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New Survey Reflects Lack of Women and Minorities in Senior Investment Roles at Venture Capital Firms

Although women comprise nearly one-half (45 percent) of the total venture capital workforce, few are in investment decision-making positions, according to a new report released today by the National Venture Capital Association (NVCA) and Deloitte. Based on the findings of the first ever NVCA-Deloitte Human Capital Survey conducted by the Deloitte University Leadership Center for Inclusion, women represent 11 percent of investment partners or equivalent on venture investment teams.

Racial minorities are also significantly underrepresented across the VC industry, according to the survey. By race, the report found that non-white employees comprise 22 percent of the venture capital workforce, including Black employees at 3 percent and Hispanic or Latino employees at 4 percent.

In addition to assessing the demographic makeup of the venture industry, the NVCA-Deloitte Human Capital Survey gauges the adoption of talent management practices and diversity and inclusion programs at venture firms, as well as the extent to which those programs lead to more diverse teams.

“The survey results reinforce what we already know, which is that the venture industry is not representative of the overall population of the U.S. Transparency is a powerful force for change, and we now have a clear benchmark by which we can measure progress to create a more inclusive venture capital industry,” said Bobby Franklin, president and CEO of NVCA.

“For the first time, we have a comprehensive picture of the industry as well as a better understanding of existing programs to support diverse teams. Research shows that diverse teams make better decisions and, with this baseline measurement in hand, we now turn to developing the tools and resources that will empower all venture firms to take action,” Franklin said.

Importantly, the survey findings also indicate that the presence of a human capital strategy, as well as talent programs, such as recruitment or mentorship, drives greater diversity on VC teams. This data will help guide the future programs of NVCA.

“The fact that the NVCA is examining D&I through in-depth analytics gives them the opportunity to identify target areas they want to focus on rather than a more ‘peanut butter’ approach which we know is a failed strategy,” said Christie Smith, PhD managing principal, Deloitte University Leadership Center for Inclusion & Community Impact, Deloitte LLP.

“What’s key for the future success of venture firms is instilling a culture of inclusion and implementing human capital programs and policies that foster and enrich the composition of a diverse and inclusive talent model that encourages individuals to be their authentic selves in their careers,” said James Atwell, national managing partner, Technology & Emerging Growth Company practices, Deloitte & Touche LLP. “Our survey indicates that firms that have a human capital strategy have a higher percentage of female and minority employees overall, and we know that having a diverse workforce can improve business performance. Addressing diversity and inclusion in the workplace is a tremendous opportunity for venture capital firms.”

Women in Venture Capital

While women comprise 45 percent of the venture capital industry, findings show significant differences by firm size, location and investment focus. In general, the smaller the firm, the smaller the percentage of women on teams. For firms with five team members or fewer, women comprise 29 percent. For firms with 6-20 team members, women represent 41 percent of the workforce. In firms with 21 or more team members, women comprise 47 percent of team members.

According to the survey findings, women are consistently overrepresented in administrative functions and underrepresented in investment functions. Women comprise 95 percent of administrative roles, 75 percent of investor relations, communications or marketing roles, yet only 15 percent of investment professional roles. Looking specifically at investment partners or equivalent on investment teams, women comprise only 11 percent.

Minorities in Venture Capital

Racial and ethnic minorities comprise a smaller proportion of the venture workforce than women overall. According to survey findings, non-white employees comprise only 22 percent of the venture industry. However, not all ethnicities have the same experience in venture capital. Black employees comprise 3 percent of the venture workforce, Hispanic or Latino employees 4 percent, and Asian/Pacific Islander employees 14 percent.

By role within their firms, Black team members comprise 2 percent of investment professionals; 3 percent of finance roles; 3 percent of investor relations, communications or marketing roles; 4 percent of administrative roles; and 5 percent of operations positions. Further, 2 percent of senior positions across all functions are filled by Black team members, compared to 4 percent of junior positions.

Looking specifically at investment partners or equivalent, survey results found no Black investment partners in the sample. However, it is important to note that while the firms in our sample did not report any Black partners, this does not equate to a zero number of Black investment partners working across the industry.

