Variant Perspectives: Women in Value Investing

Women are running sub-scale businesses, and this is not due to performance,” said Barbara Ann Bernard, founder of global equity long/short Wincrest Capital, which has outperformed the average long short/equity fund, and generously sponsored the inaugural Variant Perspectives (VP) conference along with Sionna Investment Managers, Rittenhouse Rankings and Robotti Value Investors. Is the industry meritocratic if statistically speaking women raise fewer assets, and have lower longevity and survival prospects, than men with similar performance (as found in academic study, “The Performance of Female Hedge Fund Managers”, by Nicole Boyson and Rajesh Aggarwal, 2015)?

This new event aims to increase the percentage of assets managed by women and by women-owned firms. Just 1% of assets managed by the private sector asset management industry are managed by majority women-owned firms, according to one study. The social media hashtag for VP is #SizeMattersGrowAUFM.

The event was held in Omaha, Nebraska, on Friday 2 May 2019, and was opened by Warren Buffet, who lamented that “the United States has spent more than half of its history not using the talents of half of its population”. When the Berkshire Hathaway AGM (which most VP delegates also attended) took place the following day, it was heartening to see nine-year old neophyte investors – both boys and girls – asking questions. Some of them came all the way from China. Buffet has met with groups of budding young female investors in the “Smart Women Securities” competition for university students. “A stock does not know who owns it, and nobody cared that I came from Nebraska and not New York,” he said.

Women and investment performance 

While over 2,000 studies have looked at ESG investment policies and performance – and 63% found a positive correlation, according to a meta study (ESG and financial performance: aggregated evidence from more than 2000 empirical studies, by Friede, Busch and Bassen, 2015) – we know of only a few dozen that have examined another facet of ESG: the diversity of the fund managers themselves. 

Some studies find no meaningful difference between men and women’s investment performance, others suggest that women outperform, and at least one shows more diverse teams outperform. Much research also suggests that smaller hedge funds outperform, which is particularly relevant to women-run funds. 

Hedge fund manager performance is usually assessed over a multi-year period including a range of market cycles, and returns are risk-adjusted. On that basis, the HFRI Women’s Index (comprised of women owned and/or managed funds) has delivered a Sharpe ratio of 0.59 between inception in January 2007 and April 2019, against 0.48 for the HFRI Asset Weighted Composite Index, which is, by definition, dominated by larger funds. The HFRI Diversity Index, which includes US citizens belonging to various ethnic minority groups (broad labels are African Americans, Hispanic Americans, American Indians and Asian Americans) and/or women, did even better with a Sharpe of 0.74 over the same period.

Given the relative dearth of women in investment, it is not surprising that most studies do not calculate the statistical significance of results; the sample sizes and time periods are often not (yet) large enough. And most studies exclude both male and female fund managers who work for non-profit making – public sector and voluntary sector – entities such as pension funds, endowments, foundations, family offices and sovereign wealth funds. These organisations seldom publish performance track records for individual fund managers (an important topic we will revisit). 

Another angle touched on was how gender impacts the performance of companies into which funds may invest. Dan Hanson, manager of the Jana Capital Impact Fund, who ran a sustainable BlackRock strategy for a decade, said “great companies with good inclusive decision-making drive great long-term results. Gender diversity is all part of good culture and decision making”. Indeed, various studies have shown board, management and ownership diversity are correlated with better shareholder returns. 

This nascent field of research has enormous potential to grow and it would be useful to see gender, and other diversity filters added to both re-hash historical, and refine future, performance studies. For now, the available data we have on women investment managers, and company managers/boards, is neutral or positive.

Women’s under-representation in fund management

Women are under-represented in senior management positions in nearly all private sector industries, including investment management roles. Using majority company ownership to measure representation clearly understates women’s involvement: a full picture of women’s ownership of asset management firms would need to aggregate minority as well as majority ownership stakes to arrive at a weighted average ownership figure. Women’s minority ownership stakes in multi-billion asset managers are probably worth a substantial multiple of their majority stakes in generally sub-scale businesses. 

Yet even a fuller picture of ownership is not a useful proxy for the total number of female fund managers, and the topic of women-owned asset managers should not be conflated with the broader issue of female fund managers. Women-owned firms do not necessarily employ any, many, or a majority of other women in investment roles (the largest majority women-owned hedge fund manager that we know of, a systematic manager which manages c.$7 billion, recently had only one woman, the founder, in an investment role). More importantly, many male and female fund managers cannot, by definition, have any ownership, because they work for non-profit entities that have no corporate ownership structure as such. 

