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Saturday, September 21, 2019

Women Hedge Fund Managers Outperform Men


Date: Friday, December 11, 2009
Author: Cathy Arnst, Business Week

It’s generally known that men are hard-wired to be bigger risk takers than women (due to all that extra testosterone they have sloshing around). Interestingly, though, in a profession that is all about risk — hedge fund manager — testosterone may not be such a good thing. A new study by Hedge Fund Research found that, from January 2000 through May 31, 2009, hedge funds run by women delivered nearly double the investment performance of those managed by men. Female managers produced average annual returns of 9%, versus 5.82% for men. Not only that, in 2008, when financial markets were cratering, funds run by women were down 9.6%, compared to a 19% decline for men.

What’s going on??? Well, one theory holds that women aren’t necessarily afraid of risk, they are just better at managing it. From an article about the study in Institutional Investor:

Those who study the link between gender and investment prowess say risk management is key to the success of female money managers. “It’s not that women are averse to risk,” notes organizational behavior expert Judi McLean Parks, an Olin Business School professor at Washington University in St. Louis. “It’s just that they are less likely to take the big one.” Andrea Feingold, co-head of Boston-based Feingold O’Keeffe, which has $1.3 billion in distressed assets under management, concurs. “When dealing with things like distressed securities, liquidity risk is paramount,” she says. “It’s a hidden risk, and when it surfaces it can be crushing. Rather than looking at it as a limiting factor, we look at it as integrated into the investment process.” The firm’s distressed-loan fund was down just 6.5 percent in 2008.

Now granted, the study may be skewed by the very small sample size—only some 6% of hedge fund managers are women. But the disparity seems to hold true in other areas of finance. In a Huffington Post entry titled “Want Less Risk? Hire More Women!, economist Dr. Sasha Galbraith writes:

Women also, apparently, make better money managers according to another study by two professors at UC Davis [3]. That study found that overconfidence caused men to trade stocks 45 percent more often than women, thus lowering their net portfolio returns by 2.65 percent per year (compared with 1.72 percent lower returns for women traders). Moreover, several studies show a link between profit and gender. Companies with several high-ranking women at either officer or director levels tend to have higher earnings per share, return on equity and stock prices than competitors with few or no senior women. Look at some of the more stunning losses incurred at banks in recent years: Barings, Société Générale and UBS. All were caused by men betting with other people’s money.

Interesting, don’t you think? I wonder if there are parallels with other traditionally male endeavors? Do women make better long haul truck drivers, extreme sports competitors, soldiers, firemen? Certainly my 11-year-old daughter seems pretty fearless (except when it comes to a food she’s never tried before), but I’m not so sure she’s all that good at managing her risk-taking, at least not yet.

At any rate, this seems to put to rest a common misperception that women are weaker at math and science than men. What do you think? Should we encourage more of our daughters to grow up to be fund managers? Might just save the economy.

The hedge fund survey was sponsored by Women in Fund Management and a PDF can be found here.