Impact of Talent Strategies

Survey findings show a strong correlation between the existence of human capital strategies at venture firms and representation of women and minorities at those firms. Firms that have a human capital strategy have an average of 54 percent female and non-white employees overall, while firms without a human capital strategy have an average of only 41 percent female and non-white employees.

Moreover, findings suggest that the existence of a human capital strategy translates to better representation of women in senior positions across all functions. Firms with a human capital strategy have 4 percentage points more women in leadership than those without a strategy, firms with a diversity strategy have 10 percentage points more women in leadership than those without a strategy and firms with an inclusion strategy have 7 percentage points more women in leadership than those without a strategy. Similarly, firms with a human capital strategy have 13 percentage points more minority employees than those without, firms with a diversity strategy have 12 percentage points more minority employees than those without and firms with an inclusion strategy have 14 percentage points more minorities than those without.

Examinations of relationships between formal mentorship and recruitment programs and the representation of women in senior leadership positions at venture firms revealed that firms with formal mentorship programs have 16 percentage points greater representation of women in leadership and firms with formal recruitment programs have 9 percentage points greater representation of women in leadership.

Read the full report here.

Climbing the Wall of Worry – A Look Ahead to 2017

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In the latest edition of Global Outlook Standard Life Investments look ahead to 2017, and how its ‘House View’ is positioned in the light of a supportive monetary and fiscal landscape.

Neil Matheson, Market Strategist, highlights that 2016 has been typified by uncertainty in areas such as politics, US interest rates, China and European banking which has spurred many investors to build up high levels of cash. However, despite commentary being dominated by these downside risks, risk assets have been quietly moving higher.

Standard Life Investments believes this rally, which has been seen across credit, equities and global real estate, has been driven by an improvement in the global cycle and a move towards ‘pro-growth’ policies across many of the major economies. As we head into 2017 global monetary conditions are supportive of growth, and there is now active discussion about fiscal easing globally.

Neil commented: “Against this more supportive backdrop in 2017, we anticipate only moderate returns from government bonds, and find better value in credit, particularly higher yielding credit. We also see opportunities in hard currency emerging market debt, as long as there is not a significant rise in US-led protectionism. In equities, although valuations appear high if considered in isolation, they still look cheap if viewed on a yield basis relative to government and corporate bonds. Across equity markets, the US looks the most dependable but it also commands the highest valuation. When it comes to emerging markets it will be important for Chinese policy to remain supportive, the Fed to ‘go slow’ and the Trump administration not to deliver any trade shocks. Meanwhile, in Europe and Japan, we are expecting support from stable-to-slightly weaker exchange rates. At long last authorities appear to ‘get it’ that continued, sustained expansion is required to get the world out of the stop-and-go cycle it has been stuck in since the Great Recession. Markets have only begun to anticipate these developments – assuming of course that political tail risks do not cause undue levels of market volatility.”

“As long as the US President-elect avoids a disruptive increase in trade protectionism, this should reinforce the improvement in global growth, inflation and corporate earnings trends that were already underway before the US election, and was supporting the rotation towards a heavier equity and lighter government bond exposure in the House View.” He concluded.

For the full December Global Outlook research follow this link.

BNY Mellon IM Unveils Global Leaders Fund

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BNY Mellon Investment Management has launched the BNY Mellon Global Leaders Fund, investing in global companies with dominant business models, enduring growth potential and strong cash flow generation.

The fund is managed by global equity manager Walter Scott & Partners, fully owned by BNY Mellon, and aims to achieve long term capital growth through a bottom up, fundamental, investment approach.

It will consist of a portfolio of 25 to 30 of the world’s most innovative and market leading global companies. The strategy will be biased towards large cap companies ensuring sufficient liquidity.

The fund is registered in all standard BNY Mellon Global Funds European jurisdictions including Denmark, France, Germany, Italy, Switzerland, the Netherlands and Spain.

Minimum investment is €5000, $5000 or £5,000 depending on the share class.

