Hedge Fund Women

Date: Wednesday, April 30, 2008
Author: Suzanne McGee, Forbes

"I love risk," says Renee Haugerud.

Those aren't idle words. The 52-year-old launched her own commodity-based global macro fund a decade ago with only $5 million in assets and transformed it into a $1.3 billion heavyweight with outsized returns. To do so, Haugerud prowled the globe, taking big bets on a sometimes eccentric array of investments, ranging from the humdrum U.S. Treasury securities to the more exotic, such as cocoa, palm oil and the Mexican peso. Dealing with risk is simply what she needs to do to make money and make money she does, for herself and her investors.

Although Galtere Ltd., like all hedge funds, doesn't disclose its returns publicly, those in the know say it has earned close to 16% a year since it opened its doors, and last year reported a gain that came close to triple the meager 3.5% investors would have earned by putting their money into the S&P 500 stock index. And, in line with industry practice, some 20% of those profits belongs to Haugerud.

Last year's subprime meltdown and the subsequent credit crunch may have chipped a bit of glitter from their universe, but by and large the world of hedge fund managers like Haugerud still has exponentially more buzz per square foot of office space than any other part of Wall Street. Some of it is generated by all the secrecy: In exchange for being left alone by regulators, managers agree not to do or say anything the SEC might view as "soliciting" investors, including talking about trading approaches or investment ideas.

Another part of the mystique is tied to the kinds of returns that successful funds can generate through their go-anywhere strategies: Centaurus Energy, run by manager John Arnold, has reportedly seen returns that approached or exceeded 200% a year in each of its first five years. Not surprisingly, managers like Arnold and Steven Cohen of SAC Capital have emerged as the investment world's version of rock stars. And they are better paid than most entertainers: According to one 2007 survey, the top 25 managers earned an average of $570 million the previous year.

But while an estimated 10,000 or so of these private pools of capital now exist, overseeing close to $2 trillion in assets, few are managed by women. (There is no solid data on just how many have broken into this male-dominated world.) Among the board and committee members involved in 100 Women in Hedge Funds, a nonprofit professional-development and philanthropic organization, the number who take a hands-on role in investing or trading is less than 10%; only one runs her own hedge fund. Most of them play supporting roles within the hedge fund arena rather than being on the front lines of the business.

"I really couldn't cite more than a few women who have made a name for themselves overseeing investing decisions in the hedge fund world," says Leslie Rahl, founder and president of Capital Market Risk Advisors, a consulting firm that works closely with hedge funds. "They are there but not in the numbers you would expect, and while we all wonder why, there are no hard answers."

Running your own hedge fund, or being responsible for a portfolio or strategy within another fund, requires an outsized commitment of time and energy from anyone who undertakes it, regardless of gender, says Tanya Styblo Beder, chairman of SBCC, who has managed hedge funds for Caxton and Citigroup and now oversees a hedge fund and risk advisory business.

"You are going to have to put that job ahead of absolutely everything else in your life, and in periods when the markets are crazy, you will have extraordinary stress," she says. That in itself doesn't disqualify women, Beder is quick to note. The reason more don't follow this path, she speculates, is that, confronting the trade-offs in their 20s and 30s, they may be less willing to make the hard choices.

"Your normal life is taking an 18-hour flight to Asia for one meeting, and anyone else--spouse and kids--comes second, because you have a fiduciary duty to your investors that comes first. For anyone who has other passions or goals, it's going to be hard to make the choice to do that. Guys can go back to their golf game in their late 40s and 50s, but women can't go back to childbearing, for instance."

For this story we spoke with four women of varying ages and backgrounds who have followed different career paths to end up at the cutting edge of the hedge fund world, building and running investment portfolios. Haugerud, a veteran commodities trader who got her start at Cargill, and Nancy Havens, a longtime investment bank trader, run their own funds, while newcomer Jennifer Pomerantz, 28 years old, was recruited by billionaire industry legend Glenn Dubin in late 2006 to co-manage a global energy and natural resources fund for Highbridge Capital.

In another part of the industry, Jennifer Coffey oversees the investment process for what is known as a "fund of funds": Instead of making bets on financial markets, she bets on individual hedge fund managers, building a diversified portfolio for investors at Woodside, Calif.-based HRJ Capital. The common thread linking them is their willingness to eat, sleep and breathe their jobs to an extent that even the most ambitious Wall Street trader could view as excessive.

