(January 21, 2014) – Women lead only a small minority of hedge funds, but they have outperformed the broader industry by more than 700 basis points since 2007, according to business advisory Rothstein Kass.
The firm’s Women in Alternative Investments (WAI) index of 82 female-owned funds returned 6% annualized from January 2007 through June 2013, while the HFRX global index dropped 1.1% and the S&P 500 added 4.2%.
The financial crisis proved a watershed for female managers. In late 2008, the WAI was outpacing its industry-wide benchmark by about half a percentage point. By the close of 2009, the differential had more than quadrupled.
Since then, the returns gap has grown steadily larger.
Meredith Jones, a director at Rothstein Kass and head of its think tank, credited this sustained outperformance to disparities in how the two genders manage risk.
“Women simply perceive risk differently than men and tend to manage their portfolios accordingly,” Jones said. “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.”
A number of academic papers have borne out Jones’ position on gendered risk management tendencies, if not female outperformance.
For example, one 2013 study of active equity mutual funds compared flows and performance for female and male managers from 1992 through 2009. It took into account 16,509 annual return data points for individual funds, 90% of which had a male manager at the helm.
“The investment styles of female fund managers are more persistent over time than those of male fund managers, while average performance is virtually identical and male fund managers exhibit less performance persistence,” wrote authors Alexandra Niessen-Ruenzi and Stefan Ruenzi, both business professors at the University of Mannheim in Germany.
“Thus, if anything, fund investors should prefer female fund managers,” the researchers noted. However, their analysis of inflows revealed that funds led by women grew between 35% and 50% more slowly per year than comparable funds run by men.
The majority (61%) of 440 female alternatives managers surveyed by Rothstein Kass likewise said that their gender made it more difficult to succeed in the investment industry.
For the WAI index, the firm used monthly performance data from HFR and HedgeFund.net and said it did not account for survivor bias “solely to the difficulty of identifying defunct women-owned funds.”
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