The power of money

Investment by women, and in them, is growing

Much of the wealth transferred in the coming decades will end up in female hands

MARCH 8th, International Women’s Day, always brings a flood of reports about gender inequalities in everything from health outcomes to pay and promotion. But one gap is gradually narrowing: that in wealth. As money managers seek to attract and serve rich women, and as those women express their values through their portfolios, the impact will be felt within the investment industry and beyond.

According to the Boston Consulting Group, between 2010 and 2015 private wealth held by women grew from $34trn to $51trn. Women’s wealth also rose as a share of all private wealth, though less spectacularly, from 28% to 30%. By 2020 they are expected to hold $72trn, 32% of the total. And most of the private wealth that changes hands in the coming decades is likely to go to women.

One reason for women’s growing wealth is that far more of them are in well-paid work than before. In America, women’s rate of participation in the labour market rose from 34% in 1950 to 57% in 2016. Another is that women are inheriting wealth from husbands, who tend to be older and to have shorter lives, or from parents, who are more likely than previous generations to treat sons and daughters equally. As baby-boomers reach their sunset years, this transfer will speed up. 
All this will have big implications for asset managers. Take risk-profiling. Surveys show that men’s attitudes to risk are typically more gung-ho, whereas women are more likely to buy and hold, which leads advisers to conclude that men are less risk-averse. And men are more likely to say that they understand financial concepts, which might seem to suggest that they are more financially literate. 
But it may be more accurate to say that women are more risk-aware and less deluded about their financial competence. A study in 2001 by Brad Barber and Terrance Odean, academics in the field of behavioural finance, showed that women outperformed men in the market by one percentage point a year. The main reason, they argued, was that men were much more likely to be overconfident than women, and hence to carry out unprofitable trades.

Another difference is that men are more likely to say that outperforming the market is their top investment goal, whereas women tend to mention specific financial goals, such as buying a house or retiring at 60. Affluent women are more likely to seek financial advice and fewer direct their own investments compared with men, according to Cerulli, a research firm. But they seem to be less satisfied with the advice they are getting. A survey in 2016 by Econsult Solutions, a consultancy, found that 62% of women with significant assets under management would consider ditching their manager, compared with 44% of men. Anecdotally, millennial women who inherit wealth are prone to firing the advisers who came with it. 

A few investment firms focusing on wealthy women are springing up, such as Ellevest (motto: “Invest Like a Woman”). Other money managers are seeking to hire female advisers and setting up dedicated teams for female clients. Some have taken the daring step of making women more prominent in their marketing material. 
“It’s critical for our business that we recognise the trend of rising women’s wealth and respond appropriately,” says Natasha Pope of Goldman Sachs. That response goes well beyond better communication with women. It means recognising that women, particularly younger ones, are more likely to look for advisers who can help them invest in a way that is consistent with their values.

In a recent survey by Morgan Stanley 84% of women said they were interested in “sustainable” investing, that is, targeting not just financial returns but social or environmental goals. The figure for men was 67%. Matthew Patsky of Trillium Asset Management, a sustainable-investment firm, estimates that two-thirds of the firm’s direct clients who are investing as individuals are women. Among the couples who are joint clients, investing sustainably has typically been the wife’s idea. Julia Balandina Jaquier, an impact-investment adviser in Zurich, says that though women who inherit wealth are often less confident than men about how to invest it, when it comes to investing with a social impact “women are more often prepared to be the risk-takers and trailblazers.”

The newest trend within values-driven investing is to use a “gender lens” to make investment decisions. Just as environmentally minded investors may ask about their portfolio’s carbon footprint, or seek to invest in green-energy projects, so too a small but growing group of investors want to know what good or harm their money is doing to women.

According to Veris Wealth Partners and Catalyst At Large, investment-advice firms, by last June $910m was invested with a gender-lens mandate across 22 publicly traded products, up from $100m and eight products in 2014. Private markets are hard to track, but according to Project Sage, which scans private-equity, venture and debt funds, $1.3bn had been raised by mid-2017 for investing with a gender lens.

As with green investing, a gender lens comes in different strengths. Mild versions include mainstream funds and exchange-traded funds (ETFs), such as the SHE-ETF by State Street, that filter out listed companies with few women in senior management. Super-strength versions include funds that invest in projects benefiting poor women in developing countries. These may make it clear that they offer higher financial risk or lower returns, which investors may accept as a trade-off for the good that they do.