"I can't take my eyes off my portfolio--ever," says Nancy Havens, who established Havens Advisors in 1995, launched her first fund (Havens Partners, L.P.) in 1996 with $19 million, and now oversees $300 million (as of Dec. 31, 2007). "You never know when something will come out of nowhere." She learned that the hard way early in her career when a merger between Ciena, a technology company in which she had built up a big position, and Tellabs collapsed only minutes before the votes were cast at a shareholder meeting.

"I had never seen anything like this happen before," recalls Havens. "We underestimated the risk." She and her team also misjudged the extent of the market's reaction: Ciena's stock plunged from a high of $92.38 to $8.13 a share, wiping out 5% of the value of Havens's fledgling fund. "It's the most I have ever lost on a single position," she says today. "As a result, we significantly changed the manner in which we managed risk," immediately classifying potential trades by risk level and limiting exposure to certain investments. "We never sustained that kind of loss again."

Like Haugerud, Havens thrives on risk. "It's what gives you the opportunity to make money," she says. But part of embracing risk is learning how to manage it. For Havens, that means being in nonstop touch with her markets.

A Goldman Sachs trader might hand over his or her "book" to a colleague to take a week's vacation. Not Havens. From the time she awakens at 3 a.m. each weekday to monitor the opening of Europe's markets (she rarely trades in Asia) to the end of her working day at around 11 p.m., she's always within seconds of being able to adjust her fund's positions to respond to events or seize a new opportunity. She commutes by car rather than subway because she can't afford to be out of cell phone reach for even a few minutes, and has made trades from a bicycle seat on the back roads of Italy. The best part of her family's ski lodge in Whistler, British Columbia? "It has five phone lines, and the time difference means that markets are closed for the day by 1 p.m."

That kind of routine, day in and day out, would seem relentless even to dedicated investment bankers, more accustomed to working this intensively in spurts. But to hedge fund managers, it has become so common that they don't even notice. In the weeks leading up to Christmas, Jennifer Pomerantz spent a string of 19-hour days in Latin America. Her fund has already made big profits by spotting undervalued oil production assets off the coast of Brazil in the portfolio of a publicly traded Portuguese company.

Along with the long hours trying to put together the "Rubik's-Cube puzzle" of the energy industry in the 21st century, visiting Romanian refineries, French regulators and Turkish businessmen is part of the package. "My job is to figure out what the pieces are and how they should and do fit together--and how we can make money as those pieces fall into place.

She has been caught unawares when a stock she has sold short has been snapped up in a merger. But that's normal market risk. The trick, she says, is to know the difference between that and what she sees as outright gambles. "Going way up high on the risk curve doesn't pique our interest," she explains. "We think about the reserves and the values very carefully. We want to be sure that we are not betting haphazardly."

Still in the early phase of her career, Pomerantz has found that her biggest sacrifices have been her piano practice and her scheduled vacations. Recent ski trips with friends have been doable only when the locations were convenient to her business travel. Other women recognize that the demands of their schedules--he 100-plus-hour weeks spent on the road talking to investors or seeking out investment ideas--take a steeper toll with every year that passes.

While Haugerud divorced before she launched her hedge fund, she is now about to remarry. A key consideration, she says, is that her fiancé accepts her career and what it entails. Her work eats into the time she can be with him in Atlanta or at her home base in New York; she calculates that she spends two thirds of each month on the road.

"He understands, even when sometimes it gets a bit ridiculous. A lot of times, I have walked out of dinners or parties to stand outside or in a hallway and spend an hour on the phone--and then we laugh about it afterwards."

Then there was the time she flew to California for two meetings a day apart. One of her New York investors suddenly demanded a face-to-face meeting. "So I was literally on the plane for three days, flying back and forth across the country from one meeting to the next."

When markets get volatile, everything else stops. Haugerud missed her youngest sister's birthday three years ago due to Wall Street turmoil, and last August, as volatility again hit extraordinary levels, scratched plans to fly to Santa Fe along with a group of friends to celebrate another friend's birthday. "I canceled everything again--breakfast meetings, dinners, walking the dog," she says.

Haugerud learned early on to embrace risk. "To survive in this world, you need to be committed to the idea that you may fail but you will be smart enough to bounce back," she says. That, she speculates, may be one reason more women don't end up running hedge funds. Perhaps, she muses, they aren't encouraged by management to follow their risk-taking instincts.

