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  1. SDGs
  2. SDG 5, Gender Equality
March 15, 2022updated 16 Mar 2022 11:01am

How pension funds AP2 and Calstrs drive gender equality

Asset owners can have a big impact in addressing the shortfall of women in the investment management industry and the wider corporate world, and some are steadily ramping up their efforts to do so. Here's how…

By Vibeka Mair

Aeisha Mastagni of California State Teachers’ Retirement System says the $320bn fund will start tracking gender equality within its asset managers’ investment teams. (Photo courtesy of Calstrs)

  • Pension funds such as Sweden’s AP2 survey their external managers’ staff diversity, and California State Teachers’ Retirement System (Calstrs) plans to do so.  
  • Efforts by AP2 and Calstrs to improve the gender balance on the boards of their investee companies is demonstrably bearing fruit.  
  • AP2 and Calstrs executives say there is no lack of supply of competent female talent and explain how firms can tap it. 

Investment managers – like most of their peers in the financial services sector – are overwhelmingly male, and that situation has changed little overall since 2000, according to Morningstar data. That is despite the gender balance having been on an upward trend in the past few years notwithstanding cultural and structural challenges (see chart below).  

What may be helping to drive this recent uptick is that asset owners are increasingly looking to address the shortfall of female talent, both at their external money managers and within their own ranks, as well as on the boards of their investee companies.  

Pension funds such as California State Teachers’ Retirement System (Calstrs), Sweden’s AP2 and Australia’s Hesta feel more gender-diverse investment teams result in better decision-making and overall business performance – as evidence suggests is the case in the corporate world generally. That’s on top of their desire to ensure equal opportunities in the investment sector for both sexes. After all, some 70% and 80% of Calstrs’ and Hesta’s beneficiaries, respectively, are women. 

Just 11.8% of fund managers globally were female as of September last year, up from 11% in 2020, according to Citywire’s database of 16,353 individuals who manage active strategies, though some investment houses do have a far better gender balance (see chart below). In addition, the number of all-male investment teams is falling, though they still remain dominant. Of 25,465 active funds, 11.8% were run by mixed teams last year, nearly double the 6.7% in 2016, found the Citywire 'Alpha Female 2021' report.

Yet the pay gap between men and women in the investment industry remains very wide, as recent Capital Monitor research shows.

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Asset owner executives admit that making a genuine difference in gender equality is not easy, but forward-thinking institutions are at least addressing the challenge. Capital Monitor spoke to executives at Calstrs and AP2 about their efforts to improve gender equality in-house, at investee companies and in the investment industry more broadly. 

Assessing investment manager diversity

Asking asset managers about the diversity of their headcount is an effective approach because “when you start asking the question, then people start to measure the results”, says Aeisha Mastagni, portfolio manager for sustainable investment and stewardship strategies at Calstrs.  

Since 2014, the $320bn fund has published an annual report on the breakdown of and progress on gender and ethnic diversity of its roughly 200-strong investment team, as well as details of its efforts to influence investee companies in this area.  

Calstrs does not yet track gender equality of external managers’ , but will start doing so in alignment with the state of California's new Assembly Bill 890 as part of its diversity report.

It will help that the fund practises what it preaches. The latest available gender breakdown for its in-house investment team is for last year, when it stood at 176, comprising 83 females and 93 males. That is a far more balanced gender ratio than for the investment industry as a whole, going by the Citywire data cited above. 

And Calstrs’ internal diversity efforts are becoming even more important, because it has been increasing its investment headcount in line with a long-term plan to manage more assets in-house. More than half are run internally. 

The fund has accordingly been ramping up its diversity efforts in the past few years. It hired LaShae Badelita as its first diversity-focused investment officer in January 2021. She leads internal and external diversity, equity and inclusion efforts for the investment branch. This came after Calstrs set up a diversity steering committee in 2019 looking to examine diversity in investments.  

gender investment
Ulrika Danielson of AP2 says the Swedish state pension fund intends to increase the level of disclosure about the diversity of its asset managers. (Photo courtesy of AP2)

Like Calstrs, Sweden’s AP2, a SKr441.0bn ($48.7bn) buffer fund for the state pension system, has been assessing the diversity of its fund managers, with a focus on private equity firms, says Ulrika Danielson, head of communications and governance. AP2’s private equity exposure accounts for SKr41.8bn of its total assets under management.  

Since 2018, AP2 has evaluated private equity firms’ sustainability work against 25 assessment points, including diversity and inclusion, Danielson tells Capital Monitor. “The aim is to drive change.” 

