The XX Edge: Unlocking Higher Returns and Lower Risk

The XX Edge

Unlocking Higher Returns and Lower Risk

Patience Marime-Ball and Ruth Shaber, M.D.

PRAISE FOR The XX Edge

"The XX Edge is a ‘get behind’ kind of book. Marime-Ball and Shaber draw on their extensive research and real world experience to make a compelling argument for more gender inclusivity when it comes to business and the economy. It is a must-read for every leader who wants to deliver stronger long-term performance and positive and inclusive societal outcomes. It should be in the hands of every citizen who aspires to effect positive change."

—JAMES MANYIKA, Chair and Director Emeritus, McKinsey Global Institute

The authors paint a powerfully persuasive picture of the results when women are at the centre of investing, as agents and actors. At last, we can understand the vast difference that women can make to the effectiveness of the financial world in meeting the challenges ahead. This book is vital reading for anyone concerned about the future of finance.

—DR. SCILLA ELWORTHY, Three-time Nobel Peace Prize Nominee, Founder of The Oxford Research Group and Peace Direct, and Author of The Business Plan for Peace

As the world is witnessing unprecedented technological change, the question of how innovation can serve more people is front and center. This book makes a strong case for how products and services are more inclusive and higher quality when women are inside innovation labs.

—WILLIAM SONNEBORN, Senior Director, Disruptive Technologies and Funds, International Finance Corporation

"Gender-diverse teams outperform. The XX Edge details why and how having women in investment rooms is critical to building portfolios that drive doing well and doing good. Thank you for getting this important content into the world. People and the planet are depending on us getting this right. We can shift our economies to ones that work for everyone. Clearly, women as investment decision-makers are essential to achieving a sustainable world."

—KRISTIN HULL, Founder, CEO, Nia Impact Capital

This clear and compelling book shares robust research and real world examples which demonstrate that greater gender inclusion leads to a larger opportunity set, paving the way for higher returns on one’s capital. Investing is not a zero-sum game: female investment managers, asset owners, and corporate managers can dramatically increase our collective financial results.

—BRENT KESSEL, Cofounder of Abacus Wealth Partners and Author of It’s Not About the Money

The book’s comprehensive coverage of the subject matter, from personal anecdotes to milestone events, from solid research to evidence in practice, sends a powerful and convincing message that XX factors are essential for humanity to achieve better social and economic outcomes and for investors to do well by doing good. I highly recommend this book.

—JINGDONG HUA, Former Vice President and Treasurer of the World Bank

Dedicated to all the changemakers and to our mothers:

Farirai Pfupajena, teacher, and Betty Miller Ball, champion of changemakers

Sandra Shaber—economist, feminist, and proud capitalist

INTRODUCTION

IF YOU ARE MANAGING INVESTMENTS, either your own or on behalf of clients, your primary goal is to generate the best returns possible and grow these assets. What most investors don’t realize is that when more women are involved in financial decision-making across all entities that make financial decisions (including governments, private and public companies, investment funds, real estate development, and individual households), money is managed more efficiently and effectively, investments are more profitable, and companies and governments make better decisions that benefit individual investors and, ultimately, the overall economy. You can put this knowledge to use. This is what we call the XX Edge.

MORE PIE FOR EVERYONE

Investing is not a zero-sum game. Untapped investment opportunities can be found at the intersection of gender and finance. Nevertheless, many investors still base their investing decisions on the notion that the total amount of the world’s assets is fixed and that if one investor is gaining, another must be losing. Milton Friedman memorably wrote in 1980, Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.¹

Instead, expanding the use of diverse talent in financial decision-making optimizes returns, grows the overall economy, and extends more opportunity to everyone. Optimizing human talent leads to more innovation and results in expanding financial returns for investors. Women’s leadership skills are currently underutilized across all capital markets. Women represent only a small fraction of the individuals making the financial decisions that impact domestic and global economies. This underutilization leads to inefficiencies and missed opportunities in the markets. In general, women are poised to tackle the challenges ahead of us because they are closer to most of the problems that need to be solved, utilize collaborative leadership styles, are more aware of risks (and therefore conduct due diligence and prioritize investment allocation differently), and take the long view in financial decisions. Women’s financial leadership will lead to more innovation, stronger investment returns, and accelerated economic growth.

