Welcome to CanadianHedgeWatch.com
Tuesday, August 4, 2020

Sexism and the city: you don\'t need men when you run $60bn in assets

Date: Monday, August 11, 2008
Author: The Independent

New Page 1

Susan Solovay, founder of a New York-based fund of hedge funds, explains to Martin Baker why her strategy of investing only with female managers will pay off and why Warren Buffett is in fact a woman trapped in a man's body

Susan Solovay is every inch the modern female executive in the revved-up engine room of New York finance. She breezes into a noisy, trendy restaurant in midtown Manhattan, and a number of things are pretty much immediately apparent: she is super-smart, pencil-slim with dark hair, deceptively youthful (she's in her late 40s), fast-talking, full of energy, successful and late.

Over the din, Solovay apologises profusely. The markets may be going through a dodgy period, and the US economy teetering on the edge of recession, but the founder of Pomegranate Capital, a fund of hedge funds that invests exclusively with women hedge fund managers, is still moving at top speed and cramming ever more into a working day. By the time we meet, all the little overruns have put her behind schedule, and she's very sorry.

But it's a good kind of sorry. Commentators might opine wisely about the general slowdown in demand but there's certainly plenty of interest in Solovay's brainchild, which looks to invest capital with and provide "seed" funding for new, female fund managers.

At first blush, this all seems somewhat gimmicky. Female fund managers are one thing. But investing exclusively with them? Isn't that a little bit self-limiting, and, erm, sexist? Solovay, surprise, surprise, is having none of it. Pomegranate Capital, which she started building as a business in 2005 with its first fund launch in November 2006, has had "an enormous response from the investment community as a result of our unique differentiator of investing with women-run funds. We have a database of close to 350 women running funds that are managing over $60bn [30bn] in assets," she says.

If there is self-limiting decision-making and sexism in the supposedly ruthlessly neutral, profit-obsessed world of asset management and Solovay argues that there's plenty it works against women.

"The decision to focus on the funds run by women was motivated by the fact that women have a harder time raising money," she says. "We felt that by identifying talented women who had great returns and capacity available in their funds we would be getting access to 'overlooked' managers. This was not and is not a socially responsible investment programme although we are not opposed to social responsibility. The fund is all about sourcing better than benchmark returns from an under-utilised pool of superior managers."

But why? Solovay argues the case that women are better fund managers than men. It's a generalisation, certainly, but not patently absurd. It's not as though she's trying to pretend that women throw cricket balls better than their male counterparts. So it's possible (theoretically, at least) to be fair-minded about this proposition. All one wants, clearly, is evidence.

Solovay cites a study by the University of California at Davis, which she says demonstrates that men trade their portfolios 45 per cent more often than women do, and the transaction costs have a detrimental effect on returns. There's also less likelihood of crystallising taxable gains, and so on. The conclusion of this part of her argument is that women earn, men churn though Solovay doesn't say it in quite those terms. The UCD academics also found that women tended to have a broader perspective than that of a mere number-cruncher when making an investment decision. Apparently, they invest in companies they like ethically and personally. The logic is similar to that of the legendary Sage of Omaha, Warren Buffett. The argument runs that such companies tend to have better long-term prospects, and are less likely to be affected by litigation, the scourge of corporate America. The ineluctable conclusion is that Buffett, who invests in and holds companies such as Coca-Cola and See's Candies, is, in investment terms at least, a woman trapped in a man's body.

As if it weren't bad enough to have to dispute the theory that the world's most famous investor is really a woman, analysis of the numbers makes it even worse for advocates of the male investor. The UCD study showed that women's portfolios gained 1.4 per cent more than men's. And the demographic analysis also showed that single women did better than single men, with 2.3 per cent greater gains on average (as a married man, I just hope that this discrepancy may be because the single men were out having an excellent time).

So there's a case for women as fund managers. But what about Solovay's argument that they're not given the funds, ie not given the opportunity to demonstrate their competence?

She plays her ace card the Bigelow study from the Olin School of Business at Washington University in St Louis. Two business professors, Lyda Bigelow, assistant professor of organisation and strategy, and Judi McLean Parks, sent out hundreds of prospectuses for two fictitious companies seeking to float on the stock market. The companies were identical in every way except that one had a female chief executive, and the other a male chief executive. The findings showed, says Solovay, that investors were overwhelmingly inclined to favour the firms run by men.

The academics themselves confirm this. Professor McLean Parks said she found "that the chief executive's sex affected just about everything. We asked [respondents] what percentage of their investment money they'd put into the firm. It was astonishing. Participants were willing to invest 300 per cent more in a firm run by a male than in a firm run by a female."

