Forbes has recently listed 100 of the World’s Most Powerful Women and aside from the regular global celebrities and politicians (Oprah Winfrey, Beyoncé, Hillary Clinton etc.) who regularly grace the list, there is a huge rise in female leaders impacting the corporate world. New names feature this year, namely Sheryl Sandberg from Facebook fame and IBM Chief Executive Officer Ginni Romett, and whilst you would presume the high fashion houses also have inspiring women leaders at the helm (think Miuccia Prada and Zara founder Rosalia Mera), what about the power houses of the world’s financial sector?
Women may be influential creatures in their respective industries rivalling their male counterparts, but just how does this power correlate to success, or more importantly, profitable outcomes for the financial industry, specifically the Alternatives Sector?
A new study released by the reputable consulting firm Rothstein Kass indicates that women are indeed on top – pardon the pun- or at least when it comes to hedge funds! The study undertaken last year indicates that for the 2012 reporting year, female hedge fund managers outperformed men with funds run by women returning 8.95% against the global hedge index fund (HFRX) returning 2.69%. The HFRX is a good proxy for male performance, as the hedge fund industry is dominated by men. The report found that women-run hedge funds had beaten the global hedge fund index not only in 2012, but also for the previous five years confirming it wasn’t just a matter of good timing or good luck.
The report surveyed 366 senior women in hedge funds, funds of funds, private equity and venture capital, not to mention the investors and service providers of alternative investments and focussed primarily on the trends and proprietary performance of women owned/managed funds.
Meredith Jones, director at Rothstein Kass and the author of the report, believes there are two primary factors at play in the exceptional performance of women in alternative investments:
- Women tend to be more risk-averse than men. “Women may be better equipped to position a portfolio to handle market volatility which we certainly have had no shortage of over the past five years,” explains Jones who attributes the outperformance in part to women’s tendency to more likely avoid market downturns.
- The size of women-run hedge funds. “Women-run funds tend to be smaller pools of capital than men-run funds and as a result of that they’re more nimble and better able to navigate the market,” Jones goes on to explain. “What happened to hedge funds in 2012, in large part, is that because of the large spoilers hanging out on the periphery, I think that they focused more as a group on managing the downside and less on both sides of the equation,” says Jones. “What women-run firms are able to do is capture the upside while really limit the downside.”
Traditionally, most investors still feel it’s a man’s world in the hedge fund industry however women can now boast better performance than their male associates. For the cynics out there, it’s not all about women mitigating risk. Studies show that the missing the market’s worst days is more important than capturing the best days so perhaps it is a matter of women being more apt at avoiding the particularly risky or little payoff investments, rather than trying to capture an upswing.
In today’s fast paced, information laden world we tend to look for data that sets the movers and shakers away from the crowd. It’s not about isolating women managers as the chief decider, but rather provides another ‘string to investor’s bow’ in their decision process. Investors recognise limitations of some institutional managers and more significance has been placed on what is known as ‘emerging managers’. Typically, these emerging managers are young operations that oversee less than $400 million in assets.
Some investors believe these start-ups or smaller volume funds can deliver stronger results when the portfolios are reduced and managers are motivated to take risks. This supports the theory in part behind Rothstein Kass’ survey, given that the surveyed respondents generally met the ‘smaller funds’ criteria.
It’s not just hedge funds where women are receiving the trailblazer accolades. The Los Angeles Times recently published an interesting article declaring that women are also better leaders than men. The article outlined a new study published in the ‘International Journal of Business Governance and Ethics’ which outlined that “women leaders are more likely than men to consider competing interests and take a cooperative approach when making decisions,” and they are also “more inquisitive than men and tend to see more than one solution to a problem.”
In addition, the article went on to elaborate that companies with at least one female director were 20% less likely to file for bankruptcy and had better financial performance overall.
This particular material alone is hardly grounds to attest to changing all your fund managers to the fairer sex; however it does highlight potential qualities you need to consider when vetting potential alternative investment institutions and managers.
At the end of the day, a battle of the sexes isn’t at the forefront of most investor’s thoughts. The most crucial factor contributing to a fund or institutions overall success is strong performance, consistently. This ongoing influence is where the attitudes might begin to change and involve for women in management as we continue to watch with avid interest the continued performance, or ‘outperformance’ as it were. There is no official mandate and whilst the wait has been slow and long for women to be recognised as successful owners and managers of funds, support and optimism continues to grow for this fledgling area of alternative investments.