Women-owned hedge funds continue to outperform global benchmarks and male rivals

15 Jan, 2014

Women-owned or managed hedge funds continue to outperform their male equivalents and global benchmarks, although the overwhelming majority of investors have no plans to increase their capital allocations to these firms, according to a Rothstein Kass survey.

The Rothstein Kass Women In Alternative Investments (WAI) Hedge Fund Index returned 6% for the six and a half years ending June 2013, while the S&P 500 gained 4.2% and the HFRX Global Hedge Fund Index fell 1.1%.

“Women simply perceive risk differently than men and tend to manage their portfolios accordingly. This results in less performance slippage, a diminished tendency to sell at the bottom and a more consistent application of their strategies. Over time, these traits can create a meaningful and persistent performance differential,” said Meredith Jones, director at Rothstein Kass and head of the Rothstein Kass Institute, the firm’s industry think-tank.

More than half of those polled (59.7 percent) believe there will be more women in the alternative investment industry in 2014 and beyond. “At the end of the day, we believe this consistent outperformance will drive performance-hungry investors to increasingly allocate to women-owned or managed funds spurring more launches as well as hiring trends in the industry,” she added.

Despite this, 73.5% of investors said their exposure to women-owned or managed hedge funds would remain the same in 2014, although just under a quarter felt allocations would increase slightly. Roughly 93% of investors told the survey they had no specified mandate to invest in women-run hedge funds.

Perhaps the biggest challenge facing female-led funds lies with the actual lack of women-owned and managed hedge funds.

“In the investment management industry, demand is almost always one of the key drivers of supply, and at the moment, investors and women-owned and managed funds are faced with an interesting ‘chicken or the egg’ dilemma when it comes female-led funds. The lack of women-owned and managed funds almost precludes large-scale investments, particularly by institutional investors. On the other hand, until there is more money flowing to women-owned and managed funds, it is unlikely that there will be a huge influx of new fund launches,” said Kelly Easterling, principal-in-charge of Rothstein Kass’ Walnut Creek office.

Confronting gender stereotypes is also a major problem with 61% of those polled stating gender made it hard for women to succeed in the alternatives industry, although this represented a decline from two-thirds in prior years.

“Although I have absolute confidence in my abilities, the fact that this industry is run like a country club at best (and) locker room at worst makes it difficult to be seen as anything other than an object for amusement. Women just aren’t taken seriously and if you somehow make it into one of these places on your credentials, you are relegated to tasks no-one else wants to do,” said one respondent.

Despite this, some investors are starting to take an interest in diversity mandates. CalPERS and CalSTRS, the Californian pension fund behemoths have been engaged in recruiting diversity investment managers and in 2013 said that $3 billion was managed by 80 diversity firms. Some US state pension plans including New York and Illinois have a clearly defined preference for women-owned or diversity managers.

However, the Rothstein Kass report is sceptical that this has translated into much. “They talk the talk but do not walk the walk. No real investment takes place if the firm is emerging and female,” said one respondent. Another respondent described diversity mandates as an “urban legend.” Some of those polled though believe funds of hedge funds, with their renewed focus on emerging managers, could be a potential source of capital for women-owned hedge funds.

Overall, hedge funds were the most likely alternatives business to employ a woman as CEO at 23.2%, compared with venture capital firms at 9.7%. Women were most likely to occupy a CIO position at an investor (33.9%), followed by venture capital firms (28.1%) and hedge funds (21.4%). Twenty-nine per-cent of emerging managers employed a female portfolio manager or CIO compared with just 16.2% of established firms. 

Rothstein Kass