By Ruth Shaber, MD, Co-founder of the Diverse Investing Collective

Do you know what your money is doing while you sleep? Whether you invest directly in the stock market, or through a financial advisor or a work-sponsored retirement program, your investment money is hard at work even when you’re not.  Like most Americans, you are probably largely aware of broad investing concepts such as the importance of asset diversification and long-term strategies, but you might not understand what happens once your investment money leaves your bank account, and who is making the investment decisions on your behalf. It’s becoming more and more common to focus on the type of companies or funds you’re invested in. But, you can make your investments stronger by also focusing on who is managing your money.  If you care about making our world a better place and making good returns, you need to understand who is pulling the levers in the investment machine, and how their decisions affect financial and real-world outcomes.

While the money is actually yours, it is portfolio managers at asset management firms who are the ones making most of the day-to-day decisions about where to put your assets. This gives them immense power to decide which companies get funded and which ones don’t – as well as strong influence over how companies approach important societal issues, like environmental impact and labor practices. Unfortunately, most of today’s portfolio managers pretty much look the same: male and white, with similar perspectives. 

It Turns Out That Diversity is Good for Your Money

In 2022 I co-authored a book with Patience Marime-Ball called The XX Edge: Unlocking Higher Returns and Lower Risk.  While doing research for the book, we consistently found that when women are included in financial decision making and investment management across the spectrum of types of investments, better things happen – including stronger financial returns. When the team of people managing your money are all men, you are missing an opportunity for better performance.  

What we found in our research regarding financial teams with women, is also true for all types of diversity on teams. For example, WTW’s 2020 analysis looked at 400 investment products across a number of asset classes over several years, including benchmark-relative returns and found “investment teams with diversity, in particular ethnic diversity, tend to generate better excess returns.”

Research shows that when everyone on a team looks the same and has the same lived experiences, this can lead to groupthink and worse decision-making – while teams with a more diverse mix of genders, races, and perspectives, can lead to better investment performance. Portfolio managers with more diverse backgrounds, such as women and people of color, will see challenges and opportunities missed by a group who has not walked in their shoes – allowing great ideas to lead, wherever they might originate. 

Recently, the Diverse Investing Collective (an organization I co-founded) analyzed data from both Nasdaq eVestment, an online reporting platform for the global institutional markets, and the U.S. Securities and Exchange Commission to better understand how much money is managed by diverse teams. While a number of these firms have provided diversity data at the firm level, they have not reported it at the fund level. This means investors cannot easily understand the makeup of the individual fund teams making critical investment decisions. In other words, there is little transparency around who is controlling our capital.

Our findings highlight an overwhelming (if predictable) lack of diversity among portfolio managers. Gender-diverse teams that include at least 33% women manage just 17% of the $6 trillion in investments examined. 

It’s Time to Ask the Big Questions

It’s clear that primarily all male teams are controlling the vast majority of our money.  Given all the evidence that diverse teams lead to better financial performance, I invite you to speak up and demand to know who is managing your investments. This evidence shows that your investment portfolio will perform better if you have people from diverse backgrounds making decisions on your behalf. 

For too long, the people designing our financial systems and driving investment decisions have looked and thought alike; it is wiser for us to question this power as our population continues to become more diverse. If we care about the improved outcomes of our climate and supporting underrepresented groups like women, children and people of color, we have work to do.

Even if you want to leave your investing strategy on autopilot, the act of investing doesn’t have to be passive. Your investment money is always at work – but it can be even more productive for you, and for our world, by adding more diversity behind the scenes. Asset owners like you have tremendous power to change the face of finance.