PWER Portfolio ‘Walks the Walk’ of Women’s Financial Inclusion

Apr 27, 2018 9:05 AM ET
Article

In the past 18 months, BNY Mellon has issued bold calls for gender inclusion, offering research to inspire financial markets to boost economic participation by women worldwide.

Now a new wealth management initiative called the PWER Portfolio is putting some of those ideas into action. PWER—an acronym for “promotion of women’s engagement and representation”—is built on a growing body of research showing that companies with diverse gender leadership tend to perform better.

Leading the portfolio management process is William F. Morgan, a Boston-based senior investment officer in wealth management, who credits “good, old-fashioned client demand” for spurring the development of the PWER Portfolio.

“The PWER Portfolio was the organic outgrowth of female investors and foundations in our Florida region asking their investment advisers about gender diversity,” Morgan said. The president of the Florida West Coast region, Lisa Simington, was a strong advocate for this investment approach; it took about three months of intense focus to get the portfolio up and running, though it evolved over a longer term.

The managed-account portfolio focuses on about 170 companies that passed a gender diversity and leadership screening and met BNY Mellon Wealth Management’s investment criteria. The diversity screening identifies companies that have a female CEO or a board of directors with at least 30 percent female representation. About 270 companies in the S&P 1500, a broad-market index, met these diversity criteria.

“Our goal was to create a risk-controlled portfolio that centers on well-run companies with diverse boards that are poised to increase in value over time,” Morgan said. The portfolio “allows people who embrace that approach to invest in a way that aligns with their personal beliefs and values."

New Opportunities for Gender-Lens Investors
The PWER Portfolio is an example of gender-lens investing—a concept BNY Mellon endorsed in its March 2018 report on women’s financial inclusion, Powering Potential, released in partnership with the UN Foundation. The report, a companion to the January 2017 publication, Return on Equality, identified a wide range of ideas for expanding access to financial products and services designed to meet women’s needs as individuals, economic agents and entrepreneurs.  In retail banking alone, expanding financial products and services to women could unlock an additional $40 billion in annual global revenue, the report found.

Gender-lens investing is the idea that one can invest for financial return while also giving weight to the benefits for women.  Among its many recommendations, Powering Potential challenged institutional asset managers to design new investment offerings that “help lower the search and transaction costs for investors who are interested in integrating gender-lens investing into their investment strategies.” The report suggested that taking a gender-lens approach to structuring new banking products, investment strategies, funds and indices is a pragmatic way of steering capital to companies that practice financial inclusion.

Responsible investing, of which gender-lens investing is a part, is evolving from a niche to a significant force in investment management. “Eventually, I believe responsible investing won’t just be a subset of investing, but an integral part of all investment decisions in general,” Morgan predicted. Indeed, environmental, social and governance (ESG) concerns have already become important factors in evaluating the sustainability and ethical impact of investments, he said, adding:  “Responsible investing is a mosaic, and it means different things to different people. The creation of new funds that have an ESG tilt has risen dramatically.”

Still in its infancy, the PWER Portfolio “has a lot of great buzz around it,” Morgan said. The minimum account size is $250,000. For now, it is being offered narrowly to existing wealth management clients.

Launching any new product requires intensive work to build and prove a case for it, and the PWER Portfolio’s compressed launch time of three months included careful deliberations by the wealth management team’s solutions strategies committee and other leaders, Morgan said. He added that it is garnering strong interest from high net worth professionals, including both women and men. It is also attracting attention from women’s foundations and other institutional investors, including pension funds. Institutional investors “have become really invested in socially-responsible processes,” Morgan said.

In designing the PWER Portfolio, BNY Mellon Wealth Management opted to keep the focus squarely on women-run companies and those with diverse boards, even though some gender-lens funds use broader metrics, Morgan said. For instance, some funds factor in qualitative factors such as whether a company has good diversity programs in general. But the consensus was to keep the metrics simple and completely objective. “We decided to capture leadership, because it’s measurable in objective terms, and because women-run companies and companies with diverse boards are good, sound investments,” Morgan said.

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