THE evidence that hedge funds run by women do better than those run by men continues to mount. So why are there still so few women at the top of the industry?
It is a puzzle because one of the immutable laws of finance is that - regardless of the warnings regulators put on the bottom of adverts about past performance being no guide etc - investors blindly throw their money this year at the funds that did best last year.
Funds that women own or run have beaten the industry average on a one-year, three-year and five-year view, according to figures out September 17 from HFR, an index provider. In fact, go back to 2007, to take in a full market cycle, and the funds have returned 59pc against average returns of 37pc.
These latest statistics, up to the end of June 2015, back up several earlier cuts of the data, and the evidence of behavioural studies which suggest that female investors are better risk managers, less prone to wild gambles, much less likely to trade in and out of positions in response to market volatility and generally more likely to take a long-term view. There is certainly no evidence that women-run funds underperform, so why could HFR find only 60 of them out of the 2,000 single-manager funds it monitors, a paltry 3pc?
Funds that women own or run have beaten the industry average on a one-year, three-year and five-year view, according to figures out September 17
Executives at big institutions, such as pension funds, who invest in hedge funds disagree with female fund managers on why the number is so low. According to a KPMG survey of female finance professionals, also out on September 17, investors say they would love to put more money to work with women-run funds, they just cannot find any; female managers complain about the difficulties of fundraising. Chicken, meet egg.
The most effective way to break this impasse is also the most controversial: institutional investors could mandate a certain portion of their hedge fund allocation goes to women-run funds.
Yes, there needs to be a strong pipeline of female managers coming through the ranks. This ‘supply side’ effort is well established. Strong, professional networks such as 100 Women in Hedge Funds can work both ends of the pipeline: their sponsorship of Girls Who Invest initiatives, modelled on the tech sector Girls Who Code, can change attitudes early by lauding female role models and fund scholarships; their philanthropic work can put female managers into the orbit of potential investors. Enlightened self-interest would suggest hedge funds interview more women for positions, since bringing a diversity of backgrounds into the investment process helps prevent groupthink.
But anyone wanting more than glacial change is forced back to considering women-only manager mandates, an almost universally hated idea that would actually be very good for the industry. If more of the $2.7tn in hedge fund assets were earmarked for female managers, the industry would quickly find a way to meet the demand.
Two objections immediately arise. Inevitably, institutional investors are reluctant to limit their freedom of choice (and some public pension funds such as Calpers in California are banned from doing so under anti-discrimination laws). Second, women often express reluctance to bid under such mandates, for fear that the business will somehow be seen by other potential investors as illegitimate. “I have actually been told point blank to my face that someone thought I was only hired because of the women at the top of my fund,” says Jane Buchan, founder of the $9bn hedge fund Paamco.
The latest data should help shrink both these objections - and HFR is launching an HFRI Women index, based on the 60 funds it has found, so investors will now have a real-time test of the thesis. If it is true that women-run funds outperform, now they will be seen to do so.
Even if they perform in line with their male-dominated counterparts, that weakens the hand of those who say all-women fund mandates are dangerous.
A lot of the colour has drained out of the hedge fund industry in recent years, partly because it has come to be dominated by institutions like pension funds, which do not want their investments to be too volatile and feel safest with the largest, most famous funds, even in the teeth of evidence that smaller funds can be more nimble in the financial markets and tend to perform better.
The result has been that the industry is locked in a spiral of disappointing investment returns and lower investor expectations. Encouraging the flowering of a new generation of women-run funds is more than a social cause, more even than a potentially lucrative investment idea. It could help the whole hedge fund industry out of its funk.
Published in Dawn, Business & Finance weekly, September 21st, 2015
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