“Walter Scott has an outstanding long term track record and is renowned for its rigorous and proven approach to global equity investing. In an environment which is likely to become more challenging, Walter Scott believes markets will become more discerning and quality will be rewarded,” said Matt Oomen, head of International Distribution at BNY Mellon Investment Management. “We are delighted to offer investors a concentrated, benchmark agnostic, outcome driven portfolio which aims to harness the power and stability of the biggest and best run global businesses.”

As of 30 September 2016, BNY Mellon IM had $1.7trn (€1.57trn) in AUM.

BlackRock to Invest in iCapital Network

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BlackRock will lead iCapital’s next funding round. Frank Porcelli, Chairman of BlackRock’s US Wealth Advisory business, will join iCapital’s Board of Directors and will work closely with the organization as a strategic advisor.

Individual investors remain significantly under-allocated to alternative investments relative to institutional investors, but are increasingly exploring the critical role alternatives can play in state-of-the-art portfolio construction. iCapital’s online platform facilitates access to private investment opportunities through an independent origination and due diligence process that prioritizes quality offerings from an array of top managers, and provides an end-to-end technology solution automating the unique subscription, administration and reporting processes of alternative investments.

“We are building the largest independent digital alternative investments platform in the industry. In BlackRock, we have an investor who understands the importance of technology’s role in the wealth management ecosystem,” said Lawrence Calcano, Chief Executive Officer of iCapital Network. “BlackRock’s decision to lead our next round of funding validates the steps we’ve taken thus far and gives us a springboard to scale the platform for future growth.”

iCapital recently announced that it has surpassed $2 billion in subscriptions from approximately 3,000 investors across more than 40 private offerings since the public launch of its platform two years ago. Its member network has expanded to include more than 1,300 users from RIA firms, private banks, independent broker-dealers, family offices and other sophisticated advisory organizations that collectively oversee more than $1.7 trillion in investable client assets.

“Based on our experience, as well as dialogue with our distribution partners, iCapital Network’s open-architecture alternatives platform solves a critical problem for high-net-worth investors and their advisors,” said Frank Porcelli, Chairman of BlackRock’s US Wealth Advisory business. “iCapital’s combination of due diligence capabilities, technology and relationships with alternative asset managers seamlessly facilitates investments in hedge funds and private equity funds, including BlackRock Alternative Investors.”

Terms of the transaction were not disclosed.

Burkhard Varnholt New Chief Investment Officer Switzerland of Credit Suisse

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Burkhard Varnholt is to become Chief Investment Officer Switzerland of Credit Suisse with effect from January 1, 2017. He will assume this role in addition to his responsibilities as Deputy Global CIO and Vice-Chairman of the Investment Committee of Credit Suisse.

As announced by the bank today, Burkhard Varnholt is to become the new Chief Investment Officer (CIO) Switzerland of Credit Suisse with effect from January 1, 2017. He will assume this role from Anja Hochberg in addition to his responsibilities as Deputy Global CIO and Vice-Chairman of the Investment Committee. In his new role, Varnholt will report both to Michael Strobaek, Global CIO and Head of Investment Solutions & Products, and Thomas Gottstein, CEO of Credit Suisse (Switzerland) Ltd. Anja Hochberg will continue in her role as Head of Investment Services and will remain a member of the Investment Committee.

The 48-year-old Varnholt rejoined Credit Suisse in November 2016, having worked for the bank from 1996 to 2006 as Global Head of Financial Products & Investment Advisory in Private Banking. From 2006 until 2014, he was Chief Investment Officer at Bank J. Safra Sarasin. Thereafter, he was Chief Investment Officer and Head of Investment Solutions Group at Julius Bär for almost two years. Varnholt holds a Master’s Degree and a Ph.D. in economics from the University of St. Gallen.

The Ageing World – Global Equity Opportunities

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The changing demographics and the ageing populations in many regions have led to top heavy societies. In the developed world the issue of changing demographic profile needs no explanation and whilst the changes happen at glacial pace they really matter.

