The Folklore of Finance and Gender 13/10 2015

KvinnoKapitallunch med Mimmi Kheddache Jendeby

Tack alla ni som hade möjlighet att närvara på lunchen igår, fantastiskt vilket engagemang och känslor dessa frågor ger! För er som inte kunde vara med har Anna summerat presentationen nedan. Sammanfattningen är på engelska den här gången, precis som presentationen.

The Folklore of Finance

At the outset, the question raised was ‘Is the finance industry successful?’ The answer is no, the industry is profitable but not successful in achieving the client’s long-term goals. Alpha is not equal to clients’ long term goals. Only 43% of private investors believe asset managers generate alpha from skill, of institutional investors the majority believe it is created through luck rather than skill.

Folklore is about the stories that we tell, for example ‘you should not go swimming after you have eaten as you will get a cramp’. There are two types of folklore: conscious (e.g. overreliance on past returns or overestimating future forecasting ability) and unconscious (e.g. self-attribution). Folklore is in fact a coping mechanism, a way of coping with the fear of making a bad decision. In the survey, the respondents thought they would be fired after 18 months of underperformance. So the greatest fear for making a bad decision is career risk. Very unproductive in an investment management environment!

How we allocate time, money and energy is a key for succeeding. On an X/Y chart, we want to be in the quadrant that optimizes long-term value for investors.

– Less focus on ‘traditional’ measures such as historical returns

-More focus on areas such as realistic self-assessment, tolerance for pain

This should lead to a culture where questioning inefficient procedures is encouraged

The Folklore of Gender

After the above paper was released, the researchers realized that they had missed one aspect; the folklore of gender. Thy went back to the drawing board and analyzed the data with a different lens.

Women are hugely underrepresented in asset management (20%) and even more so amongst portfolio managers (7%). No surprise there, but does diversity/equality matter, is it important? Yes, diversity of minds is crucial for success. We diversify our portfolios to achieve the highest returns, should we not do the same in our organizations? Research says that teams with mixed gender outperform those of only men/women. Investment decisions are based on genes, hormones and life experience.

How do we get to gender diversity?

–          Better understand the impact of gender folklore

–          Increase the number of women in senior positions

–          Understand that it is a business issue.

How to address this:

1)      Identify any unproductive behaviors that exist

2)      Define objective ways to measure the biases (for example, we should recruit at least 35% women)

3)      Implement as a bias interrupter

4)      Re-measure and move back to 3) if necessary


State Street has set gender diversity as a business priority

o   Senior managers have performance related compensation linked to diversity

o   Look at every diversity aspect, not just gender

o   Today have a 50/50% split men/women up until the AVP level, women drop out at higher positions

Women could use more coaching/mentoring, both in how to apply for certain positions as well as executing them

Should we consider diversification of personalities rather than focus on gender only?

The female students in SSE’s master program has decreased from 40% to 30%, how do we attract young women to this. When recruiting, is it necessary that candidates have a finance degree?


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