When the financial services industry successfully includes women in decision-making roles and optimizes their skills across all capital markets, the individual investor will enjoy higher returns and benefit from the innovation and economic growth. Diversity makes the team stronger and offers you and others better returns. Those who are open to innovative ideas from all sources and who have confidence in their own potential while understanding that a more diverse team does not take them out of the game are positioned to capitalize on this opportunity and dramatically grow their wealth.

A NEW PARADIGM FOR GENDER-FOCUSED INVESTING

The field of gender-focused investing is about to be flipped. Traditionally, the field has prioritized how finance can improve the lives of women and girls and thereby lift families and communities. Consider a different paradigm: one with women at the center of investing as agents and actors, not just as beneficiaries.

Gender analysis is the secret to unlocking better financial performance for all investors. The evidence is clear that when women share in the control of capital (as board directors, CEOs, entrepreneurs, borrowers, heads of government), better social and financial outcomes are the result.²

Furthermore, when women are included in decision-making, they build solutions that also benefit their families and communities. When women have access to more money, they build wealthier and healthier economies—at family, community, national, and global levels. They make the economy grow and bring better outcomes to everyone. To be clear, this new paradigm demands we move away from the idea that microfinance is the only type of capital that we associate with women. We must open all types of capital to the full participation of women and have them involved in all allocation decisions.

Today only a small percentage of women participate in significant financial industry decision-making. Of the Fortune 500 companies, only 41 are led by women.³

Barely 14% of private equity fund managers are women, and less than 3% of venture capital is directed toward enterprises run by women.⁴

Why would women’s financial decision-making lead to better financial and social performance? Data indicates that more diversity in leadership brings additional talented people into company decision rooms, investment committee meetings, and public policy forums.⁵

Women tend to prioritize long-term outcomes and take on risk in a different way than men. Women bring distinct types of innovation and creativity to problem-solving because they directly experience the impact of the challenges that need to be addressed. And women tend to exhibit collaborative network leadership styles that are well suited to our changing global economy.⁶

To accrue higher returns and lower risks, the world of finance must fully appreciate that including talented women in decision-making positions is the secret to unlocking better financial returns. When all members of the investment community prioritize investments that place female talent at the table, demand for women board directors and CEOs will grow. This will drive pay equity at the top and throughout organizations and will generate a pipeline of talent in middle management, vocational schools, and universities. There will be a demand for female fund managers and entrepreneurs who will bring untapped venture capital to the hands of more female innovators and disruptors. This, in turn, will result in product development, services, and strategies that cost-effectively meet the needs of all, such as new forms of effective and safe contraception, more climate-friendly consumer goods, and financial products that reach those who are traditionally excluded. Women will be prioritized as business owners and mortgage holders, which will result in more reliable loan repayments and more stable neighborhoods and towns. This is just the beginning of how our economy will improve when women make more financial decisions and exert more control over the flow of capital. As an investor, you will want to take full advantage of this expansive and developing opportunity.

WHAT YOU WILL FIND IN THIS BOOK

In the chapters to come, we will outline data, research, and case stories to build your understanding of gender-focused investing. We will examine the inherent gender differences between women and men and consider why these differences make women effective and efficient financial decision-makers. We will look at the evidence that proves this point across all asset classes. We’ll look at the environmental, social, and governance contexts that shape current and future investment opportunities, including the financial risks of not fully implementing this new paradigm. We’ll take you through some examples of how giving women financial decision-making power generates solutions to some of the world’s most pressing problems. Finally, we will give you some specific and actionable opportunities to implement what you learn from this book.

But before we get into these details, let us introduce ourselves and our backgrounds so you can understand why we wrote this book.