We found some statistics about the changing global demographics eye opening:

Currently there are 20 countries with declining populations; by 2050 this is expected to be 80 countries.
In the not too distant future it is expected that all of the main economic forces in the world will see a decline in their working population apart from the US.
Germany needs 650k net migration every year for the next 20 years just to keep the workforce flat.

The changing demographics and ageing population profile of different regions has originated some new investment ideas. For global equity investing, it is important that we identify companies where there is a positive change in their business or operating environment, but the stock market valuations and forecasts are not fully reflecting the implications of such change.

Some companies are set to benefit from the changing demographics and aging populations, such as those with a core business on accommodation for the older generations and healthcare.

In the UK, it is forecast that the number of over 55’s is growing at twice the rate of the UK population average, implying that in 15 years’ time there will be approximately one third more over 55’s than there is today.

One of the companies looking to benefit from this changing demographic is McCarthy & Stone, a leading UK retirement home builder. According to McCarthy & Stone, it accounted for 70% of this niche privately-owned retirement accommodation in the UK, focusing on selling homes to over 55’s. The McCarthy & Stone products are priced to attract older residents wishing to downsize and release equity. The facilities are custom built for the demographic they serve and include common spaces and house managers although the accommodation still provides separate living.

When looking for opportunities in the global equity universe, it is important that we constantly meet with companies and discuss industry trends with their peers, suppliers, and other companies who serve the same end market so as to build a view on the strength of different companies’ potential customers, test our investment thesis and challenge our non-consensus angle.

From our analysis, McCarthy & Stone’s internal transformation programs are expected to lead to greater margins than the market expects. Their land bank acquisitions have been executed at better gross margins than the market believes, which is driven by higher hurdle rates set by management. It is believed that they are capable of accelerating completions above the targeted 3,000 pa.

Another interesting example is Orpea, a French listed operator of high end nursing homes with majority of the business in France currently. However, due to limited licences being granted in France, this company has focused the growth overseas, primarily in Europe but also with one early stage venture in China.

By understanding the company’s on-the-ground approach to M&A and their international greenfield expansion plans which are already in motion, we believed that sustainability of 5% M&A growth and acceleration of organic growth to above 5% from 2018 is not in consensus numbers.

Regulation around licences and the inability to do a deal to buy scale makes it hard for competition to present a large threat in their markets. There are no new licences being granted in France and besides Orpea and Korian there are no large competitors. In addition, there is a hugely inadequate stock of specialised care beds for the last stages in life. Growth opportunities therefore exist for a top end operation like this where the focus is on providing very high quality care home for the older generation.

The changing demographic profile in different regions bring challenges but also investment opportunities. Market very often is not fully appreciating the positive implications of some of those positive changes companies are undergoing – investors should focus on identifying such opportunities.

Column by SLI written by Mikhail Zverev, Head of Global Equities, Standard Life Investments

Caution Prevails Among Asian Investors

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Asia ex-Japan retail investors of all wealth tiers and age groups have become more conservative in 2016 compared to 2015, a survey conducted for the upcoming The Cerulli Report – Asian Wealth Management 2016 has shown.

Due to unsettled market conditions, Asia ex-Japan retail investors have become less patient in their investment horizons. The survey reveals the proportion of respondents with an investment horizon of three years or less rose 48.4% in 2016, from the 39.1% seen in the 2015 survey.

Generally, Asia ex-Japan investors have higher cash holdings in 2016 compared to last year. Except for India, investors in other Asian markets pared down their exposure to unit trusts, mutual funds, and exchange-traded funds.

Indian investors appeared to put more money in managed funds at the expense of investment properties. Hong Kong investors also reduced their exposure to investment properties as prices have been falling steeply in recent years, in favor of directly held bond investments.

Meanwhile, the shift from other asset classes to alternatives was muted for the past year. The survey reveals China is the only country that showed a more than one percentage-point uptick in holdings in the asset class between the 2015 and 2016 surveys.

However, Cerulli notes that alternative products in China are unlike those available in Singapore, for example. In China, alternatives tend to be in the form of structured products, whereas in Singapore, they are often more conventional liquid alternative funds. Cerulli notes that allocations to alternatives in Singapore remained steady over the period, helped by their availability to lower-wealth-tier investors.

