The Investment Value of Women May 20th, 2013 by Golden Girl Finance The Parity Portfolio offers the chance to invest in real change

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1 The Investment Value of Women May 20th, 2013 by Golden Girl Finance The Parity Portfolio offers the chance to invest in real change What s a woman gotta do to get on a corporate board these days? If your answer is, find a powerful activist investment fund that will encourage companies to up the aunties on their boards, by dangling a few million dollars of investors money in front of their eyes, then you may be right.

2 Over the past two decades, public efforts to increase the number of women on corporate boards have met with limited success. Despite numerous studies demonstrating a clear correlation between higher numbers of women directors and stronger financial returns, too many companies still consider the appointment of women to their boards as something of a token or a social responsibility rather than a financially astute decision. However, in the corporate world, market forces rule. When investors demand, companies supply. So when it comes to increasing women s representation in boardrooms, what we needed was to get market forces working in women s favour. Now, thanks to a couple prescient individuals, this is happening. Eve Ellis is a financial advisor at Morgan Stanley in New York. Ms. Ellis and her partner, portfolio manager and financial advisor, Nikolay Djibankov, have launched a revolutionary new investment fund that seeks to create capital appreciation for its investors, while rewarding companies committed to gender diversity in the boardroom. It s called The Parity Portfolio. Golden Girl Finance was thrilled to have the chance to interview Ms. Ellis about The Parity Portfolio and this exciting opportunity for us to use our hard-earned investment dollars to create real and lasting social change for women. Talking candidly with Eve Ellis GGF: Who or what inspired you in creating The Parity Portfolio? EE: I think the confluence of three incidents last summer caused me to develop The Parity Portfolio. I was reading the Catalyst research last August on the positive correlation and the ridiculously low 16.6% figure of women serving on boards of Fortune 500 companies; I was reading a publication that was touting corporate promotions and realized those promoted were all men; and I was listening to former US Representative Todd Akin stating that women who are victims of "legitimate rape" rarely become pregnant. I think I had just heard enough. It was time to ask, "How do we value women in our country?" As a feminist, it's not as though this was a new question to me. It's just that I realized I was in a fortunate position, as a financial advisor, to do something positive with my frustration. GGF: How do you evaluate companies for investment? EE: Our first screen is female representation. So that means we have a pool of approximately 200 companies that have a minimum of three women on their boards. Then we evaluate company financials using Morgan Stanley research and thirdparty research. Then, we look at governance issues. So, just for example, if a company supports the Boy Scouts, which we know discriminates against gays and lesbians, the company will not be included in The Parity Portfolio. Also, we do not hold tobacco, firearms, or oil companies. With regard to governance, however, we do recognize that we will not always agree with every stand of the companies in our portfolio.

3 GGF: Your criteria for female representation is at least three women on the company's board of directors... Why three? Why not a ratio? EE: The research supports the magic number of three. Catalyst research (August 2012) reveals that better-than-average financial results prevail at companies that have at least three female board members. Fortune 500 companies that have three or more women on their boards, again according to Catalyst research, have a 73 percent better return on sales and an 83 percent better return on equity than do companies with fewer women on their boards. So this minimum, at least three women on the board, is required for us to invest in a company. GGF: Why focus on board of directors solely? Would you ever consider companies with female CEOs or a high ratio of women in senior management? What about companies who strive to provide equal pay for equal work? EE: All of these are critical issues. We decided to start with what we view as the top - the board. The amount of research required to seek financial returns with a serious eye on risk for our investors keeps us focused on this specific focus - gender diversity on boards. GGF: Are you targeting women as investors? EE: We are targeting individual and small institutional investors now and will target large institutional investors in the future. We envision that this strategy will be attractive to women but will also include male investors. The interest of potential investors has been strong; it seems as though investors have a real hunger for this type of impact investment at this time. GGF: Does The Parity Portfolio stick to equities or invest in other securities as well? EE: We started the first version of The Parity Portfolio, a discretionary strategy managed under Morgan Stanley s Portfolio Management Platform, in January. It's an equity longonly portfolio. On April 1st, we started the second version, which is an alternative or absolute return strategy, which holds the same equity positions as the first portfolio but is intended for investors who are more risk-averse. GGF: Is The Parity Portfolio the first to employ a 'gender lens' to investment criteria? EE: There are certainly other gender lens investments. Examples include venture capitalists that invest in women entrepreneurs, mutual funds that invest in companies around the world that advance women's equality, and investment vehicles that support microfinance to women around the world. The Parity Portfolio has a dual-pronged specific focus: We want to make money for our investors and we want to help achieve parity on corporate boards in the United States.

4 GGF: The portfolio seems to be focused on consumer discretionary and health care industries - why is that? EE: There are two reasons that The Parity Portfolio has a heavier weighting in consumer discretionary and health care sectors at this point in time. This won't always be the case. According to Catalyst research (August 2012), these sectors, along with consumer staples, have the highest numbers of women on their boards. We're looking for strong financials. The specific companies that we've selected, based on their financials, have a heavier weighting in consumer discretionary and health care. GGF: How many companies do you plan to hold in the portfolio? EE: Currently there are 20 holdings. The most we'd hold is probably about 30 names. Many are household names, but then we have some little-known small and micro-caps. We want it to be a diversified portfolio, which it is. And we tend to have a value bias. GGF: Is it true you will only invest in US companies? Why is that? EE: Our holdings may be global companies, but the headquarters need to be in the US. This is because we are focused on parity in corporate America. GGF: Will the recent European Community requirement to have 40% women on corporate boards affect your investment selections? Do you imagine a global portfolio as a possibility in the future? EE: We need to give companies headquartered in the US the chance to remedy the situation first. GGF: It's great to see powerful companies such as Morgan Stanley and Credit Suisse supporting the cause of gender parity, but neither of these would meet your investment criteria of three women on their boards! If they did qualify, would you include financial sector companies for consideration in the portfolio? EE: We do include financial sector companies in the portfolio! Currently of the 20 holdings, two are in financial services. One is a middle-market lender and the other is a regional bank. GGF: Do you think The Parity Portfolio will influence other companies and industries to increase the number of women on their boards? EE: We're hoping... We're hoping and working on this pressing issue along with others, such as 2020 Women on Boards and the Thirty Percent Coalition, two non-profits engaging companies on this issue. GGF: Five years from now, what would you consider success?

5 EE: Success for The Parity Portfolio includes maintaining stable financial returns while achieving social impact. Social impact includes advancing the discussion of the importance of gender diversity on corporate boards. Five years from now, we hope to have grown our investors' portfolios and participated in enough discussions on this issue so that corporations in America are seriously on the road to parity on their boards. We recognize this will take time, but in five years, US corporations should be on their way in the right direction. GGF: Thank you Eve, for your time - and thank you for creating an investment strategy that will finally align the power of market forces with the power of working women! EE: Thank you, Golden Girl Finance!