In any investment strategy led by a single issue there is the risk of overexposure to certain industries or companies. Lisa Willems of AlphaMundi, an impact-fund manager, says she tells clients who ask for a “gender fund”—as an endowment did recently—that gender “is a lens, not a bucket”. In other words, it should not be regarded as an asset class in itself. 

But there is no evidence that employing a mild gender-lens need mean forgoing returns. “It’s the integration of gender into investment analysis,” says Jackie VanderBrug of Bank of America, a co-author of “Gender Lens Investing”. That may even lead to better financial performance.

Several studies have shown that companies with women in senior positions perform better than those without. Although this is correlation, not causation, to an investor that distinction should not matter. If diversity in an executive team is a proxy for good management across the company, a gender lens could be a useful way to reduce risk. If a business is tackling gender-related management issues, says Amy Clarke of Tribe Impact Capital, the chances are that it is dealing well with other risks and opportunities.

Since the early 2000s RobecoSAM, a sustainable-investment specialist that assesses thousands of public companies on environmental and social criteria, has included measures of gender equality, such as equitable pay and talent management. After realising that in the decade to 2014 firms that scored well on these measures had better returns than those scoring poorly, it launched a gender-equality fund in 2015. Since then it has outperformed the global large-cap benchmark.

The share of companies reporting the gender make-up of senior management to RobecoSAM rose from 35% in 2012 to 54% in 2016. And the number reporting gender pay gaps rose from 21% to 31%. But gender-lens investing is still constrained by a paucity of data.

Anyone who wishes to invest in firms that benefit women who are not employees will quickly find that there is as yet no systematic way to measure broader “gender impact”. Even inside firms, data are lacking. “We need to move beyond just counting women and start taking into account culture,” says Barbara Krumsiek of Arabesque, an asset manager that uses data on “ESG”: environmental, social and governance issues. It is urging firms to provide more gender-related data, such as on attrition rates and pay gaps. Just as its “S-Ray” algorithm meant it dropped Volkswagen because the carmaker scored poorly on corporate governance well before its value was hit by the revelation that it was cheating on emissions tests, in future it hopes information about problems such as sexual harassment could help it spot firms with a “toxic” management culture before a scandal hits the share price.

Younger men are far more likely to invest according to their values than their fathers were; 81% of millennial men in Morgan Stanley’s survey were interested in sustainable investing.

And though fewer American men than women say they want to invest in companies with diverse leadership, the share is still sizeable, at 42%. If gender-lens investing is truly to take off, it will have to appeal to those who control the bulk of wealth—and that is still men.

Sorry, But The Fed Will Be Safe Not Sorry

The Federal Reserve isn’t ready to adopt the idea the economy can run faster without running hotter

By Justin Lahart

     Chairman Jerome Powell and the rest of the Federal Reserve said the outlook for the U.S. economy has strengthened in recent months. Photo: Alex Wong/Getty Images 

It is possible that, even as tax cuts and government spending boost growth and spur hiring, the risk of the economy overheating hasn’t increased. Maybe, but the Federal Reserve probably isn’t about to embrace that idea.

Fed policy makers on Wednesday raised their range on overnight rates by a quarter point, to 1.5%-1.75%, and acknowledged that the outlook for the economy “has strengthened in recent months.” New economic projections showed their median expectation was for gross domestic product to grow by 2.7% this year and for the unemployment rate to slip by the end of the year to 3.8% from the current 4.1%. In December, they had forecast GDP growth of 2.5% and an unemployment rate of 3.9%.

The unemployment rate

Source: Labor Department

One thing that didn’t change was the median forecast of how many times the Fed will raise rates this year—three. But that view on rates really amounted to a split decision because seven of 15 policy makers expect to raise rates at least four times this year. In December, only four of 16 expected four or more increases.

What is more, the policy makers think they will have to tighten by more in the years to come, projecting that overnight rates will reach 3.375% by the end of 2020, compared with their earlier forecast of 3.125%. That reflects an expectation that the unemployment rate will slip to 3.6% by the end of next year and that inflation will breach the Fed’s 2% target.

