Moving the dial on gender-smart investing: why our new guide focusses on the ‘how’

“It’s about investing in women entrepreneurs; it’s financial inclusion for women; it’s getting more women into boards; it’s about better working conditions for women”.

These were some of the responses fund managers gave us when asked what gender-smart investing is during workshops run by CDC and IFC for the past few years. The reality is that gender-smart investing (‘GSI’ or otherwise referred to as ‘gender-lens investing’) is about all of these activities and more. It’s an investment strategy that seeks to intentionally and measurably use capital to address gender disparities between women and men and to better inform investment decisions.

Gender-smart investing also has a compelling business case. Latest research shows the volumes of capital raised with a gender lens across private equity, venture capital and private debt has quadrupled in the last two years, clearing $4.8 billion in 2019, up from $1.1 billion in 2017, and continues to increase.

Given the growing demand for gender-smart investing, and its role across multiple investment approaches, assets and products, we realised developing a clear overarching framework, which covered the many ways in which fund managers can adopt this way of investing, would be an important contribution to the field.

For the past three years, promoting the application of gender-smart investing has been a fine balance between the why and the how. Research from IFC has found that about 65 per cent of limited partners (LPs) view the gender diversity of a fund manager’s investment team as important when committing capital to funds, demonstrating both interest and demand from the top of the investment chain.  As LPs, CDC and IFC have been at the forefront of implementing a gender-smart approach; promoting best practice within our own institutions and across our investment portfolios through extensive engagement with our fund managers, particularly those in emerging markets. Along this journey, we have observed the increase in references to gender-smart investing throughout investment practices.

At the same time, many fund managers told us they are not seeing practical guidance for how gender-smart investing should be applied. An extensive review of the tools and resources already out there reiterated this point.  Much activity to date has focussed on gender-based due diligence and assessing the extent to which businesses can close gender gaps and increase gender diversity in the workplace. Activities have also begun to focus on sex disaggregated data and reporting to measure results – both impact and business performance – over time.

Yet what was missing was a common narrative to bring the various approaches together and at times, a clear rationale as to why certain approaches need to be adopted. Fund managers lacked a road map on gender-smart investing that covered the operations of a typical PE firm in its entirety – from addressing their own internal gender diversity to addressing inclusion across investment and operational processes, and from origination through to exit.

That’s why, in partnership with IFC, we’ve published a new Guide for investors to help strengthen gender diversity and incorporate a gender lens into the investment process.

The Guide introduces a framework to support fund managers to adopt gender-smart solutions across their own firms and at a portfolio level. Throughout the Guide we have provided explanations about why these steps are important as well as practical frameworks, checklists and tips to put these steps into action.

We’re particularly excited about some of the newer areas of gender-smart investing that are covered in the Guide, which we believe will help strengthen and embed it across investment practices:

  1. A gender-smart approach is not only about counting women and men. It evaluates how gender gaps influence a company’s business performance, and consequently a fund’s performance. Recent research by IFC, Oliver Wyman, and RockCreek found that private equity and venture capital firms with gender-balanced senior teams delivered between 10 and 20 per cent higher returns than teams with majority male or female leaders. The Guide supports fund managers to devise strategies that will ultimately create value for the business and returns to the fund.
  1. Deals can be structured with a gender lens. This is relatively new and bold territory, but one which will continue to move the approach in a meaningful direction.The Guide provides examples of structural considerations to support allocating capital with the intention of closing gender gaps.
  1. Fund managers are starting to consider how to maintain a gender-lens when exiting an investment.For example, by assessing how their exit may impact a company’s gender-lens strategy, measuring the influence gender outcomes have had on the commercial key performance indicators of the company, and ensuring gender outcomes are maintained under the leadership of the potential buyer.

Finally, we heard from many fund managers that they are still reluctant to have conversations with investees without relevant data and examples. The Guide includes references that fund managers can use to collect the right type of sex disaggregated data and analyse them against the right benchmarks. This will help them assess the true extent of gender gaps and construct a tailored business case when negotiating an investment. What’s clear is that there is enough data to move forward and allow gender-smart investing to grow and evolve in its sophistication.

Over the years, we have been reassured by the commitment and attention fund managers are now bringing to gender-smart investing. We hope that this Guide provides the direction, clarity and inspiration fund managers have been asking for so that intention converts to action and greater value creation, through closing gender gaps and demonstrating how greater equality leads to greater outcomes for all.

Download the Gender-smart Investing Guide for Fund Managers here
Download the Gender-smart Investing Guide for Fund Managers – summary page here
IFC Private Equity and Value Creation: A Fund Manager’s Guide to Gender-smart Investing