As part of AP2’s due diligence of managers, it asks about the level of diversity among employees and management, whether the company has policies and guidelines in this area, and about its approach to recruitment. The fund discloses some findings in its sustainability report and intends to disclose more in the future, Danielson says.  

Similarly, Hesta, Australia's A$68bn ($49.2bn) superannuation fund for health and community services workers, surveys the proportion of women in portfolio management roles at its external asset managers. It has done two such sets of research – one for 2017 and one for 2019. The latest findings, unveiled in June last year and based on 60 asset managers, showed the percentage had risen to 22% from 17% between those two years. 

However, in senior investment leadership roles at Hesta’s managers, numbers had not changed over the two years. There were still no female chief investment officers at the listed managers surveyed and only 10% of women at partner level at unlisted managers. 

The survey findings form part of a broader focus at Hesta on improving gender diversity across its internal investment operations, external investment partnerships and the companies it invests in, the fund said in a release alongside the findings.   

Boardroom gender balance

Another key part of the efforts by AP2 and Calstrs to improve diversity in the corporate and investment world is their work with their portfolio companies’ boards.  

The US fund has not done its own research in this area, Mastagni says, but it is confident in the volume of data demonstrating that when there is diversity inside boardrooms, returns and decision-making improve. The International Monetary Fund, among other bodies, has published in-depth analysis on this topic. 

Calstrs is part of the California Board Diversity Initiative (CBDI), which started in 2015 and also includes California Public Employees' Retirement System, the Los Angeles County Employees Retirement Association, and San Francisco Employees' Retirement System.  

The CBDI sent letters over a four-year period to Russell 3000 Index companies based in the state. They asked nominating and governance committees to include individuals with diverse background on their boards, inclusive of gender, race, ethnicity and LGBTQ+ identity.

Where the group sees companies falling short on diversity, a key plank of its approach is to talk to members of the board leadership, as well as the nominating and governance committees, at relevant companies. “It usually starts with a letter to the company, asking them to engage, then one-on-one dialogues with various board members,” Mastagni says. 

These efforts have been bolstered by moves focused on boosting female representation on boards. They include legislation, such as bills that have been passed in California, Washington, Illinois and other states, and new Nasdaq listing rules, says corporate leadership data provider Equilar. 

There has, accordingly, been a marked improvement in gender diversity in boardrooms in the US. As of the third quarter of last year – the latest available data – 26.1% of Russell 3000 directorships were held by women, according to the Equilar Gender Diversity Index. That is up from 15.1% as of the end of 2016.  

Mastagni stresses that the CBDI is not just about getting a 'token' diverse person or woman on a board: “What we’re really trying to achieve is to ensure that companies institute practices to avoid [such an approach to appointments].” 

It does so by, among other things, encouraging boards to improve their nominating and governance charter or making sure they expand the pool of candidates they consider. Mastagni says such conversations have evolved to the extent that you “no longer have to argue whether or not diversity is good for companies”. 

Gender equality is not a supply issue

Of course, agreeing with a concept is not the same as acting on it.

The lack of gender equality on boards is a demand rather than supply issue, Mastagni argues. “We want these companies to be actively seeking [certain] individuals. And we want to also move them away from this idea that everyone has to be a former CEO to be on boards.” 

It is not difficult to find women with expertise and background that are suitable for company boards, agrees AP2’s Danielson. But the gender make-up of (typically male-heavy) nomination committees could be an issue here: there is a slight positive correlation that, globally, companies with more female members on nomination committees have a higher percentage of female members on their boards, she says.  

AP2 has since 2003 monitored the proportion of women working at Sweden-listed companies and on their executive management teams. The overall figure has risen to 34.5% from 6.2% in that time, Danielson says. For the executive management teams, the level of female representation has risen to 26% from 11.1% in 2003. 

Both AP2 and Calstrs have strong policies on voting in respect of boards with what they see as inadequate gender equality. For instance, AP2 votes against boards comprised entirely of the same sex, whether male or female, Danielson says.  

Stronger regulation in this area would help further improve corporate staff diversity, Mastagni says. “We really need their [regulators’] help, especially here in the United States. I think it’s a tragedy that we’re in 2022 and the only requirement on companies is to disclose the number of employees.” 

Hence Calstrs is working with the Securities and Exchange Commission to push for greater disclosure from all companies around equality and their human capital management.  

Calstrs and Hesta may admittedly have a stronger vested interest than the average retirement fund in championing gender equality, but if more of their peers took a leaf out of their books on engagement, it would further the equality cause no end. 

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