When Hypatia Capital started investing in women in leadership, in 2007, there were only 10 women CEOs in the S&P 500. Today there are 50. Why is investing in companies with women who are Chief Executive Officers, considered impact and sustainable investing? Because they bring increased economic output, inclusivity, and performance.
Before we look at what we gain by investing in women in leadership, lets measure what we lose by not including women fully in the economy. Women represent close to 50% of the population but only 47% of the workforce. Every year, McKinsey and Lean In publish the Women in the Workforce report. This research shows that, if women were full participants in the economy, global GDP could increase by $12 trillion by 2025. To reach that higher sustainable growth rate, it is imperative that we develop more inclusive organizations and institutions. How? By having more inclusive leadership.
Are Women More Inclusive Leaders?
Inclusive leadership values and includes people from a variety of backgrounds and perspectives. The data tells us women are more inclusive leaders. Women CEOs have senior leadership teams that are 80% more diverse than men CEOs. Women CEOs have senior leadership teams that are 36% women, versus 20% women in men’s senior leadership teams. While women CEOs have senior leadership teams are two-thirds men, it is clear they are making greater strides in bringing more points of view into the leadership suite.
Hypatia Capital believes this gender-balanced vision at the top trickles down throughout organizations benefiting your sister, your daughter, your mother, your friend. We believe having more women CEOs is the fastest and most certain way to get women more equal opportunity in their workplaces. The data shows women are more likely to be promoted at a firm with a female CEO. But, because women are less than 10% of all CEOs, one’s chances of working at a firm that has a female CEO are low. Yet, an upward sloping career path makes permanence in the workforce more likely. Thus, the impact of a higher proportion of women CEOs is that women will feel more included, be more likely to stay in the workforce and be promoted. More women promoted? Elimination of the “broken rung”? That is impact.
The impact, however, is also to the bottom line. Data shows that companies with diverse leadership teams tend to perform better financially. According to Blackrock, the largest asset manager in the world, here are three key areas:
- Enhanced Financial Performance: Companies with gender diversity across all levels outperformed less diverse companies by an average of 1.2% between 2011 and 2022.
- Leadership Representation: Firms where middle management mirrors the overall workforce’s gender representation generated 36 basis points higher risk-adjusted monthly returns compared to peers with less diversity in these roles over 2016-2022.
- Cultural Impact: Companies with more women-friendly cultures, as indicated by longer average maternity leaves taken, showed an annualized excess return of 1.07% over the benchmark (Russell 1000 Index) over the past four years.
What’s the Fund?: Hypatia Women CEO ETF at the New York Stock Exchange
Hypatia Capital’s Journey to Sustainable Impact Investing
Hypatia started investing in women in leadership in 2007. While there is no single moment that sparked the concept, my one-time client Gilberte Beaux was certainly an inspiration. Having risen from the depths of a typing pool, she went on to be Sir Jimmy Goldsmiths’ COO, and later CEO of Adidas. At the time I met her in 2004, there were only 8 women CEOs in the Fortune 500. She was my first woman CEO client. She was amazing. I had my Jerry Maguire moment: More Female Clients.
In conducting research for the launch of Hypatia Capital, initially a boutique advisory and M&A firm focused on women in leadership, I discovered Golden Seeds, the pioneering early-stage investment company that shared our investment thesis: balanced leadership outperforms. I joined and invested in their first fund. I subsequently learned of Trish Costello’s vision of democratizing venture investing by offering funds with $10,000 minimums. I invested in Portfolia funds as well.
But why wasn’t there a product that was appropriate for the vast majority of investors? A product that had no income or net worth requirement? An investment one could exit easily? Was investing in women in leadership only for the wealthy?
In 2016, State Street launched the SHE ETF to “help address gender inequality in corporate America by offering investors an opportunity to create change with capital and seek a return on gender diversity.” I invested immediately, and still hold shares. But their three top holdings are: Meta, Apple and Microsoft. I believe it is the large cap algorithm that drives allocation, not the women focus.
In 2018, YWCA and Impact Shares launched the WOMN ETF. Again, I am a proud investor. I love their commitment to equality. But again, their large cap orientation makes their largest three holdings: Meta, Apple and Amazon.
WCEO: Only Women CEOs – Because Change Starts at the Top
In January 2023, Hypatia launched the WCEO ETF investing in American public companies that have a woman CEO. The WCEO ETF, the first exchange-traded fund focused solely on public companies led by women CEOs, invests in small caps, medium caps and large caps. Our algorithm delivers the Female Factor by eliminating size and industry. Its investment thesis is that female leaders will outperform. Given the additional obstacles women face in corporate America, as documented by McKinsey, they must be extraordinary versus the “average” CEO to make it to that cohort. Outperformance will come from delivering this Female Factor. In addition, by highlighting the performance of women CEOs, we hope to address the negative pattern-matching that affects both individual investors and the boards who have the all-important function of CEO selection. Arming both with performance data is crucial.
The Democratization of Access to Investing in Women in Leadership
Hypatia’s belief is that democracy and access are key to sustainability and impact. It is this belief that led us to design a product that was accessible to all investors. In fact, today, at approximately $31.00 for one share of the WCEO ETF, one invests 21 cents in every American public company with a female CEO, small, medium or large. The WCEO ETF allows all women to invest in all women in leadership. As far as we know, we are the only public product in the world that allows one to do so.
A Call to Action
The work we do in sustainable, impact investing is about building a better world. We have the chance to invest to reflect our values: equity, sustainability, and impact.
Women have a crucial role to play in this transformation. I encourage every woman to consider how to contribute to this movement. Whether you’re just starting your career or looking to pivot into the impact investing space, know that together we make a difference.
With every dollar we invest, every enterprise we support, and every barrier we break down, we are building a future where finance works for everyone.
Article by Patricia Lizarraga, the Managing Partner of Hypatia Capital and the visionary leader behind the WCEO ETF. She is committed to advancing female leadership in finance and business, as well as driving sustainable change through impact investing.