April 29, 2022
As more wealth transfers to women, the face of investing—and philanthropy—is starting to change.
By the end of this decade, women are expected to control about US$30 trillion, consulting firm McKinsey & Co. said in a 2020 paper. A separate report from the Boston Consulting Group, or BCG, in the same year said women are adding US$5 trillion annually to their wealth.
Women are inheriting money from their partners and parents, but they are also making it. A growing number of women are founders or co-founders of so-called unicorn companies—private businesses with a valuation of US$1 billion or more. Crunchbase, which tracks public and private companies, said 83 of 595 companies that gained unicorn status in 2021 were founded or co-founded by women, up from 18 in 2020.
More women founders are also exiting their companies through buyouts or public offerings, leaving them with wealth to give away and invest. A recent example is Sara Blakely, who in October sold a majority interest in Spanx to private equity firm Blackstone, which valued the women’s shapewear company at US$1.2 billion.
Women’s growing wealth allows them “to really start to be important in the ecosystem of investing,” says Jennifer Kenning, CEO and co-founder of Align Impact, an impact investing advisory firm in Santa Monica, Calif. “If they invest differently than men, that will have a different effect on where assets end up going.”
High profile examples of how women deal differently with their wealth are evident, perhaps most notably with MacKenzie Scott, who has given away at least US$12 billion directly “to support the needs of underrepresented people from groups of all kinds,” as she wrote in a March 23 Medium post.
Melinda French Gates created Pivotal Ventures in 2015 as a limited liability corporation that can use different forms of funding to accelerate social progress, from grants to seed capital. Pivotal’s aim is to advocate for the power and influence of women throughout society.
Women who make or inherit a lot of money don’t tend to hold on to it, Kenning says. “They give it away [until] they are uncomfortable rather than giving based on what [their] tax deductions are going to be.”
The influence of female investors is showing up in the growth of startups focusing on access to capital; food, agriculture, and sustainability; and so-called femtech—healthcare technology companies focused on women, she says.
Penta recently spoke with Kenning about the rising wealth of women, and how they invest.
Educated Risks
A lot of women have prepared themselves to inherit wealth by going to business school or learning from their parents or grandparents to be a steward of the wealth. Their aim is to demonstrate “they are capable, ready, and have the knowledge to carry it on,” Kenning says.
And while female investors are willing to take risks, there’s also truth in the often-said statement that women are more risk averse. But that doesn’t mean they are putting all their cash into Treasury bonds. Instead, they are avoiding concentrating their assets into a single stock or investment category and are building more diversified portfolios, Kenning says.
Women are “willing to educate themselves, find the right advisors, and they are doing it in circles together,” she adds. “You’re starting to see women-only investing programs, where they are doing it as a collective.”
An example is Invest for Better, a nonprofit that provides education on values-aligned investing for women, and access to peer-led investing circles. Groups such as these introduce women to how to invest in clean energy, sustainable food and agriculture, women-owned small businesses, and femtech.
Tilting to Social Responsibility
Invest for Better’s values-aligned approach is consistent with research showing women prefer to invest in sync with their values. A 2020 report from BGG found women are more likely to invest to create a positive change, with 64% of women surveyed saying they factor environmental, social, and governance, or ESG, concerns, into their investment choices. Of the men surveyed, 96% said they “invest to increase their income.”
That gap narrows when it comes to the wealthiest segment BCG surveyed, those with bankable assets of US$20 million to US$100 million. Among these ultra-wealthy women, 57% care about investing in “thematic” topics such as the environment, sustainability, and social justice, compared with 50% of ultra-wealthy men surveyed.
Similarly, of female investors surveyed by UBS in 2020, 71% said they consider sustainability in their investment choices compared with 58% of men. The survey also found women are more interested in investing in women.
Where Women Invest
For some female investors, that translates to investing in funds that are managed by women who are investing in companies that either have a woman at the helm or are delivering a product or service that supports women, Kenning says.
Venture capital funding in the U.S. for companies founded or co-founded by women has been rising in recent years, according to Pitchbook. Last year, 3,945 female founded or co-founded companies raised US$56.5 billion in venture capital financing, up from 2,897 companies raising US$23.2 billion a year earlier, the Seattle-based financial data company found.
That funding dipped in the first part of this year “but the money is still pretty substantial to where we were a decade ago,” Kenning says.
The public markets also offer an avenue for investing in companies with women at the helm, and that employ strategies in support of women and families—such as closing the pay gap and providing work-life balance policies—or that are changing their boardrooms with the addition of women and more people of diverse backgrounds.
Kenning notes that there are at least two dozen gender-lens investing strategies in the public markets. According to Veris Wealth Partners, more than US$12 billion was invested in public gender-lens investing strategies (in both equity and debt) as of June 30, 2021. That’s up from US$2.4 billion in 2018.
A caveat has surfaced in the private markets, however. There, a recent study by the Wharton Social Impact Initiative at the University of Pennsylvania and Catalyst found that while there are more private funds with gender-lens strategies, they have not been able to raise their target levels of capital.
One private-market vehicle that Kenning has invested in for clients is a US$150 million blended finance fund that supports microfinance institutions that provide loans to individuals that facilitate water and sanitation in emerging markets.
“It’s targeting women who are bearing the burden of collecting water in certain geographies [with] philanthropic grant funding and a technical assistance component,” Kenning says. The grants provide a cushion while senior-level investors take on secured debt, she says.
For female investors who want to lift women out of poverty, Kenning may direct them to funds seeking to improve the lives of women in developing countries who work in factories making apparel or furniture. In such cases, a company’s objectives outweigh whether the founder is a woman or not.
“What I see is women are coming in with the issue area they care about and then we have a discussion around where do women and girls fit in that picture,” Kenning says. “If they are focused on nutrition, well-being, and health, they are going to be focused more on food, food systems, sustainability, regenerative soil, agricultural products, less fertilizers…That’s where the conversation goes rather than, ‘is it women led?’”
This article was written by Abby Schultz and published in Barron’s on April 29, 2022.
- https://www.barrons.com/articles/future-returns-the-investing-impacts-of-womens-growing-wealth-01651002725
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