If Women Are So Good at Managing Money, Why Are So Few of Them Doing It?
Of all the rarefied niches on Wall Street, perhaps the most opaque and exclusive is the hedge fund industry, where traders are handed millions and even billions of dollars to invest on behalf of banks, endowments, pension funds and the superrich.
This is the province of the so-called Masters of the Universe, who, if successful, can become billionaires trading other people’s money. And it’s the last bastion of finance where women are having serious trouble breaking in. As of 2015, less than 2 percent of hedge funds were run or owned by women—about 150 to 200 globally—and the majority of those managed less than $100 million of funds.
At the same time, the data show that women, over the past decade, have consistently outperformed men when it comes to earning higher returns, the metric investors care about most. In fact, funds owned and run by women have returned an average of 59.43 percent since 2007, compared with an average of 36.69 percent for the whole industry, according to figures released in September by Chicago-based Hedge Fund Research Inc., which last year launched its first index exclusively tracking women.
If your initial reaction is surprise that women’s returns have been trouncing men’s for nearly a decade—a period that covers the global financial crisis from 2008 to 2009, the Great Recession, bailouts of entire nations like Greece and America’s newfound energy boom—that’s because those who write the really big checks have barely acknowledged the trend. Rather than jumping on the opportunity to make money from it, they have done little more than let out a collective “Mehhhhhh.”
In a survey late last year by auditor KPMG, women reported that raising capital was still one of the biggest obstacles to launching their own funds, while 72 percent of investors bemoaned the lack of female talent to invest in.
The problem, according to both sides, seems to be a disconnect between women-run funds and their would-be investors. “You have to have great performance and numbers, but, beyond that, you also have to have a vital network of people who will vouch for you,” says Victoria Hart, who launched her New York–based hedge fund, Pinnacle View Capital Management, in 2013. “Starting your own fund is a colossal endeavor…. You have to pitch people, and they have to really know you or get a feel for you if they’re going to give you money. There has to be that personal connection and trust.”
Last April, she founded Seven Degrees of Women in Finance, an invitation-only group for female fund managers to network. “One thing I noticed right away was a lot of us were too busy to meet or didn’t really know each other, so this is a great way for us to connect, promote each other, share what we know and strengthen the community,” she says. The group, which meets every other month and invites guest speakers as well as potential investors, already has more than 200 members.
“I don’t know too many other female chief investment officers, so Victoria’s group really fills a void,” says Dianne McKeever, who is planning to launch an equities activist fund, Ides Capital Management, later this year. “I attended the third or fourth meeting of hers, and it was packed. Networking is so important in this business—with men and women—because you need to meet people who can supplement your skills, introduce you to other people and give you advice.”
Says another female fund manager, who asked to not be identified because her fund doesn’t allow its managers to speak with the media, “When you see those packs of traders on Wall Street, they’re not usually women. But they socialize together, golf together and endorse each other. If one of them loses a job, they are going to do all they can to make sure that guy is OK. It is a really powerful network, and it is how portfolio managers get to launch their own funds.”
Hedge funds are not the only sector in finance where women are a tiny minority. Less than one-third of venture capital firms in the U.S. employ even one woman who participates in business or investment decisions, and only 9 percent of mutual fund managers are women, according to a 2015 study from investment researcher Morningstar. There are plenty of women in back-office roles in finance, but few have the final say over where the money is invested.
In the KPMG report, only 14 percent of executive women surveyed across the finance industry—which included venture capital companies and hedge funds—held the post of chief executive officer, and only 21 percent were in roles that let them manage money, with the vast majority of women relegated to marketing or compliance.
“It’s amazing that in the 21st century we’re still having this conversation,” says Meredith Jones, an alternative investments consultant in Nashville who in the 1990s authored some of the industry’s first research on women-run funds. In 2015, she published a book called Women of the Street: Why Female Money Managers Generate Higher Returns (And How You Can Too). She says the latest data prove women’s investment performance isn’t to blame.
