Morgan Stanley is betting that investors are ready to put their money on female leadership as it launches a new investment vehicle aimed at reaping the profits of firms with women at the boardroom table.
Two financial advisers at the bank are starting an investment portfolio, set to launch April 1, which will only put money into companies committed to promoting women into corporate board seats.
The initiative is called the parity portfolio, a capital markets investment strategy that only buys into companies that have at least three women on their boards – dubbed "gender-lens investing."
The idea was conceived by Eve Ellis, portfolio manager and a financial adviser with the Matterhorn Group at Morgan Stanley.
Together with fellow financial advisor Nikolay Djibankov, the portfolio is designed to do more than just generate returns – it is aimed at generating change in the boardroom by encouraging companies to recruit more female directors. Investors must contribute a minimum of $250,000 (U.S.).
Ms. Ellis was inspired to create the portfolio last summer after combing through several studies that showed companies with women on their boards posted superior financial results.
The first to catch her eye was research by the women's advocacy organization Catalyst, which found Fortune 500 companies with the most women in the top management group had far better financial performances than companies with the fewest women. It has repeated similar studies on the subject since the 1990s. She acknowledges that the research doesn't prove that more women in leadership positions by itself leads to higher profits, but she believes it is a factor.
"It seemed logical that we should be investing with companies who are laying a foundation for strong financial performance," Ms. Ellis says.
Deborah Soon, senior vice-president at Catalyst, called the action bold and stated other institutional investors such as U.S. pension money manager California Public Employees Retirement System (Calpers) "have supported women and diversity in the boardroom, whether by proxy action and/or by creating director candidate resources for their portfolio companies."
The portfolio is open to investors from outside the U.S., but the companies in which the new fund will invest are headquartered south of the border. Initial interest has been strong, according to Ms. Ellis.
The portfolio will follow a value-based investment strategy and will be overweighted toward companies that fall into categories such as consumer discretionary products, health care and consumer staples. That is not only because they see investment opportunities in those sectors, but also because those industries are more open to having women on their boards.
The new fund will also avoid sin stocks, similar to other socially responsible investing strategies. There will be no tobacco, firearms or oil companies in the portfolio, no matter how many women they have.
Innovative social investing strategies have garnered more attention in recent years. Goldman Sachs invested $10-million last summer in a New York jail program through a product called social impact bonds. The bonds were used to fund training and education for young inmates and are designed to reward investors if recidivism rates decline.