are affiliated to Harvard University in the USA. Their departure point is two notable phenomena.

First, homophily, which is a psychological condition that pushes humans to discriminate in favor of people who are like them in various dimensions, such as gender, race, age, and so on. Humans are sometimes aware of their homophily, such as when boys prefer to play with boys, and girls with girls. However, in many day-to-day situations, individuals might not realize that their behavior is being driven by homophily, especially in professional situations, where discrimination on the basis or gender, race, or age is not permitted.

For example, when a white judge rules in favor of a white litigant, against a black defendant, the ruling might be partially due to homophily, without the judge’s awareness.

Second, the low levels of female representation in the boards of venture capital companies in the USA. The researchers found that around 75% of venture capital firms had never employed a woman in the position of a senior investment professional, and that women represent only 10% of new hires in the sector.

The authors set out to answer to questions.

First, are their factors what can help overcome homophily in hiring decisions of investment funds, especially in the gender domain?

Second, what is the effect of gender diversity on the performance of investment funds?

To investigate the first questions, the researchers gathered data on the gender composition of venture capital boards, and of the offspring of the members of those boards. Using advanced statistical methods, they were able to determine that the males dominating those boards favored hiring males due to homophily—a factor unrelated to a candidate’s expected performance.

Further, the authors found that the homophily bias of males decreased as the representation of females in the board members’ offspring increased. More specifically, hypothetically replacing a board member’s son with a daughter would increase the probability of hiring a woman in a senior investment position by 24%. Therefore, gender diversity in board member offspring leads to gender diversity in new hires. They attributed this to the fact that fathers who have daughters and not just sons subconsciously attenuate their bias toward males, possibly as a result of empathizing with females.

Setting aside social and ethical concerns, the more important question from an economics perspective is the effect of gender diversity on board performance in investment funds. The authors concluded that a more balanced representation of females in boards improved fund profitability. The main reason—most likely—was that homophily leads to the non-hiring of females who are more capable than the males who are hired, and that as a result, combating homophily yields a board that is selected on the basis of performance.

The researchers also drew attention to two other advantages associated with gender diversity.

First, when discussing issues that require judgment and discussion, such as investment decisions, extreme homogeneity among decision-makers diminishes the quality of the ideas proposed, as it leads to a narrower range of proposals, and induces groupthink. In contrast, diversity in decision-makers yields diversity in the proposals considered, which improves the quality of final decisions.

Second, in the investment domain, successful funds are characterized by the ability to get the best deals, via a strong network of contacts, which provides boards with new and high quality opportunities. Accordingly, gender diversity in the board increases the size of the collective network that the board members can access, and with it the quality of the deals proposed.

Gulf investment boards surely suffer from a more acute underrepresentation of women than in the USA. Most likely, this reflects a violation of women’s rights, in addition to decreasing the performance of those funds for the same reasons cited by the two researchers. In the wake of falling oil prices, and the integration of the Gulf economies with the global economy, improving the performance of private enterprise has become a key goal for the Gulf countries.

In light of the important role that investment funds play in the private sector’s production chain—specifically helping launch the innovative new projects that create jobs and drive the economy—stakeholders need to study this research, and investigate ways of improving female representation. Doubtless, there have been many global investment opportunities that were foregone by the Gulf countries because a failure to deploy the abilities of Gulf women as analysts, as sources of proposals, and as intermediaries. However, the most important point to note is that society should give females the same opportunities that males get, for reasons of social justice, and setting aside any considerations relating to performance.