Still, a broader range of measures shows women are under-represented in finance: they make up “35% of Registered Investment Advisers (RIAs), 23% of Chartered Financial Planners (CFPs), 19% of Chief Financial Officers (CFOs), 18% of CFA Charterholders, 11% of private equity managers, 9% of mutual fund managers, 8% of venture capital executives, and only 2.5% of hedge fund managers,” according to Meredith Jones. I have not found data to confirm if women are less under-represented in public and voluntary sector fund management, but it is worth noting that some such organisations eg Harvard Endowment or CPPIB employ some women fund managers, such as Dureka Carrasquillo, to run hedge fund strategies in house.

Raising women’s profile 

Yet media coverage of women in finance is more often than not based on anecdote or hearsay rather than hard data, and often grossly understates the number of women investment managers. This perpetuates the problem, by discouraging women from pursuing academic or professional study or job applications that might lead to a career in investment. “You cannot be what you cannot see,” said Amanda Pullinger, the CEO of “100 Women in Finance” (100WIF), which now actually has 15,000 members, some of whom are men, in 23 locations, spread across 4 continents. 

“To combat the anonymity and near invisibility of women in finance, 100WIF has multiple initiatives,” she continued. One is a campaign to raise the visibility of women fund managers, in hedge funds, private equity, real estate, and long only. Three hundred women – and counting – have uploaded headshots and basic information to a growing international public directory. 100WIF also hosts what are in effect capital introduction conferences to match women fund managers with institutional allocators, and alerts women to opportunities for media appearances and quotes, and speaker slots at events. “Community outreach activity includes educating younger women about the social role played by the investment industry, for instance in funding teachers’ pensions. This has been very successful at converting neutral or negative feelings about finance to more positive ones,” Pullinger added.


Nature or nurture
Two schools of thought on why women may outperform are somewhat analogous to the nature versus nurture debate in education. One theory, popularised by Women of The Street: Why Female Money Managers Generate Higher Returns (and How You Can Too) author, Meredith Jones, is nuanced but could be truncated into the idea that women are biochemically and neurologically less susceptible to the biases identified by behavioural finance, partly because the interaction of testosterone and cortisol in men can encourage riskier behaviour. Specifically, women are held to be more predisposed towards long term value investing, and studies show they were less likely to sell in stressed markets such as 2008. A counter-argument is that good discretionary fund managers of any gender should be able to recognise and control these biases; Buffett has held some stocks for 50 years and said that he sees no difference between how men and women invest. And managers of systematic and quantitative strategies generally claim that their unemotional models eliminate and/or profit from behavioural biases.

The nurture theory is in fact that the lack thereof has spurred women on. The argument is that women (at least in private sector asset management) have to rise above a higher bar to become fund managers in the first place, rather like marathon runners who build up more stamina by training at high altitudes. If this is true, then the logical conclusion is that the current cohort of female fund managers are an elite group and are not representative. The average quality of female fund managers might therefore shift as the gender balance is redressed. The corollary is that a greater prevalence of average female fund managers (and company managers, directors etc) would signify that equality has been attained.


Recruitment and education 

Recruitment of investment managers – as in other industries – is seen as being biased towards men. “Affirmative action” or “positive discrimination” has run into legal challenges because discrimination in favour of the underdog is nonetheless discrimination, and has been dubbed “reverse discrimination”. Therefore, one remedy is to ensure that “slates”, (known as “shortlists” in UK English) are diverse, as recommended by the “Rooney Rule”. ESG activist investor, Dianne McKeever of Ides Capital, who is one of only six activist women fund managers we know of globally, all bar one of whom have featured in various editions of our “50 Leading Women in Hedge Funds” report, is campaigning for board diversity. 

Bernard was fortunate in that Sir John Templeton recognised her potential at the age of 15, but some girls opt out of STEM subjects as early as aged 11, according to Meredith Jones, who advocates financial literacy classes in schools. Parts of Asia may be ahead of the US in this area: in China, 52% of those taking the CFA exam in June 2018 were women, against 29% in the US.


Hamlin Lovell – Read more on thehedgefundjournal.com

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