The respondents also said they would pay the female chief executive only 86 per cent of the remuneration they would give to the hypothetical male equivalent.

Professor Bigelow said: "The thing that surprised me about these findings is that the participants were given identical materials. The only things that changed were the name and gender of the CEO, and with that, you get astonishingly different reactions."

All in all, Solovay can make a convincing case for women as an under-used source of talent. Moreover, she seems to have been able to make it quite persuasively in the wider investment marketplace: "We've had interest," she says, "from [US investors concerned with] emerging managers, which is the category where women and minority investment firms fall. We've also received interest from banks and high net-worth platforms. They like the fact our fund of hedge funds is a great diversifier; there is little or no overlap with our fund managers in other products."

One major growth area for Solovay's fund is among women working within investment banks or large hedge funds who are looking for seed capital to launch their own hedge funds. "A seeding business can be an extraordinary business opportunity that is a derivative of our fund," she says. "This is another reason why we are so interested in finalising a joint venture with an institutional partner it will allow us to pursue this business line as well."

So how have the steady, empathetic female managers weathered the prevailing storms in the financial markets? Solovay is not exactly defensive here but is wise enough not to boast. One suspects that Pomegranate's portfolio of managers is going backwards more slowly than the rest not a result in absolute terms, but a victory of sorts. "While we do not publicly discuss our returns," she says, "our managers have weathered the recent market turbulence quite well."

So, if it's not too stupidly optimistic to imagine that there will still be financial markets and a vaguely functioning capitalist system of sorts, where does Solovay hope to be with Pomegranate in five years' time? Her response is typically upbeat: "I expect to have built with a strategic partner a large and broad-based asset management business with assets allocated to the most talented women and minority investment managers across strategies from hedge funds to traditional funds to private equity."

I meet Solovay with her husband, Michael, who is a senior corporate lawyer in Manhattan. Even by the demanding standards of that city, Mr Solovay is both loud and funny. "On a personal level," she says, "I expect my husband to keep making me laugh, keep providing me with wise counsel and to continue his incredible support."

It's worth noting, too, that the Solovay name may become recognised outside the financial world because of the musical talents of one of Susan's children, Sarah, just turned 14. On her MySpace page, Sarah describes her sound as the lovechild of Coldplay, The Killers and Michelle Branch. Her parents are now dealing with approaches from music labels in Los Angeles and New York.

"Even at my age, I think that's cool," says her proud mother. She's probably right. And her own business model isn't bad, either.

From trading floor to boardroom

Susan Solovay began her career in the financial services industry in 1982 at EF Hutton, where she worked for David Johnston, a well-known discretionary commodities and futures trader and the chairman of the Commodity Exchange (Comex).

While at EF Hutton, besides trading soft commodities, she was an institutional futures broker working with many prominent traders and trading firms. In 1988, she joined Prudential Securities as a senior vice-president, where she dealt with what were later to become known as hedge funds. In 2001, she began advising the Safra Family Office, part of the international group controlled by the Lebanese banking family, on alternative investments. She founded Pomegranate Capital in 2005.

Under-exploited they may be, but hedge fund heroines are not underachievers

Despite Susan Solovay's belief that women are an under-exploited talent pool, Amanda Pullinger is one of many successful women working in the hedge fund industry. Pullinger, a British national, is just about to celebrate her 20th year of residence in the US. She has been executive director of 100 Women in Hedge Funds (WHF) since 2006.

WHF, a charity, has some 8,000 members, who work voluntarily towards shaping the financial industry, developing community initiatives and getting involved in "educational programming, professional leverage initiatives and philanthropy".

Pullinger, who has kept her English accent, is a graduate of Brasenose College, Oxford, where she was a contemporary of David Cameron, the Conservative Party leader. She has not forgotten her debt to Brasenose, raising funds for her old college and sitting on the board of directors of the Oxford Alumni Association of New York.

After she left Oxford, her academic star continued to shine brightly. She took an MBA at La Salle University in Philadelphia, and was student of the year in her department.

Pullinger's professional life began in the UK, where she worked for Excel Capital as a mergers and acquisitions analyst, covering Britain and Europe. But she soon found herself in the US, doing similar work for an American subsidiary of the group. Jobs in strategic marketing development for the IT group Unisys, and then, during the first internet boom, for a software company called LivePerson, ultimately led to a high-profile role in the asset management industry, as a partner at Aquamarine Capital Management. Here she spent six years running two private investment vehicles.

Founded in 2002, WHF is expanding. While most of its members are American (numerous WHF events take place in New York, Boston, Chicago, Denver, San Francisco and Philadelphia), the organisation has a growing presence in Europe. A British equivalent was set up in 2006; its structure of volunteer directors is similar to that of the American WHF.