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A tourist poses with Fearless Girl, a statue on Wall Street commissioned by State Street Advisors as part of a campaign to encourage companies to appoint women to their boards. Photo: Drew Angerer/Getty Images.

What are the Returns from Women Investing in Women?

Research shows that companies led by women outperform their peers. But the number of women in executive positions continues to grow very slowly. Patricia Lizarraga, the managing partner of Hypatia Capital Group, explains how a network of women executives is turning the slowness of social change into an arbitrage opportunity.


Sometimes, the good news is the bad news. In 2017, the number of women CEOs in the Fortune 500 hit a record high—but that high is just 32, or 6% of the list.

This despite a range of research showing that companies with female leadership outperform their peers. Credit Suisse looked at gender diversity in companies across 40 countries for a 2014 report, finding that companies with at least two women on their boards had returns 3.7% higher than companies with all-male boards over the previous decade.

McKinsey found that “companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians.” The results were robust enough for McKinsey to conclude “diversity is a competitive differentiator.

A working paper from the Peterson Institute for International Economics looked at 22,000 firms from 91 countries and found that women CEOs alone are no more successful than their male peers, but that having women leaders throughout an organization results in a marked increase in profitability. The reasons proposed for the success of balanced leadership include greater skill diversity in top managers and increased likelihood of rewarding top-performing employees with work that fits their capabilities.

Could the disparity between women’s capabilities and balanced representation in the C-suite represent an arbitrage opportunity? Hypatia Capital Group finds overlooked performers by investing in companies led by women. Yale Insights talked with Patricia Lizarraga YC ’88, the firm’s managing partner, about its approach.

Q: You’re a managing partner for Hypatia Capital. What makes the firm different?

We are a boutique investment bank and a fundless private equity transaction sponsor. We are a deal-sourcing engine drawing on a very large network of CEO-level women and board members. The network includes about 500 C-suite level women. About 70 are sitting CEOs and 150 are large company public board members.

The research tells us that balanced leadership outperforms. The idea when we started Hypatia Capital was really that we just wanted to have female clients. And we were going to build a network that would allow us to do so. That’s what we’ve done, very successfully.

Q: How does Hypatia work?

Investment banking and private equity are very relationship-driven; they’re trust businesses. When a company is for sale, the investor willing to pay more is often comfortable with doing so because they have a close relationship with the CEO. From the beginning, we’ve believed that if we focused on this very narrow niche, we would be able to build trust relationships faster, and that we would implicitly be more trustful of people who may otherwise need to take an extra step.

For us, it’s an advantage to be in an environment where there is not a lot of competition. We have found many female CEOs don’t have any coverage from the private equity industry, and I can assure you, if they were male, they’d have plenty of coverage. Since the CEO pool in the Fortune 1000 is 95% male, they’re only missing 5%, right? However, in that 5%, you have outperformers. So you're missing some of the outperformers.

Now my theory is that one of the reasons why we might have so few female CEOs is because if you’re on the nominating committee of a board, or on the board itself, and you have this fiduciary duty to your shareholders to make the best decision, you’re trying to minimize your risk. The unknown is always riskier than the known. If 99% of all CEOs ever have been male, by definition 1% is the unknown, the risk, even if the data doesn’t bear that out. People don’t always evaluate risk through data. Their implicit bias tells them it’s just riskier. I guess we aren’t as biased implicitly as maybe some of our male counterparts are when it comes to CEOs that are female.

Q: Are there certain industries or sectors where you are more active?

In the United States there are more female executives in the consumer space—retail and apparel, the services sector—as well as healthcare. There are fewer women executives in energy, finance, or the industrial sector.

From our perspective, we have a bigger pool of people to choose from if we focus on the sectors where there are more women. Having said that, our network is so large now that we actually know people in all industries. Just not as many in the underrepresented sectors.

But in the last day I’ve had two conversations with incredibly accomplished CEOs who are women leading industrial companies, and who are looking for the next company to buy. In one case, she sold to private equity firms incredibly successfully, and she said, “Maybe I’m a little less risky to the guys now.”

Q: How does the model move to deals?

When we started, we knew very few women, so we weren’t necessarily finding deals right and left. But when we did, we would partner with a larger private equity firm, and we still do that today. I think over time, many of the firms that we interact with on a fairly regular basis have come to see, “Wow! Hypatia brings us really high-quality deal flow and executives.”

They want to know what we have to say, which is usually fairly proprietary, because we have a very early look in a lot of situations. It’s one thing to get the sales memorandum that 40 other private equity firms also got and another for a CEO to tell you, “We’re considering going to market a year before we originally thought.” It’s not inside information. It’s not a fact. It’s just, “Hey, this is something you should think about.”

Q: Another portion of your professional life is focused in Latin America. Could you describe that work?

Proximity-wise, Latin America is always of great interest to the United States, and you can get some amazing returns in the region. Having said that, there’s a lot of political turmoil, and some of the bigger countries, which were growing rapidly, aren’t anymore.

I am Peruvian, so my vision is Andean-centric. I’m on the board of Banco de Crédito, Peru, which is the largest financial institution in Peru. I’m also on the investment committee of a fund called Sigma. We have about $500 million under management and are expecting to grow. We invest, among other things, in infrastructure, of which there’s huge need in Latin America.

Our limited partners are large Peruvian public and private pension funds. The pension funds have a percentage of their allocation that has to be in the country, so we’re a local fund, investing locals’ money, locally.

Q: What’s the state of the economy in Peru?

Peru is the most dynamic of the Latin American economies. We have grown tremendously for the last 20 years at 5% to 7%. This year we were going to be at a little over 4% growth, which is high for the region. However, there have been some significant climactic problems that have devastated the north with flooding. All three major cities in the north of the country have been under water. That’s likely to shave a point and a half off the GDP. But, in general, Peru’s the fastest-growing country in Latin America, and has been for some time.

Q: What drives the country’s economy?

Peru is a copper producer, so the impetus for growth really came from China’s demand. But that started an engine of growth because, in order to produce the copper, there was a need for infrastructure investment. That trickled out as a multiplier for the consumption economy as well. The robustness of the Peruvian economy, even as the Chinese economy cooled down in the last years, was surprising. But it has kept rolling along.

There was a large growth opportunity because many people just recently entered the middle class. And you still have a large pool of people that still are on the cusp of entering the middle class. Moving people from the bottom of the pyramid into the middle pyramid, can become a virtuous cycle.

Managing Partner, Hypatia Capital Group