RUTH’S JOURNEY

Throughout my professional career, both as an obstetrician/gynecologist and a health-care executive, one thing has been clear to me: the best way to improve people’s lives and solve complex problems is to engage women. Use their talents and let them be the levers of change. When a woman is healthy, her family is more likely to be healthy. When women have access to noncoercive family planning that allows them to control when and how to have children, they are more likely to optimize not only their own economic and social outcomes but those of their families and communities at the same time. Women ensure that their family members have adequate health care. When women have information and resources, they are more likely to be financially accountable—whether in service to their families, their own enterprises, their communities, or their governments.

I retired from my career in medicine in 2012. When I launched my new career as a philanthropist and impact investor, I saw endless opportunities to elevate women as agents of change to solve the world’s problems. I founded the Tara Health Foundation, where we developed an integrated capital model that matches the appropriate type of capital (such as charitable grants, recoverable grants, loans, or equity investments) to each problem, putting women at the center of the process. When we turned our attention to the public markets, we focused on developing the tools and processes for evaluating companies that are good places for women to work and have a positive impact on their communities. These tools are now publicly available to any investor. By using a gender analysis across our entire portfolio, we have had returns on our investments that consistently beat market benchmarks—an exciting result. I am confident that the Tara Health Foundation investment portfolio overperforms because of our gender focus.

PATIENCE’S JOURNEY

I was born in Zimbabwe, educated in Europe and the United States, and started my investing career in 1996 at the International Finance Corporation (IFC), the private sector arm of the World Bank Group. It was a fantastic job that allowed me to make investments at the intersection of economic capacity, strong financial returns, and legal rights. My work spanned investments in infrastructure, nonperforming investments, and financial institutions. In 2008 I was working in IFC’s financial markets group when the subprime crisis unfolded. It was the beginning of my deeper understanding of the value of women’s leadership. About that time, Christine Lagarde, the head of the International Monetary Fund, said, If it had been Lehman Sisters rather than Lehman Brothers, the world might well look a lot different today.⁷

I started looking at the performance differences and learned that companies with gender-diverse leadership were faring better with more stable earnings and stock prices relative to their peers. They also emerged from the crisis faster than peers without gender-diverse leadership. I saw how Lehman Brothers and Sisters would have been a better investment bank. After reviewing the viability of building a business for IFC focused on prioritizing the role of women economic actors, I developed and built IFC’s Banking on Women business unit, choosing a name that played on the opportunity of counting on women and providing women with access to bank capital. Today it is a multibillion-dollar business for IFC. We issued the first-ever gender bond and developed the first global debt fund, sized at $600 million, focused on investing in women entrepreneurs. As of June 2021, the Banking on Women platform has facilitated the investment of over $15.6 billion in women entrepreneurs around the world.

In my career at IFC I worked and traveled extensively around the world. I had two sons who had grown up with a mom who was often away from home. In 2014, I took early retirement to spend more time with my two Black sons before they headed off to college, being present in their lives and cooking dinner. I also started investing in gender-diverse founder teams as an angel investor. I joined a team that was raising their second venture fund, and we struggled to raise the capital. It was frustrating to see how institutional investors viewed the female opportunity as mostly a microcredit opportunity rather than a profit-making opportunity. This helped me see the critical need for a 100% gender-focused institutional pool of capital with the intention of investing in women who are driving solutions. It needed to operate across the capital spectrum, from early stage investing to public equities. I took some money from my pension fund and used it to start the Women of the World Endowment (WoWE), a 501(c)(3) focused on raising a significant, evergreen endowment to invest in women changemakers who are building solutions for the world’s most pressing environmental, social, and governance challenges. We invest the endowment capital for risk-adjusted returns, as with any market strategy. We also look for deep impact returns. We collaborate with and influence other investors to fund strategies that fully centralize women as decision-makers, and we use the income generated from our investments to provide grants to women-focused systems orchestrators, organizations that are removing barriers and driving large-scale change.

WoWE is a bold idea. Our ambition is to build a $5 billion, 100% mission-aligned endowment. Many doubt that we will achieve this ambition because I am a woman, a Black woman, an African woman who is focused on the idea of mainstreaming investing in and through women. It will be hard to achieve this ambition, but I do not doubt that we will be successful. The time has come for this significant ambition. Women changemakers, with the right allies, are getting bold things done.

