Think there's not enough evidence to demonstrate that gender diversity can boost returns and improve diversification? Take a look at the infographic below and see if you still feel the same way...
(c) 2015 MJ Alts
Posted
Those of you that have heard me speak on more than one occasion have probably heard me utter the phrase "Investing in emerging managers is like sex in high school. Lots of talk, very little action." In full disclosure, Jim Dunn of Verger was the first to utter those words, but they are so apropos that I have sense borrowed them for myself once or twice. (Thanks Jim!)
This week, I had the opportunity to informally poll investors and emerging managers, this time in the form of women-run funds, and that wonderful turn of phrase proved apt once again. In fact, I could almost hear Mike Damone saying "I can see it all now, this is gonna be just like last summer. You fell in love with that girl at the Fotomat, you bought forty dollars worth of [freakin'] film, and you never even talked to her. You don't even own a camera."
Indeed, it does seem as if investors often spend a lot of time stalking the camera store, but never getting the picture. So I decided to ask the audience of managers and investors at last weeks 100 Women in Hedge Funds Senior Practitioner Workshop where we stand and what could help the situation. Here's what I learned.
1) Some women-run funds may be getting lucky, but action is still sparse.
(c) 2015 MJ Alts
2) Managers feel that a number of things impede their ability to raise capital, but investors are focused primarily on only two issues: supply and size.
(c) 2015 MJ Alts
(c) 2015 MJ Alts
3) And the answer to what would make investing in women-run funds easier? Three words: Binders of Women. Just kidding, but better data sources for women-run funds, better consultant buy-in and the mysterious answer "other" all ranked pretty high. Some of the suggestions for "other" included more seed capital to help overcome AUM objections and more networking with managers you don't already know.
(c) 2015 MJ Alts
And, while these responses were specifically geared towards women owned and women run funds, in my conversations with investors, the issues are not entirely dissimilar for minority owned and run funds, or really any other emerging manager.
So, ladies and gentlemen, let's work the problem and see if there aren't good solutions to these issues. It will be healthy for me to have to come up with a new, creative and vaguely offensive way to describe the industry.
And please take a moment to support 100 Women in Hedge Funds as they are part of the solution and the reason I could run this quirky poll in the first place!
Posted
I learned two important lessons from writing my book: Women of The Street: Why Female Money Managers Generate Higher Returns (And How You Can Too).
- You can make hundreds of dollars writing a book, and,
- Writing a book makes you (at least) temporarily insane.
At the height of my book-induced anxiety, I decided to try an experiment. I decided that I would stop focusing on typos, PR, and what people would think of my research and that I would instead focus on other people. Hopefully, by doing good deeds for others I could do good and do well at the same time.
I kept a running list of my daily good deeds. I bought a massage gift certificate for my hair stylist (if you had to mess with my hair, you’d deserve one, too). I took a milkshake to a friend in the hospital. I bought Starbucks for 3 strangers behind me in line. I chased a neighbor’s loose dog down the street and brought it back to its fenced-in yard. I worked with charities and stray animals. I donated to good causes and I gave folks home-grown tomatoes (as every good southerner should do).
And guess what? At the end of the day, I knew I had made a difference. And I felt better. The folks around me felt better and, although the impact was, I’m sure, small, it was something.
Because of the research that I’ve done around diversity and investing, I often get asked how we can increase the number of women (and minorities) in the investment ranks, and I’ve spent a lot of time pondering the solution.
As I was reflecting recently on my own mission to create positive change, I realized that the answer to the diversity conundrum may not be that dissimilar. Perhaps we can effect change with a basic concept that we’re all extremely familiar with. Let’s Compound Diversity.
We all know how critical mentoring is to success in this industry. There isn’t a single interview in my book that doesn’t at least mention the presence of at one significant (male or female) mentor. But we also know that mentoring is a time consuming task. And that often, the process starts too late, after the diversity funnel has already begun to narrow.
