In Alternative Funds, Female Managers Excel
Buy and hold.
It's harder than it sounds. But it appears that women have more patience to deliver better longer-term results than men when it comes to managing alternative investments, such as hedge funds, derivative contracts, commodities, private equity and venture capital.
Over the five-year period ending in September 2012, an index of 67 women-owned alternative investment funds delivered an compound annual return of 3.6 percent, compared with a 3 percent loss for the all-inclusive HFRX Global Hedge Fund Index over the same period. The results were compiled by New Jersey accounting firm Rothstein Kass & Co., which specializes in advising alternative investment firms. The annual Rothstein Kass Women in Alternative Investments survey, conducted in September and October 2012, aims to help investors understand how and why women manage alternative investments.
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Men overwhelmingly dominate the fund management industry. According to a 2009 report on women in fund management produced by the National Council for Research on Women, women account for barely 10 percent of managers of traditional mutual funds, and about 3 percent of managers of alternative funds. The report is a gender analysis of the causes of the 2007-2008 financial meltdown. It reinforces the conclusions of the reports on women in alternative investments: Female fund managers deliver consistent results over the long haul because women have less turnover in their portfolios.
While men make swifter decisions based on projected top and bottom lines, women consider both, taking time to examine nuances that could affect returns. It takes women longer to make decisions but when they do, they stick with them and eventually reap results that are at least as good as those of men and often better.
Female money managers "shouldn't be the only thing you consider," says Meredith Jones, the Rothstein Kass director who wrote the report. "Allocation and long-term goals come into play ... but if you are taking the long view, this is a factor that can help you make more money."
While the report is intended for institutional investors, it has implications for individual investors, says Camille Asaro, a partner with KPMG LLP who contributed to the report when she was a principal with Rothstein Kass.
Consistent with other findings about how women manage investments, "Women take lower risks because they do more research and are more comfortable holding their securities longer," Asaro says. But, she adds, that point of view also correlates with levelheaded money managers of both genders. "It goes to the investment style of a good manger, male or female," Asaro says. "It's not necessarily a gender thing. You always have to make sure that the manager is right for your strategy."
[Read: Should Managers Invest in Their Own Mutual Funds?]
The interest in women who manage alternative funds and traditional mutual funds is in line with rising concerns about women's overall economic power as consumers, corporate managers and institutional money managers. According to both the Rothstein Kass report and a similar report published in 2011 by Barclays Capital Solutions Group, many large public pension and investment funds are channeling more money to women- and minority-directed investments of all sorts. (Jones also wrote the Barclays report.) Public funds in California, Ohio, New York, Illinois and Maryland have promised to channel more money to women- and minority-owned funds.
There aren't many women-managed funds to receive all that attention. The Barclays report found that women-managed funds accounted for only 3.3 percent of all hedge funds.
From brain science to consumer analysis, indications are that women spend and invest differently as consumers and managers. For instance, ongoing analysis by Credit Suisse indicates that women are a steadying force on boards and in management, earning less in boom times but losing less in recessions, for an overall performance that edges out the norm.
This is consistent with women's general approach to spending and investing, according to Marti Barletta, president of the TrendSight Group, who is known for her insights about marketing to women. She has found that women tend to invite input from everyone who has a stake in a decision, examine all the details and consider the impact of the decision on all key audiences before making up their minds. That pattern holds for making decisions as managers and as consumers.
Whether women are in charge or not, alternative investments in particular are not for the faint of heart. Although the women-directed funds beat the industry average, hedge funds in general were trounced in most of 2012 by the Standard & Poor's 500 index, which delivered a 16.44 percent return.
[See: 13 Lucky Events That Call For a Financial Plan.]
Gender differences can provide an investing edge, but aren't bigger than the whole market. "Investors have to make up losses," Jones says. "If you can get just an additional five basis points [of return], it counts. An additional filter, gender, that can deliver just a bit better return - that counts."
Those who want to invest in sync with their politics and their pocketbooks can easily search SEC filings and annual reports to find companies with at least three women on their boards (the minimum number for women's influence to emerge, according to the 2007 Catalyst report, "Companies With More Women Board Directors Experience Higher Financial Performance"). Or check out the "parity portfolio" created in the spring of 2013 by Morgan Stanley, which is comprised of companies that strive to include more women on their boards of directors.
Another way to inject gender balance into your portfolio (without investing in alternative funds) is by buying into a large, traditional fund that adopts a gender filter. For example, the Pax World Global Women's Equality Fund is a woman-managed fund that, in its own words, "invests in companies that invest in women," those being large-cap companies with transparent diversity goals and results.
