The financial feminine mystique backed by hard numbers

6½ years of data show women hedge fund managers outperformed the index

Jan 16, 2014 @ 12:13 pm

By Jeff Benjamin

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It might not be easy to find a woman to manage your assets, but it might be worth the effort to start looking.

The idea that women generally manage money and invest differently than their male counterparts is not a new finding, but a growing body of evidence suggests that those differences can add up to better performance.

“When you look at the way women tend to behave when managing money, it has a pretty profound impact on portfolio management,” said Meredith Jones, a director at consulting firm Rothstein Kass, which has been studying the influences of women portfolio managers for several years.

In a report released this week, Rothstein Kass found that the performance differential was particularly stark in hedge fund management.

Through the first 11 months of last year, an index of women alternative investment managers gained 9.8%, which compares with 6.1% for the broader HFRI Global Hedge Fund Index over the same period. The pattern was similar, but more dramatic, for the first 11 months of 2012, when the Rothstein Kass Women in Alternative Investments Hedge Fund Index gained 11%, while the HFRI gained 3.5%.

Over a six-and-a-half year period, from the time the report research began through June 2013, the woman-manager index gained 6%, while the HFRI declined 1.1%.

While it is tempting to sound the alarms for a reallocation to female portfolio managers, Ms. Jones and others are making no such claims.

For starters, of the more than 10,000 hedge funds, only about 125 have women running portfolio management.

But for those that have long fought for diversity in the asset management space, this kind of data represents solid support for such a campaign.

“What this kind of data does is dispel the notion that women don't belong in the hedge fund space,” said Dorothy Weaver, a highly regarded hedge fund manager and principal, chairman, chief executive and co-founder of Collins Capital Investments.

“If it just levels the playing field, it's a good thing, but at the end of the day, you still want to be picking hedge funds on a manager-by-manager basis,” she added. “This isn't the kind of research you can take out to seven decimal points and say, this is why you should invest with women, but what it does is start the conversation.”

While there seems to be endless studies and research distinguishing men from women when it comes to investing and asset management, Ms. Jones admits most of the research is far from scientific.

But the performance is what it is, and for that Ms. Jones relies on known and assumed gender characteristics for an explanation.

“We call it the alpha component because we know there are differences in the way men and women think, and that can't exist only in social interactions,” she said. “For example, there are testosterone influences, which means that women are less likely to try and time the market, and they are also less likely to sell at the bottom.”

According to the Rothstein Kass research, male investors will trade on average 45% more than their female counterparts. And when it comes to single men versus single women, men trade 67% more.

“We know that portfolio turnover is just one piece of the equation, but it can add up to performance differences,” Ms. Jones said.

Sheryl Pincus, owner of the financial advisory firm Sunrise Financial, described the Rothstein Kass data as just more evidence that the financial services industry needs more female professionals.

“The way women approach investing and risk taking is very different than the way men approach investing and risk taking, because men are more likely to be looking for a fast buck and women are more willing to hang on and stay the course,” she said. “I never really thought about it before, but I suppose the biggest problem is the lack of women in the business.”

Of course, just like too much risk can be detrimental, so can extreme risk aversion.

A November report by BlackRock detailed how genders tend to respond differently to risk, with women generally being more risk-averse. Among the takeaways was that too much risk aversion can lead to underperformance.

Ms. Jones sees the gender-specific performance data as evidence that the gender of portfolio managers should be considered among other data points and diversification characteristics.

“There's a movement, particularly in the public pension world, to look at diversity in portfolio management, and there's a growing body of research that suggests women manage money differently than men,” she said. “But this issue has now gone from being a simple question of diversity to whether you can get additional alpha through that diversity, and that's a good thing because women still want to be selected because they're the best, not just because they're women.”

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