The Fed’s view doesn’t jibe with the recent hopes and dreams of some investors. The February jobs report, which showed the unemployment rate stable at 4.1% even as hiring heated up, suggested there might still be a large number of potential workers who could yet enter the labor force. If that is true, the upward pressures on wages in the months to come might not be so severe. The Labor Department’s February report on consumer prices further damped inflation worries.

But for the Fed to take up the view that the job market can handle more hiring without getting tight, it would need a lot more proof than a single month’s jobs report. Likewise, the idea that the economy will become more productive as companies step up investment in response to the tax cut, and therefore able to grow faster without pushing inflation higher, might be true. But the Fed would need to see evidence first.

In the meantime, the central bank is going to keep raising rates.

Missing the Forest for the Xi

Jim O'Neill

 Chinese President Xi Jinping

LONDON – In recent weeks, Western media commentators have focused extensively on the Communist Party of China’s (CPC) decision to abolish presidential term limits, which will allow Xi Jinping to remain in power indefinitely. Unsurprisingly, they have generally responded to the news with disappointment and skepticism about the Chinese political model. What is surprising, though, is the claim that China is reneging on some implicit promise to become more like the West.
Many observers assumed that China would inevitably embrace Western-style liberal democracy. But even though I, too, was slightly taken aback by the CPC’s latest decision, I never considered that simplistic interpretation of modern-day China to be particularly sensible.

Now, let me be clear: I am not going to argue that unelected strongman leadership is superior to Western-style democracy. If I believed that Xi was preparing to rule China with an iron fist for the next 20-plus years, I would share the doubts of many other commentators.

But allow me to suggest a more open-minded interpretation. For starters, as Yuen Yuen Ang of the University of Michigan reminds us in her excellent book How China Escaped the Poverty Trap, China has lifted hundreds of millions of people out of poverty without adhering to the conventional Western approach to development.

In fact, a young Beijing-based entrepreneur I met recently estimates that at least 20% of Chinese – over 250 million people – are now making $40,000 per year. Besides the United States, no other country in the world has that many people generating that much individual wealth. Whether Westerners like to admit it or not, that is a remarkable achievement.1

But even more remarkable is the fact that it has happened under a non-democratic system, and that Chinese citizens appear to be rather content. Although small-scale protests are not uncommon, even among those in the top 20%, they tend to be scattered and fleeting.

Now, think about this. If China can sustain 5.5-7% annual economic growth for the next 15 years, the number of Chinese earning $40,000 per year could more than double. In that case, they probably will not be particularly concerned that Xi is still their country’s anointed leader.

This brings me to a second point. Contrary to the pessimists who have long been wrong about looming threats to China’s GDP growth, I suspect that China’s ultimate undoing could actually be its hukou (household registration) system. This is the arrangement that allows migrants from rural areas to work in cities across China, but does not afford them the same rights as urban-born dwellers. My guess is that very few of these Chinese are among the top 20% of earners.

Although the CPC has experimented with scrapping the hukou system in smaller cities where it wants to promote growth, it has refrained from doing so in the big cities. Based on private discussions I have had with Chinese policymakers, I know that they see the current arrangement as a major problem. But they do not want to confront it. Their reasoning is that abandoning the system altogether would impose an unsustainable burden on megacities such as Beijing and Shanghai.

Still, my hunch is that something will have to change eventually. A two-tier system in which almost half the population enjoys Western levels of wealth while the rest have no right to health care or social security cannot survive another 15 years. And if this is obvious to me, then it must be obvious to the Chinese leadership, too.1

There is no telling when an overhaul of the hukou system will come. But when it does, as I think it must, it will probably be accompanied by a dramatic shift in political governance. Given this, I can see why the CPC’s upper echelons would want to be particularly careful about leadership changes in the years ahead.

And lest we forget, when Xi came to power in March 2013, some at the top of the party tried to resist the changes he was bringing. Ten years may be a long time, but it probably isn’t long enough for fundamental questions about the future of the country and the party to be laid to rest.

So, my third and final point for consideration is that the CPC elites do not want a permanent Xi presidency so much as they want to avoid a forced change of leadership in 2023. My recommendation for Western commentators, then, is to focus on how the Chinese economy evolves in the meantime. Commentary examining growth in Chinese private consumption as a share of GDP, or potential changes to the hukou system, will be far more edifying than that devoted to the personality and ambition of Xi Jinping.