Third, funds of funds managed by foreign asset managers have become popular in Taiwan, as they oversee seven of the top-10 funds of funds in terms of inflows year-to-date July 2016.

Evidently, Taiwanese investors are very keen for international exposure. Cerulli believes this provides foreign asset managers with the opportunity to leverage their reputation and expertise to make greater inroads onshore.

Meanwhile, as the FSC continues to tighten regulations on the offshore fund space, it will be harder for smaller, boutique foreign asset managers with niche investment products to enter the Taiwanese market.

This might have an impact on the diversity of products available to Taiwanese investors, and Cerulli notes that it will be ideal for offshore and onshore fund management to co-exist so as not to potentially stifle further product innovation.

Pre-Retirees Emphasize Legacy Building Over Wealth Accumulation

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Many Americans aged 51 to 69 have a unique outlook on life, particularly when it comes to financial management and insurance, according to a new white paper from Chubb. While sharing several of the same interests and passions as younger cohorts, pre-retirees are more focused on legacy building than on wealth accumulation.

“The Pre-Retirees: Changing Minds, Changing Needs”white paper explores the implications this changing mindset may have for wealth advisors and insurance agents. It also outlines the property and personal liability issues impacting pre-retirees, including risks associated with home ownership, travel and passionate pursuits.

“Pre-retirees hold about $8 trillion in assets but, unlike younger generations, the majority are not focused on accumulating more wealth or property—rather, the emphasis is on what they have accomplished and the legacy they want to leave,” explains Alanna Johnson, Senior Vice President, Premier Practice Leader, Chubb Personal Risk Services. “This has implications for how pre-retirees and their advisors approach risk management. Wealth advisors and insurance agents can best serve this generation by understanding the client’s changing risk profile and designing a holistic risk management program that fits their lifestyle.”

According to the white paper, some of the most pressing legacy building-related risks pre-retirees and their advisors should be aware of include:

Serving on non-profit boards that might not offer sufficient D&O liability coverage in the event of a lawsuit
Emerging property risks as a result of relocation as more pre-retirees move or purchase property to be closer to their adult children and grandchildren
Unforeseen gaps in protection when pursuing sophisticated wealth transfer strategies, such as the establishment of a trust or LLC
Having sufficient medical evacuation coverage and travel insurance in the event of an accident or injury abroad.

You Cannot Keep Ignoring Emerging Markets

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According to Derek Silva, Portfolio Manager at Elvi, nothing scares more than the words “Emerging Markets corporate debt.” in his opinion, the list of frightening aspects is plentiful:

There’s Russia’s geopolitical issues.
Turkey’s coup attempt and downgrade to junk.
Brazilian corporate and political scandals.
President elect Trump’s Mexico obsession.

And then there’s China, for which CNBC and Bloomberg have a favourite term, “China worries”, to lazily explain any down day in global markets when they cannot find any other good reason.

So, EM corporate debt? Who buys this stuff? Well, if you ignore it, Silva believes you’re missing out on some excellent diversification and the best risk/return over the past 17 years. In fact, since 1999, EM IG has the best risk/return (in terms of Sharpe ratio) among all major fixed income asset classes. And EM HY outperforms its US and EU counterparts by the same measure.

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It is interesting that diversification is one of the basic principles of investing and yet many investors, both professionals and laypersons, only put tiny portions of their equity/fixed-income allocations into EM, despite EM growth rates being double those of DM economies. Only in this year’s extreme scenario of a global low rate environment have investors piled into EM equities and debt. But even after retail inflows into EM corporate debt reached record levels this summer, a recent survey by JP Morgan revealed most are still underweight in EM debt. To see the benefits of adding EM to an investor’s portfolio, since 1999, the addition of EM IG & HY (to US credit holdings) have provided an extra 0.5% of return for the same level of risk, and dramatically higher returns for smaller increases in risk.