“People tend to invest in people who look like those who have already been successful in this profession—and most of those people are middle-aged white men,” Jones tells Newsweek. “Most people can’t even name a single female fund manager. People call me a reverse sexist, but actually I am a capitalist. I am all about the data. And by leaving women out, we are literally leaving money on the table.”
BRENDAN MCDERMID/REUTERS
Studies have consistently shown that female investors appear to have three common behavioral differentiators that set them apart from men. They experience fewer losses caused by overconfidence and overtrading, they exhibit greater discipline in their investing decisions, and they focus more on protecting their investments from downside risk.
“I have been doing this for 15 years, and I can say that women bring a diversity of thought that can create an asymmetric profile that increases returns,” says Susan Webb, CEO and chief investment officer for Appomattox Advisory, a New York company that oversees $1.6 billion in funds and allocates capital to women-run funds as well as minority-run funds—both of which are grossly underrepresented in the industry. According to Appomattox’s data, such funds lead the market average by around 200 to 300 basis points annually.
“This is not flavor of the month for us,” Webb says. “We believe in it.”
Even so, there are plenty of doubters. Hedge fund billionaire Paul Tudor Jones made headlines in 2013 for telling University of Virginia students during what was supposed to be an off-the-record panel discussion, “You will never see as many great women investors or traders as men—period, end of story.”
Though female traders are just as capable as men, he said, motherhood inevitably causes women fund managers to lose their focus. “As soon as that baby’s lips touch that girl’s bosom, forget it,” he said. “Every single investment idea…every desire to understand what is going to make this go up or go down is going to be overwhelmed by the most beautiful experience…which a man will never share.”
Such myths help to preserve the gender gap by causing some women to believe they won’t be supported if they attempt to launch a fund, and certain investors to think twice before investing in them—despite the obvious fact that parenthood affects both genders.
“It’s a baby, not a lobotomy,” says Svetlana Lee, chief investment officer and founder of Varna Capital Management, a $25 million hedge fund (named for a city in her native Bulgaria) based in New York and launched in 2008. “I can take care of my young daughter and get great returns. In fact, I made investment decisions in the hospital right after she was born—and they were the correct decisions.”
Notably, some of the biggest woman-run funds today are helmed by mothers. According to those who attended a talk given last year in New York by Leda Braga, head of Systemica Investments, a Geneva-based systemic hedge fund with $9 billion under management, Braga cited motherhood as perfectly compatible with running a fund.
Arguably the world’s top female trader by assets under management, Braga told her audience, “‘I am like any other person who’s ambitious, who thinks I have a gift; I have a nanny, and I knew my kid would eventually walk. I was not going to be one of those parents who analyzed their kid at every juncture, or let it distract me from very serious responsibilities,'” one of the attendees tells Newsweek. A spokesman for Braga declined to comment, saying she preferred to speak about investing rather than gender issues or motherhood.
Other female traders echoed those sentiments, saying they did not want special treatment but only to be considered alongside similarly successful funds.
“I don’t think people care that much about my gender versus my track record and performance,” says Jiyoung Kim, a South Korean who launched New York–based hedge fund Topni Pacific Century Fund in 2010, with a focus on Asian stocks. “For me, as a woman, I learned this business from men. It can be a very cutthroat and very male-dominated culture, but investing, as you have probably heard, is a craft that you work on for a lifetime. You learn from the best, and then you come up with your own version.”
While family life may not distract women from reaping substantial returns, Hart says, it can keep them from expanding their all-important networks. “What I’ve noticed is that while women are very active in the early stages of their careers, when they hit their stride they don’t feel the same need to get out there and keep networking,” she says. “They may focus on maintaining their careers and their families—and that’s where I think the gender difference comes alive. Women may not necessarily be thinking about their future or further building their networks.” This can lead to lost opportunities later.
“Relationships matter,” agrees Lee. “We don’t have as much time to network; we don’t have time to play golf, to have a boys’ evening—we go home to our children. It’s a fiercely competitive industry, but the number of women running funds should be more than 2 percent, and it can be more than 2 percent and it will be more than 2 percent. Hopefully, more women of the next generation will follow.”