Jim O'Neill, a former chairman of Goldman Sachs Asset Management and former Commercial Secretary to the UK Treasury, is Honorary Professor of Economics at Manchester University and former Chairman of the Review on Antimicrobial Resistance.

Is Turkey Going It Alone in the Middle East?

Jacob L. Shapiro


Turkey and the United States are no strangers to disagreement. In recent years, Ankara has accused the U.S. of tacitly supporting an attempted military coup in Turkey and of openly supporting a Syrian Kurdish militia, known as the YPG, that is hostile to Turkey’s interests. The U.S., for its part, has complained that Turkey has not done enough to combat the real terrorist threat – the Islamic State – and it has criticized Turkish policies that increase the power of the president and curtail freedom of expression. Things got so bad at the end of last year that the two sides briefly suspended visa services after a U.S. Consulate employee was arrested on suspicion of espionage.

Through it all, one topic has always been more important than the others: the status of U.S. forces at Incirlik air base. That status is now in question, and with it, the future of U.S.-Turkish relations.

The Wall Street Journal reported March 11 that the U.S. military had not only curbed its combat operations at Incirlik but was also considering “permanent cutbacks,” according to unnamed U.S. officials. A spokesman for U.S. European Command insisted that U.S. operations continue unabated, and Turkish sources cited in state-run Anadolu news agency confirmed the denial. Yet neither report mentioned the future cutbacks, and the fact that there was something to refute in the first place is important in its own right. Where there’s smoke, there’s usually fire.

Back-Up Plans

The United States has, in no uncertain terms, scaled back its combat operations at Incirlik. The U.S. military moved a squadron of A-10 ground attack jets from Incirlik to Afghanistan in January, for example, leaving just a squadron of refueling aircraft and a squadron of Predator drones at the base. (The U.S. has at times stationed F-16s at Incirlik in the fight against the Islamic State but not recently.) The transfer of the A-10s to Afghanistan makes sense; Washington has increased its military presence in Afghanistan, and the A-10s are ideally suited for operations there. Their transfer has nothing to do with the fact that Turkey and the U.S. disagree from time to time.

Still, even the possibility of permanent cutbacks is notable, as is the timing of the leak. It comes a week before a high-level meeting between Turkey’s foreign minister and the U.S. secretary of state but roughly one week after it appeared that a bilateral agreement had been made to set aside their differences and work together in Syria.

As if the leak were not enough, there have been other developments in the past few days that suggest all is not well between the U.S. and Turkey. Over the weekend, Turkish President Recep Tayyip Erdogan criticized NATO for not coming to Turkey’s aid in northern Syria despite his country’s participation in other NATO operations. Erdogan has a penchant for fiery rhetoric, but combined with the news about Incirlik, his comments suggest Turkey has sincere doubts about NATO’s commitment to its security and about its relations with the United States.

Meanwhile, Asharq al-Awsat, a London-based Saudi daily, reported March 11 that the Syrian government recently received a copy of a Russian-Turkish agreement on future control of northern Syria. According to the report, Turkey is to retain control over Afrin and will set up observation points in strategic areas important for its continued assault on the YPG. In return, Syrian government forces will be given 10 positions on the Turkey-Syria border. It is impossible to confirm the particulars of Asharq al-Awsat’s account, but even so, there is plenty of evidence that Turkey continues to seek an understanding with Russia and Iran over its presence in Syria. Indeed, Turkey’s foreign minister traveled to Russia on March 12 for talks with Russian officials over Syria, and the three countries are scheduled to hold a summit on Syria in April. So even as Turkey negotiates with the U.S., it is exploring back-up plans as well.

A Better Position

For Turkey and the U.S., this all comes down to a single issue: Kurds. Turkey opposes U.S. support of Syrian Kurdish groups, most notably the YPG. The U.S. does not want to abandon the YPG after having trained and supplied it in a largely successful fight against the Islamic State. But that is just the tactical issue. The strategic issue is that the days when the U.S. could dictate terms to Turkey are over. In the past, Turkey capitulated to the U.S. because if it didn’t, it might have to face potential enemies like Russia alone.

