Morningstar - Q2 2020 - 74

Investors

Power of Diversity
Benz: Let's talk about the performance of companies
with more women-friendly policies. Ellevate
Asset Management has collaborated with Pax World
Management on the Pax Ellevate Global Women's
Leadership Fund PXWIX. What's the thesis behind the
index the fund tracks?

Krawcheck: The research is clear that diverse
teams outperform other teams. There is
power in all kinds of diversity. I love to use the
basketball analogy. I would argue that the
most important player is the point guard, but if you
have five point guards, you're not going
to make the NCAA final, or probably even the
tournament. And the same is true if you
hire a whole bunch of people who are exactly like
yourself. Then, you're not going to see around
corners, you're not going to see opportunities,
you're not going to have the debates that
lead to fuller thinking that leads to better results,
whether that's higher returns, lower risk,
greater innovation, greater client engagement,
greater employee engagement. These are
the things that come from having more-diverse
teams, which in turn comes from having
family-friendly policies and lower pay gaps,
or no pay gaps.

for a second and imagine the trading floors
were half women, people of color, rather than the
more homogeneous teams that are on the
trading floors today. Do you think the financial
crisis would have been worse? Intuitively, it
wouldn't have been, and the research backs that
up: Homogeneous teams tend to overtrust
each other, so outsize risk rises and falls with
testosterone levels. You might not have earned as
much in the good times, but you wouldn't have
lost as much in the bad times.
Benz: What do the data show about
how women might invest differently than their
male counterparts?

Krawcheck: When we talk about men
and investing, the biggest mistake is probably
overtrading. Women just don't invest as
much as men do. That tends to lead to what
I consider to be flawed thinking that women
are risk-averse.

Ellevest was the first investing company
that said, instead of making the assumption that
these products and services are gender-neutral,
what if we change the approach? Maybe
it's not that women are risk-averse. Maybe they
don't like what we're selling.

want in seven years or having the baby in two,
retiring well, taking the trip around the world. And
they really are looking for someone they trust,
which is hard after the financial crisis. They
are looking for someone who likely is a fiduciary,
therefore legally obligated to put their interests
ahead of the company's own, who can put
together an investment portfolio that can get them
to their goals. At Ellevest, we call what we do
intentional investing.

Goals-Oriented
Ptak: What are some of the differences that a woman
using your service would notice?

Krawcheck: We talk with her. We don't talk at
her. We don't see social as being a series of
press releases about how great we are. It's really
engaging with her on her terms, where she is,
and being responsive to her. And then there's the
product. We are the first out of all the womeninvesting initiatives out there, and we are the only
ones who changed the underlying product to
take into account one's gender. Women live longer
than men. Women's salaries peak sooner
than men's. The typical investment portfolio
might not be adequate.
Benz: How do you incorporate that goals orientation

into the offering?

Maybe it's not that women are risk-averse.
Maybe they don't like what we're selling.
Sallie Krawcheck

Ptak: Is there evidence that companies that advance
women perform better than those that don't?

Krawcheck: There's so much research that talks
to diverse leadership teams, diverse boards.
Part and parcel of that, of course, is advancing
women. It's not that this group is better
than that group; it's diversity. I typically use the
example of my old industry, Wall Street. Sit back

74

Morningstar Q2 2020

We found that women are not motivated by
trading. They're not even particularly motivated
by a goal of having more money. They
are motivated by their financial goals. They are
motivated to invest if they can see themselves
starting the business they're dreaming
about in five years. They're motivated to invest
if they could see themselves buying the home they

Krawcheck: Our entire reason for being is to get
her to her financial goals. You will see nowhere on
our site whether we out- or underperform an
index. What does it matter? We're not just trying
to get her more money or the most money.
We are putting together diversified investment
portfolios-essentially, individualized target-date
funds. We help her calculate how much home she
can afford. How much she needs to retire at
the age of 65 with 90% of her income at the time
every year through the rest of her life. How much
she should put aside to start a business in x years.
A lot of it is having to tell her no, you actually
can't afford to retire, have the five kids, buy the
home, start the business, and take the trip around
the world. What is unique to Ellevest is she
can make trade-offs among those goals. Put this
one first and that one on the back burner.
We help her calculate her odds of reaching her



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