This fund manager wants to prove gender equality is good for profits

John Lee of Meritz Asset Management says companies that push for women’s empowerment are a good investment

Investing in firms with more women in positions of authority can pay off. The average five-year annualised total return for MSCI Asia Pacific Index companies with at least one female board member is aShow more

John Lee joined Meritz Asset Management as chief executive five years ago, when few women were in positions of power at the firm. Yet things at the Seoul-based company have changed - today the head of marketing is female, eight of the 10 fund sales staff are women, and the investment team has almost reached gender parity.

Now Mr Lee has a bigger ambition: to prove it can be profitable to invest in Korean companies that push for women’s empowerment.

Mr Lee has created a “women-focused” fund aimed at promoting female participation in South Korean companies, which Mr Meritz says is the first of its kind in the country’s industry. Besides looking at business fundamentals, the open-ended Meritz The Women Fund adds criteria related to gender diversity and equality such as the ratio of women employees and directors at a firm as well as work-life balance policies.

Hana Tour Service and CJ ENM - both have workforces that are half female - are in the fund’s still-concentrated portfolio, which consists of 25 to 30 companies.

“Korean woman are highly educated, but they don’t have equal opportunities” in the corporate world, says Mr Lee, the chief executive and also the fund manager. “These highly qualified, highly educated women definitely can contribute to shareholders’ value. That’s always my thinking.”

This initiative is particularly interesting as it’s based in South Korea, which ranks low in gender equality compared with other countries in Asia and globally. In the World Economic Forum’s Global Gender Gap Report for 2018, South Korea placed 115th among 149 countries, and was the second worst in the East Asia and Pacific region, followed only by Timor-Leste. Also, women working in Korea on average earn 63 per cent of what men earn - the pay gap was the largest among members of Organisation for Economic Co-operation and Development, according to a 2017 report.

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With the Korean stock market in 2018 wiping out $361 billion in value, the timing of such a product launch wasn’t ideal. The fund, which raised more than $1 million as of December 21, posted a return of 1.71 per cent from its inception through December 14, slightly under-performing the benchmark Kospi Index, according to data from Meritz. But temporary market volatility does not bother Mr Lee too much.

The fund manager, whose firm manages about $5.5bn in assets, pointed to the reasons for his confidence in the fund’s performance: while the cheap valuation provides a safety net, the nation’s corporate pension reform may trigger sustainable inflows to the equity market. What’s more in his view, from the decision-making level on down, having more women involved and better gender equality will enhance a company’s value in the long run.

Female employees and managers contribute different views and are less tolerant of wrongdoing, which would improve corporate governance, Mr Lee says.

“Korean companies are very male-dominant from top to bottom, so there is no opposition opinion allowed, even if sometimes the top management makes the wrong decision,” Mr Lee says.

Data is on his side when it comes to investing in firms with more women in positions of authority. For MSCI Asia Pacific Index companies with at least one female board member, the average five-year annualised total return is about 8.9 per cent as of December 26. That compared with a 7.3 per cent return posted by companies with no women on their boards, according to data compiled by Bloomberg.

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Setting up a fund focusing on gender equality is not new. In Japan, where Prime Minister Shinzo Abe has continued to encourage women’s participation in the workforce, fund houses including Daiwa Asset Management and BNY Mellon Asset Management have issued similar offerings.

Daiwa’s Woman Supporter Fund lost 13 per cent year-to-date, yet still outperformed Japan’s Topix Index, while BNY Mellon’s Women Power Japan Equity Mother Fund under-performed the benchmark so far in 2018, according to Bloomberg data.

To differentiate it from competitors, Mr Lee says his fund will be more active in communicating with company management and adding pressure for change. He plans to regularly make recommendations to invested companies on adding women as directors, for example, and will keep monitoring their progress, he says.

“We want to be very active,” Mr Lee says. “We’ll try to make change. We’ll continue to engage to make it happen and we’ll keep asking questions.”