So instead, let’s focus on what I like to call “Mentoring Moments.” These are opportunities for you to help a women advance that don’t require a year-long (or life long) commitment, but which still can have an enormous amount of impact within your firm and across the industry.
(c) 2015 MJ Alts
What is a mentoring moment you may ask?
It’s when you can include a junior woman in on a sales pitch, due diligence, or board meeting they might otherwise not be invited to.
It’s when you email a job description to your network to help ensure that at least one woman has a seat at the interview table.
It’s getting an extra pass to a conference and giving it to a junior colleague who might not otherwise be selected to go.
It's ensuring that diverse firms have a seat at the table when competing for investment mandates, and awarding that mandate if that firm is the best fit.
It’s when you send a firm-wide email about someone’s great work that might otherwise go unnoticed or unsung.
In short, it’s the million little ways you can help advance women and minorities in finance and build diversity in the industry.
But mentoring moments don’t end at work – they can and should happen outside of the office as well so that we increase the number of girls and women that are potentially interested in finance and investment to begin with.
In a prior blog, I discussed how girls are less likely to get an allowance than boys and that girls are less likely to be paid for chores than boys.
I showed statistics that pay disparity starts early, with girls making less for the same chores. Boys even make more for babysitting, despite the fact that 97% of all babysitters are female.
Girls also report that they are less likely than boys to be talked to about how to finance college or budgeting or other money matters.
So start your mentoring moments early. With allowances, and discussions about what you do at work and college funding and career progression. My mom made me do little pop quizzes in math (Quick! Convert that mile marker to kilometers!) when I was a girl to ensure I was never intimidated by numbers.
Picture this: A fellow panelist at the CFA Women’s Conference in San Antonio caught her daughter and her friend playing dress up and asked what they were getting ready for. Her daughter’s answer? “We’re going to a board meeting.”
Amen.
It’s our job to help future financial professionals that may not look like the ones you normally see on CNBC know that investing is cool, and that because you’re helping other people achieve their financial goals, can be also looked at as doing well while doing good.
And if everyone (male and female!) who reads this blog commits to just five mentoring moments over the course of the next year, think of the difference we can begin to make. Your five mentoring moments will compound, and 200 mentoring moments, and, with luck, those moments will continue to compound as those women and girls embark on their own mentoring moments. And thus, the Compound Diversity movement takes hold.
We can make a difference. One moment at a time.
If you’re willing to take the challenge I’ll even make it easy for you. Here’s a form you can print and fill in as you accomplish your five mentoring moments. First one that fills it in and sends me a copy gets a copy of my book and a bottle of small batch, super tasty Southern bourbon, on me.
(c) 2015 MJ Alts
Posted
Categorieswomen and investing
It's time for another jaunty infographic blog this week! This time we're looking at the sometimes rocky road from childhood to female fund manager. The excellent news? Parents, educators and employers can all help remove hurdles by being aware of these obstacles and taking small steps to level the playing field, and understanding and encouraging behavioral diversity in investment management.
(C) MJ Alternative Investment Research
Posted
As my Facebook feed fills up with graduation photos this year, I’ve become a bit nostalgic for my own graduations roughly 22 and 26 years ago. (Eeek!) Chalk it up to getting older, but even my somewhat angst-ridden, John Hughes high school years are starting to look a little rosier in the rearview mirror. And so y’all can re-live those magic, AquaNet years with me, I dug up a little video footage from my 1989 high school graduation.
(c) Meredith Jones
Yes, that’s really me. And no, I didn’t know a damn thing.
I’ve been doing a lot of publicity for my book Women of The Street, and interviewers almost inevitably ask the question: “What advice do you have for women starting out in investing today?” And as I struggle to offer some morsel of wisdom, I have to wonder, knowing what I know now, what advice would I offer that big-haired girl in the blue cap & gown?
My best piece of advice to my young self is this: “Own what you know.” I don’t know everything. I’m painfully aware that that there are literally billions of people on the planet that know things I do not know and likely will never know. But as I embarked on my career in finance, and even well into my second decade in the industry, I was hesitant to be confident in what I did know and the skills I did have. I worried about being “found out.” I thought about puking into the potted palms onstage at every speaking engagement. I did not accept that maybe I knew a few things, too. Looking back, I would definitely give my younger self a dose of confidence, along with some better hair products.
