Diversifying Risk, and Risk‑Takers, in Investment Management

PIMCO’s new partnership with the organization Girls Who Invest is one more step toward a more inclusive financial services industry. It is also an act of conviction: At PIMCO, we believe that promoting diversity is more than simply the right thing to do from a moral, social and business standpoint. It is also the right thing to do for our clients’ portfolios. We believe a diversity of perspectives on an investment management team sparks innovation and uncovers the best solutions to help clients achieve their objectives.

Taking risks

Investing is about taking calculated risks. A portfolio represents the accumulation of numerous investment decisions (buy, sell, hold, when, where, what price), each informed by a rational assessment of the risks balanced against the potential rewards. Understanding, managing and diversifying risk is critical to optimizing long-term portfolio outcomes.

To ensure fewer risks and opportunities are overlooked, and to ensure an informed, innovative and broad range of perspectives is driving portfolio decisions, investment teams – from portfolio managers to research analysts to business leadership – should encourage and embody diversity of thought. This manifests in diversity with respect to not only gender but also ethnicity, education, background, age, personality attributes, management approaches, and more. Diversity can counteract the forces of unconscious bias and “groupthink” to optimize outcomes for portfolios.

This makes intuitive sense, and it’s supported by research: A Northeastern University study1 of over 9,000 hedge funds from 1994–2013 found that of the funds still in existence at the study’s conclusion, those with at least one female portfolio manager outperformed the exclusively male-managed funds while taking on similar levels of risk. (The authors also noted that difficulty in raising capital meant that female-managed funds failed at higher rates over the study period; as the authors put it, “Only the best performing female managers manage to survive.”)

Looking at business results more broadly, a 2018 McKinsey report2 found that the companies with the most gender-diverse executive teams were more likely to have above-average profitability than the least diverse companies by 21%.

In our opinion, it’s clear: The financial services industry needs more women making those investment decisions, taking those calculated risks.