OUR PARTNERSHIP

Why the two of us? How did two people from quite different backgrounds end up working toward the same ambitious goal? Our professional journeys were different, but we were both rare breeds. We worked in areas that denied women equal seats at the table or space in innovation labs, despite our talent.

We came together in 2019. We are collaborators in a relationship based on mutual respect. We recognize each other’s power and realize that the gender movement has for a long time been exclusive, reserved for white women as leaders of the movement and beneficiaries of any seats created at the tables of power.⁸

We want to change that.

In our separate careers and differing fields of expertise, we have demonstrated that collaborative leadership can create more health and wealth. We have had a common approach in harnessing the power to change systems and putting women at the center of decision-making. We are working together on this book to explore applications from our knowledge of the finance industry, the global economy, and the human condition. Our experience and success in investing at the intersection of gender, economic, and social impact will benefit all future investors.

A WORD ABOUT GENDER

In the history of gender-focused investing, most conversations about it have been among women. Therefore, this book will provide women with additional information to confirm what they have known all along. Mothers, sisters, and daughters are aware that they are running operations in their homes, building innovative solutions in communities, and holding up skies across continents.

However, because men make most of the investment decisions in the world, we see them as the most essential audience for this book. If you are a man reading this book, we thank you for taking the time to broaden your viewpoint and the returns on your investment portfolio. Men have been managing the world’s economies and been in control of global financial decision-making for thousands of years. Despite some difficulties along the way, the world has gotten much better over the course of human history. As Steven Pinker outlines so well in Enlightenment Now, For all the flaws in human nature, it contains the seeds of its own improvement.⁹

Over the past thousand years, we’ve seen dramatic improvement across every measure of the human condition, including life expectancy, poverty alleviation, human rights, violence, and literacy. For all our focus on the challenges ahead, we want to express gratitude for the innovative men who have seized opportunities and created a better world. We hope that the same spirit of innovation and hard work will extend to engaging all human talent if we are to fully address the environmental and social challenges in this next chapter of human history.

And now a note about gender. In these pages, we categorize some people as women. This book makes the case that financial decision-making should be shifted to people who identify as female, regardless of their biological sex. This includes both cis and trans women. However, the evidence that we cite is limited because it is based on studies of cis women. Furthermore, our descriptions and characterizations are as tendencies, not absolutes. All people are individuals and should be treated as such. Traits that we’ve described as female are not limited to cis women. Trans people, nonbinary people, and men can have these traits too. We’ve made the intentional decision to use the word women, but we know that it’s not inclusive. While we focus on women’s financial leadership in this book, many of the findings are transferable to everyone who is underrepresented at capital-allocation tables. When diverse talent can share in financial decision-making and leadership, we all benefit.

In the following chapters, you will see the evidence that when the financial industry recruits more talented women to leadership positions, all investors will realize better financial returns. Whether you are managing your own money or someone else’s, whether you are running a billion-dollar public company or the budget for a small household, whether you are making purchasing decisions for a state government or buying for yourself from a local farmers market, having women at every point of the value chain will enhance your personal returns and grow the economy for all to benefit. This book is about the consistent financial edge of this more inclusive approach.

The potential impact is huge. When women sit at the table, we all benefit—the social, environmental, and economic benefits are clear. We can make the pie bigger for all of us.

Now, let’s get to work.

CHAPTER 1

THE LEADERSHIP EDGE

MORE MONEY, MORE IMPACT

WHY ARE OUTCOMES BETTER WHEN more women control more capital? What is it about women that makes them great financial decision-makers? In this section we discuss three key opportunities that investors are missing and three inherent gender differences that investors are not tapping into that answer these questions.

First, female talent is vastly underutilized. Only 5% of chief executive officers (CEOs), fund managers, or venture capital recipients are women, which means a significant amount of talent is excluded from these roles and left out of innovation, decision-making, and capital allocation.¹⁰

When this human capital is applied to problem-solving, better outcomes are the result.

Second, when products are designed