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Silva believes that the EM market is more resilient to crises than US and European markets. Why? Because DM markets are priced to perfection and any scandal or crisis can have wide-ranging negative effects for the whole DM markets. Just look at the most recent example, with problems at one bank (Deutsche Bank) shaking the European markets and even spilling over into the US.

In contrast, “EM” is truly diversified by 5 vastly different regions (Asia, Latin America, Middle East, East Europe, Africa) and over 40 countries within the broad corporate bond benchmark (no country more than 10% weighting). These include even advanced (but not yet officially “DM”) economies like Singapore, Taiwan, Hong Kong and Korea, along with riskier “high beta” countries like Russia, Turkey and South Africa. But it is rare for any individual crisis to affect the EM credit market as a whole.

When Turkey’s credit rating was junked recently, only the Turkish credits were weak. Last year, during 2015’s corporate and political scandals in Brazil, it was mainly Brazil’s markets that suffered. The prior year, in 2014, when Russia was in conflict with Ukraine, it was mainly Russia and Ukraine that were affected. During all of these events, regions like Asia continued chugging along with attractive returns, immune to the crises in other EM regions. Even for a more wide-ranging crisis, like when many commodities prices fell dramatically in late 2015 and early 2016, some countries suffered (LatAm, Middle East), while some countries benefited (Asia).

In 2016, EM credit markets have been the best in global fixed-income, with double-digit returns, in spite of a myriad of negative factors:

still low commodity prices,
slow turnarounds in Brazil and Russia,
Turkish political problems and downgrade to junk,
South Africa’s impending downgrade to junk,
“China worries”,
the Trump-Mexico effect,
and the looming threat of a Fed rate hike.

“I believe this is a testament to EM’s superior diversification, growth and ability to derive attractive long-term risk/return performance. This is something that cannot be ignored for long.” He concludes.

EFAMA: Concerns Remain in the Final Money Market Funds Deal

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A political agreement reached on the Money Market Fund Regulation was signed-off by the Council of Ministers on December 7th in a meeting of EU Ambassadors (COREPER) and on December 8th by the European Parliament’s ECON Committee. These votes followed an original proposal by the European Commission in September 2013.

According to a press release, “EFAMA is appreciative of the work done and time spent by EU policymakers, which has resulted in a more workable outcome than the initial proposal, for European investors, MMF managers and the Capital Markets Union more generally.”

Peter De Proft, Director General of EFAMA commented: “EFAMA members manage both VNAV and CNAV Money Market Funds. From the outset, we have indicated that a proportionate and balanced Regulation which ensures the viability of both CNAV and VNAV MMFs can support alternative sources of financing to the real economy, a key focus of the European Commission’s flagship initiative on a Capital Markets Union.”

He continued: “In terms of CNAV MMFs, we welcome the creation of the LVNAV product which has the possibility of offering investors a real alternative to European CNAV Prime MMFs. Equally important is the retention of a workable government CNAV regime in different currencies. For the VNAV industry, a number of serious operational challenges have been minimised. However, the MMFR is by no means a panacea for either the industry or investors in MMFs”.

One noteworthy concern for both sides of the industry are the liquidity calculations of MMFs. EFAMA believes that the lack of a principles-based approach on liquidity will make it difficult to determine whether the arbitrary thresholds set in the final political agreement will be workable in different market scenarios.

EFAMA also regrets the agreement’s rejection of MMFs being able to operate as funds of funds, an important mechanism used by many VNAV managers for diversification purposes, and points out to some outstanding concerns on how the exemption from the 10% diversification limit of assets in deposits would work.

Finally, there are some practical difficulties with the ‘Know Your Customer’ requirements and the periodic reviews of the internal credit quality assessments will, in EFAMA’s view, not be workable for smaller players on the market.

Peter De Proft concluded: “There is no doubt that today’s MMFR result is a better outcome than the initial European Commission proposal. However, one cannot ignore the number of question marks on the potential consequences of different parts of the agreement. It remains to be seen whether smaller players will be able to continue operating, given the more elaborate compliance and disclosure requirements, combined with low business margins”.