"Over the course of my career, I've certainly known of women who lose smaller amounts trading than their male counterparts and end up tossed off a trading desk," Haugerud says. "It seems that investors are more likely to believe that a man who loses money will find a way to make it back."

One of the biggest gambles Haugerud took dates back to 1994, when she tried to find a way to profit from a bond-market debacle for investors at the small hedge fund where she worked before launching Galtere. She decided to bet that, with its giant bond inventory, stock in Salomon Brothers (the investment bank that was later absorbed into what is now Citigroup) would suffer--even though its stock price hovered above $50 a share, thanks to buying by long-term value investors like Warren Buffett.

Haugerud, however, saw shorting Salomon Brothers stock as a less risky alternative to betting against the bond market itself, and made a hefty profit after the firm's share price plunged a few months later in the wake of disastrous earnings. "It was scary, fun, and rewarding, all at the same time," she recalls. Still, Haugerud remains conscious that disaster goes hand in hand with risk. In the wake of the terrorist attacks of Sept. 11, 2001, her whole portfolio collapsed. "I had to liquidate everything except my long position in the Mexican peso and a short position on the S&P 500" index, she says.

Still, a history of making successful contrarian bets helped Haugerud rebound and enabled her to continue taking risks with her new fund's capital. To cope, she says, she tries to view her job as an adventure, rather than as something on which her identity and ego depend. When she thought she might lose tens of millions of dollars on a bearish bet on the greenback at Cargill in 1985, she decided that if the trade cost her her job, she'd head off to Waikiki and tend bar. "That was totally liberating," she says.

While the bet paid off, she didn't table the backup scenario. When, in her mid-40s, Haugerud went more than $1 million into debt to keep her business going (after investing every penny of her savings), the idea of having a plan B helped her stay calm and remain willing to take investment risks--like buying gold futures near the bottom of the market in 1999, when prices fell as low as $255 an ounce. (Much of it was sold in 2005 and 2006, as gold prices gyrated between approximately $420 and $650 an ounce. "No point being greedy," she says briskly.)

Just watching hedge fund trading pros from the sidelines can prove addictive, as Jennifer Coffey discovered. In her first job on Wall Street as an economic analyst on the foreign exchange trading desk at Lehman Brothers, she found herself literally sandwiched between the proprietary trading desk ("a little hedge fund in itself") and the sales desk, the majority of whose clients were hedge funds. "I learned about risk--the upside and the downside--first hand, by watching what happened around me."

In the midst of the shouting and throwing of telephones, Coffey eyed the money being made and decided she wanted to try the trading game too. Given the chance, however, she discovered it wasn't her forte. "Great traders could learn from their mistakes and just move on," she says. "I couldn't do that; I focused too much on my losses." But she did learn how to identify top traders by spotting the way they matched their skills and knowledge base to the kinds of investments they made. That has given her an edge in managing funds of hedge funds, where the bet she places daily is that she has selected the right combination of top-performing hedge fund managers.

"My judgment is on the line in the same way that a manager's is--I need to be comfortable taking the risk that they are the right manager to offer as part of a portfolio to our investors," says the 37-year-old Coffey, who, in the last three years with HRJ Capital, has overseen the growth of the "fund of hedge-fund" portfolios she manages to $450 million from $170 million. "I'm still on the firing line. If we have a bad month, I have to figure out what, if anything, we are going to do to change that."

Coffey, expecting her second son this spring, says the hardest trade-off of all to make is family time. Havens agrees. She struggles with the knowledge that the demands of building up and managing her own hedge fund restrict her ability to spend time on anything from her passion for music to her two sons. In 1995, she even considered giving it all up. Before launching her new firm, she had spent a lot of time with her elder son, whose dyslexia improved so markedly that family and friends were still talking about it a year later.

She wondered whether, in view of the turbulent markets, she shouldn't just stop altogether. She was well aware of the impact on her family. One evening she returned home to find her 10-year-old son lecturing his younger brother. "He said, 'You know Mommy had a good day in her portfolio today, Sam, because she's in a good mood.'" At the same time, she knew that, having spent her entire career in the markets, a life without that would feel hollow. "Come fall, I went back to work and had a blowout quarter, one of my best ever," she says, with a smile and a shrug. "It's what I was meant to do."

Suzanne McGee spent 14 years as a staff reporter for The Wall Street Journal . She is currently a freelance contributor to such publications as Barron's and Worth .