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II Research Group

Female Hedge Fund Managers Outperform Male Counterparts

E-MAIL PRINT

The Better Half: Alpha Females Prevail

By Frances Denmark
November 2009

Keywords: Hedge funds, women, investment performance, research, managers

When it comes to investment performance, gender, it seems, does matter.

From January 2000 through May 31, 2009, women who ran hedge funds delivered nearly double the investment performance of their male counterparts. Female managers produced average annualized returns of 9 percent, versus 5.82 percent for the men, according to Chicago-based Hedge Fund Research, which tabulated the data for the New York–based National Council for Research on Women (click here to download a PDF of the report, Women In Fund Management).

It also appears that women are better in a crisis — at least the most recent one. In 2008 funds run by female managers were down just 9.6 percent, compared to a 19 percent drop for the men.

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.

The performance stats won’t change the gender balance overnight, but they do bolster arguments by those who say that Wall Street as a whole could stand an extra shot of estrogen. "This is the road map to financial stability overall," contends Jacquelyn Zehner, the first woman trader to be made a partner at Goldman, Sachs & Co. (in 1996). Indeed, research has shown that women’s work habits can pay off. "Women tend to be the people who reach across boundaries; they are better at team building," says Theresa Welbourne, a research professor at the University of Southern California’s Center for Effective Organizations at the Marshall School of Business.

Superior returns aside, Zehner, a former board member of the NCRW, asserts, "I firmly believe if we had more women in financial management, we might not have experienced such a severe financial crisis."

Comments (5)

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Peter Urbani Dec 15, 2009

Hi John you raise some very valid points which occurred to me also. However to control for the small sample bias I also generated random samples of 'male returns' of a similar sized group as that of the 'female' only sample. Although there was more variability in these smaller groupings even the returns of the top decile of these did not approach those of the 'female' only sample. Nothing that can be done about survivor bias which would be inherent to the entire database.

john Dec 02, 2009

It seems to me that the results may be flawed due to the large imbalance between male and female managers. In our industry, the ratio of male to female may be in the magnitude of 1000:1. This therefore means that the average of male return will be near the mean of the entire universe, while one outlier would shift the average female return tremendously. Given the inherent survivor bias in industry results the overall impact of an outlier would be to shift the female average to the upside, hence your "out performance". The way to design a truly representative study would be to take a random sample of equal number of observations and compare those results.

Peter Urbani Nov 27, 2009

I had a brief look replicating these results and in general found the findings to be accurate. However, the available pool of clearly identifiable female only managers remains very small. The HFR research is based on the performance of their Diversity Index which includes all 'minorities' as well as woman. An equally weighted Index of funds where the portfolio manager was clearly identifiable as a woman produced a CAGR of +10.73% from Jan 03 to Sep 09 versus the +9.35% for the HFRX Diversity Index and the +1.30% to +1.94% for the HFRX Equally Weighted and Global Hedge Fund Indices over the same period.

James J Nov 17, 2009

Hi David. You make a good point. Here is a link to a PDF version of the report, Women in Fund Management: http://www.ncrw.org/hedgefund/?page_id=7 You may find the answers to your questions within the report's findings. I also included the link in the story.

David J Nov 17, 2009

To give this finding some weight and credibility, it would be helpful to link to the paper. Were the results statistically significant? Was there any attempt to control for bias such as investment style or AuM?

Thursday September 02, 2010

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