Being a researcher, I decided to pose the same question to a group of women in investments in order to get more good advice for the future women of finance. I figured these money managers, marketers, service providers, investors and other industry insiders could definitely shed additional light on the topic. Their advice broadly fell into the following categories: Investigate, Take Risks, Communicate, & Advocate.
For those women now embarking on a career in finance, or for anyone looking for good investment industry career guidance, I encourage you to embrace their advice.
Investigate
“Trust, but verify. Always evaluate with a skeptical eye. If it appears too good to be true, it probably is.” - Money Manager, Anonymous
"While I believe my liberal arts has served me well, I wish I had swapped out at least one post modern literary theory course for one on portfolio construction. My learning curve has been steep. Although there are many roles in the industry that don't involve investing, that first hand investment knowledge will open more doors." - Industry Advocate, Anonymous
“I think it’s extremely important to understand the nuances between different roles and to understand what skills and strengths contribute to success for each path, and of course, where each path can take you.” - Fund Marketer, Anonymous
“I wish I knew what types of jobs were available in investment management and what the difference was between brokers, investment bankers, RIAs and private funds. It took a long time to figure this out. If I knew investment management was filled with smart, creative, fun, quirky people I would have headed here first instead of spending 5 years on Capitol Hill thinking I would be the first woman president!” - Jody Foster, President, Symphony Consulting
"It is sometimes as important what is not said as what is said." Nancy Davis, Founder and Portfolio Manager, Quadratic Capital
“Look for opportunities to learn in every situation and assignment, no matter how mundane the task appears.” - Fund Manager, Anonymous
“Start with large companies to get great training and then think about working for yourself or at a smaller shop.” - Kelly Chesney, Co-Founder, Pluscios Management
Take Risks
“No matter what anyone says, risk-aversion is not a positive. We are money managers. We are meant to manage risk not avoid it. Risk management and risk aversion are not equal. You cannot make dollars with out risking dollars; this is an undeniable tenet of investing. Manage, intelligently, the risk that you take but do not fail to take it.” - Katherine Chan, Partner, Anandar Capital Management
“When you want a promotion or see the requirements for a new job, don’t wait until you can check off every last requirement to throw your hat in the ring.” - Marta Cotton, Principal, Matarin Capital Management
Communicate
“I would advise someone that spending time connecting with others (call it networking or getting to know a broader base of industry folk), even at a young age, is a personally and professionally rewarding endeavor.” - Nadine Terman, Managing Member, Solstein Capital LLC
“Consider where others are coming from and what motivates them to behave the way they do. Human behavior is fascinating.” - Money Manager, Anonymous
“Keep your eye out for a mentor whom you trust and build that relationship, and build a broad and deep network.” - Donna Holmes, Business Development, Lizard Investors
“It’s also about WHO you know, not just what you know. If I had to do it over, I spend more time cultivating the right friends and less time reading.” - Lisa Sergi, Partner, Deloitte
Advocate
“You have to advocate for yourself. I used to think that good work would automatically be recognized, but learned that you need to remind people of how you've contributed.” - Jalak Jobanputra, Founding Partner, Future/Perfect Ventures
“Always aim high and believe in your own abilities. There will always be others to tell you what you can’t do, so you have to tell yourself that you can.” - Heather Brilliant, CEO, Morningstar Australasia
“Lead with your brain. The unfortunate stereotype when you are young and female in this industry sometimes goes like this: cute young girl in marketing = just another pretty face = empty between the ears. Don’t let them ascribe you to that role. Wow them with your smarts. It’s the equivalent of walking up to a basketball court full of guys, grabbing that damn ball, and draining threes on their heads. Earn respect - then you can be as cute and sassy as you want because everyone will know behind all that ‘girl’ is one bad-ass brain.” - Stacy Havener, Founder, Havener Capital Partners
“Tell your boss how much you expect to earn. If a guy doing the same job as you is making more money than you are, it’s no one’s fault but your own. You are the only person who will watch out for you.” - Valerie Malter, Co-Founder, Matarin Capital Management
“Stand up for yourself and help others in the industry, your generosity will be returned to you in spades.” - Holmes
Parting Shots
“Know that it is sometimes a very powerful and confident thing to say ‘I don’t know’.” - Outsourced CIO, Anonymous
“Don’t worry about making money. If you’re passionate about what you do and it is consistent with your skills and abilities, someone will pay you well to do it.” – Malter
“On a more humorous note, I would reiterate the two pieces of advice given to me on my first day at Goldman Sachs-Sales & Trading. (#1) Nobody likes a whiner. (#2) Don’t get your meat where you get your bread. Those two rules still are valid 20 years later.” - Fund Manager, Anonymous
“Make sure you pick a supportive life partner” – Holmes or as Malter said: “If you want to have a career and a family, then deciding on the person that you marry will be the single most important decision you will ever make.”