Turkey’s ideal strategy is to be a strategic partner of the U.S. that does not have to subordinate its interests to Washington’s, especially if that means making concessions on Kurdish autonomy. The price of Turkey’s friendship is the abandonment of the Kurds. If the U.S. cannot pay the price, then Ankara will figure things out on its own.

Going it alone, of course, would require some kind of arrangement with Russia and Iran over the future of Syria. Turkey and Russia might be able to work out an agreement on Syria’s future since both sides have an interest in maintaining the status quo. Iran, however, sees the next phase in Syria’s civil war as a tremendous opportunity for its ambitions as a great power in the region, and Russia will have a difficult time holding Iran back. Any agreement between the three will be as temporary as previous agreements, no more than a pretense for the continued pursuit of strategic objectives. But Turkey is better positioned in Syria long term than Assad, Russia or Iran. The Assad regime is a minority ethnic and religious dictatorship, Iran is a foreign Shiite invader, and Russia is tainted by its support of Assad and Iran and has little more than air assets to deploy to the Syrian theater.

Turkey, on the other hand, is supporting powerful anti-Assad rebel groups. Despite the ethnic differences between Arabs and Turks, they are at least both Sunni, a shared tradition that, along with the common fight against the Assad government, will go in Turkey’s favor. (Not to mention how much easier it is for Turkey, geographically, to bring force to bear in Syria than it is for Russia and Iran.) Turkey would prefer to be less assertive in Syria, but if the only other options are to continue to carry water for the U.S. or to accept a permanent Iranian presence on its southern border, Turkey will decline both. Instead, it will pursue an independent foreign policy and make temporary pragmatic arrangements as circumstances dictate.

Another Trillion-Dollar Wealth Fund Eyes Crypto Exposure


If you think no one’s interested in volatile cryptocurrency outside of crazed individuals who don’t understand the risk they’re taking—think again. The ultra-wealthy have lined up, too, and even a trillion-dollar wealth fund is adding crypto to its portfolio.

In a Knight Frank survey of more than 500 private bankers who represent $3 trillion in managed wealth, more than 21 percent said they had not only invested in cryptocurrency, but increased their investments last year.

It shouldn’t come as much of a surprise that some swathes of the ultra-wealthy have heavily invested in crypto. After all, the average Joe investor would hardly have managed to bring cryptocurrencies’ total market cap from $17.7 billion in January 2017 to over $615 billion by the end of the same year.

That said, equities are still the favorite of the ultra-rich, but cryptocurrencies are gaining traction.

(Click to enlarge)

Trillion-dollar Boston-based Wellington Management Co. is the latest major wealth management fund to talk about adding cryptocurrencies to its portfolio. It even recently upgraded its systems to enable Bitcoin derivative trading, and now it’s taking positions on crypto-related companies, according to Bloomberg. Related: Nasdaq Hits Record High After Regaining February Loses

That doesn’t mean Wellington is throwing caution to the wind. It’s not going for direct exposure to cryptos as it manages over $1 trillion in client funds.

More cautious exposure might be to related industries, such as the hardware for crypto-mining, and most notably—the soaring semiconductor industry, where stocks such as Nvidia (NYSE:NVDA) and Micron (NYSE:MU) have been stellar performers over the past year.

As Wellington notes in a recent statement carried by Bloomberg: “Crypto is a real thing — it’s not going to go away. This year, the world is starting to come to terms with the existence of crypto. It’s based on blockchain, and it’s very secure and very low overhead. I think there’s clearly real utility.

It’s a real phenomenon, and so everyone is coming to terms with it.”

The crypto ball is rolling, and Wellington’s testing of the crypto waters may lead to similar moves by other institutional investors, says Bloomberg.

What’s less clear is how the ultra-wealthy view blockchain itself—the digital ledger that forms the backbone of cryptocurrency--and how they differentiate it from crypto coin.  

According to Knight Frank’s Nicholas Holt, speaking on CNBC:

"In a separate question, we asked about their understanding of blockchain and there's still a huge amount of misunderstanding about blockchain.”

"So, although people are getting on the train about investing in cryptocurrencies, perhaps there's not a full understanding of what this could mean to their wealth portfolio," Holt added.

In other words, we’re only just beginning to tap into the biggest wealth available for crypto, and when all this big money starts to see the massive opportunities in the much wider blockchain, we might be looking at a very different investment picture.