Challenging gender bias in investment

With companies founded by women still receiving less than half as much funding as those founded by men, we need to do more to challenge gender bias in investment, says Florence Gatome

Following the worst global economic crisis since the Great Depression comes a focus on the recovery of economic livelihoods and societal welfare across the world, particularly in Africa. At the heart of this is a targeted approach to deploying capital and investment to sectors that are likely to drive a robust recovery through value chain multipliers as well as the creation of more inclusive and dynamic societies.

Following an unprecedented year that has also accentuated societal inequalities, it is only fitting that an alternative investment strategy focusing on women fund managers and gender-lens investing (GLI) is emerging within the global impact investing market. Despite significant gains in GLI made over the last few years, however, there are still a number of hurdles to overcome.

Recent research has deepened our understanding of gender bias in investment decision-making. Companies founded by women receive less than half as much funding as those founded by men, although they deliver twice as much revenue per dollar invested. Empirical studies have also found that investors unconsciously apply a double standard when judging female and male entrepreneurs and tend to ask male entrepreneurs promotion-oriented questions (emphasising the opportunity) while asking female entrepreneurs more prevention-oriented questions (emphasising the risk) when evaluating their business proposition.

Challenging gender bias in investment

So, what is being done to mitigate these challenges and increase the prevalence of GLI in Africa?

In June 2018, the G7 and Development Finance Institutions committed to mobilise $3bn towards the 2X Challenge to invest in projects that empower women in developing countries.

“The 2X Challenge surpassed our initial investment target and we developed the 2X framework and criteria as a new industry standard for gender lens investing. For gender lens investing to be truly transformative, we need to allocate much more capital to diverse and pioneer fund managers who, in turn, invest in diverse entrepreneurs,” says Jessica Espinoza, chair of the 2X Challenge.

DPI, the first fund manager appointed as a Flagship Fund within the 2X Challenge, has a number of women in leadership roles, including CEO and cofounder Runa Alam, and it has grown over 14 years to manage $1.9bn of assets across three private equity funds invested in 30 African countries.

Runa Alam says: “We are proud to be the first 2x Flagship fund because it validates the work DPI has done within the firm as well as with portfolio companies, and supports our future work with portfolio companies in hiring and promoting more women as part of the portfolio companies’ plans for growth and development. DPI is focused on companies that provide goods and services to Africa’s middle class. Often, for many of those companies, the customer decision is made by a woman.’’

Complementary to these gains, in 2018 the UN Economic Commission for Africa (UNECA), in response to a call to action by the African Women Leaders Network, embarked on an initiative to empower female fund managers across the continent and collaborated with Standard Bank to launch the African Women Impact Fund (AWIF) in 2020.

This new fund-of-funds facility targets $1bn assets under managment (AUM) over 10 years and is being managed in South Africa by the Stanlib MultiManager selection team, part of the Standard Bank Group. Jennifer Henry, AWIF lead portfolio manager, says ‘‘the AWIF received over 400 applications from both established and new fund managers wanting to launch their own funds. Managers were screened and over 40 were taken through detailed investment and operational due diligence processes.’’

One of the first fund managers being contemplated is Educate Global. Based in Kenya and with a target AUM of $100m, Educate Global is over 65% womenowned and has 50% gender parity in all decisionmaking, with a multicultural, diverse team at all levels of the organisation.

Sandrine Henton, managing director of Educate Global, says ‘‘Being a diverse team has benefited the origination of high-quality deals in East Africa where we often service diverse clients and women who are part of a family-owned business or part of a co-founding team of entrepreneurs in high growth sectors. We manage a fund focusing on mid-cap businesses in the essential sectors of health, food and education, which are widely acknowledged as the recovery sectors that will deliver the refreshed growth and jobs required to limit the collateral damage of Covid-19 within our communities.’’

Indeed, “building back better” for Africa after the pandemic must involve more investments in diverse and inclusive teams that are addressing bias

Investors unconsciously apply a double standard when judging female and male entrepreneurs

in decision-making as well as generating alpha through investing in the recovery sectors in some of the world’s fastest growing economies.

Improving the prospects for GLI

So, what more can be done to improve the prospects of GLI and its accruing benefits in Africa?

‘‘Local pension funds!’’ says Sandrine Henton, ‘‘These organisations, whose total assets are typically 60-80% arising from the education and healthcare sectors, are also employing the most women. They are presently failing each year to meet their minimum target allocation towards private equity or private credit funds, and the capability to select fund managers in these alternative asset classes is still quite nascent amongst pension funds’ trustees. Active engagement and strategic collaboration with GLI-focused funds-of-funds like the AWIF managed by Stanlib offers viable channels to African pension funds to mitigate these gaps in their allocation targets.”

“The market and data tell us there is a strong business case, and appetite for, gender lens investing,” says Sukhvir Basran, co-head of Hogan Lovells Impact Financing and Investing, who have launched with 2X Challenge an innovative project called Aurora that will involve the research and development of a toolkit of legal standard terms and conditions for GLI.

‘‘What has become abundantly clear from our consultations is that investors need concrete guidance on how to structure a gender lens into the legal documentation of a transaction. Through our collaboration on Aurora we are committing to using our legal skills to empower them to execute gender-smart investments, mobilise capital and achieve women’s economic empowerment and SDG 5, gender equality.’’

Let us all choose to challenge gender bias in investment decision-making by recognising the opportunity for more local African and foreign institutional capital to be mobilised towards experienced and emerging women-led fund managers, and for yet more returns to be generated by deploying capital to the recovery sectors in health, food, education and digital services – all within an enabling regulatory context that facilitates mainstreaming of GLI investments across all geographies, sectors and asset classes.