“Don't co-mingle your money when you marry. Keep all monies separate and divide up expenses rather than combine income.” - April Rudin, Founder, The Rudin Group
"Your father will love you whatever you decide to do." - Consultant, Anonymous
“Be nice to the assistants of the people you are trying to call on.” - Cotton
“A career path is not a straight line - seek to grow with every move.” – Chesney
“Don’t sweat that you didn’t go to the ‘right’ school or that you don’t have the ‘right’ degree. I’m an English major from Western Connecticut State University. Today, that makes me incredibly proud to say. In my early days in the industry, as peers said Harvard, Yale, Finance, Economics, I felt like I was at the wrong party. Turns out that writing and story-telling are kind of important in marketing. Also turns out that hard work and grit really do pay off. To that younger self I would say, ‘Get off the wall, flower, and dance.’” - Havener
Dance, I said. Dance!
Good luck to all graduates, and all of us still enrolled in the School of Life!
Posted
Categorieswomen and investing
A recent article in The Washington Post posited that Americans are currently under-saved by $14 trillion or more for retirement. According to a 2014 Bloomberg report, all but six state pension plans are under-funded by 10% or more, 40 by 20% or more and 31 by 25% or more. Although many investors seem to have forgotten 2008, it was a mere seven years ago that the markets experienced their worst dip since the 1930s, with the S&P 500 losing 38.5% and the Dow dropping 33.8%. Despite a seven-year bull market, we should all do well to remember that poop can, does and will happen. It’s merely a question of when.
In my opinion, that’s why it pays to invest in the “broad market.”
Gender and investing is a sensitive subject. I have a lot of conversations with industry participants about why diversity is good for the financial industry and end investors, and why diverse managers, particularly women, exhibit strong outperformance. I think I’ve created some converts. I think others believe that I’m completely insane. However, I do believe that in order to overcome the tremendous financial hurdles that we face, we must think creatively about how to increase diversification, minimize bubbles and boost returns.
At the end of the day, many financial professionals are trained to think about diversification in a number of straightforward dimensions.
- By Strategy – long-only versus hedged, diversifying strategies (managed futures/macro/market-neutral equity), etc.
- By Instrument – equities, bonds, commodities, real estate, etc.
- By Liquidity – liquid listed instruments versus OTC versus private investments, etc.
- By Number of Investments – the more investments, the less any one can hurt a portfolio
But what we really don’t spend much time thinking about is diversification of behavior. Behavior is an inescapable reality of investing. What happens to your investments is undeniably impacted by behavior – yours, your broker, your money manager and macro-economic behavior - they all play a role in generating gains and losses.
As a result, I believe it’s key to not only have a diversified portfolio of investments with different and diversifying strategies and instruments, it’s also important to have investment managers that will behave differently when approaching the markets. And that’s where women come in.
A number of research studies show that women approach investing differently than men in terms of:
- Biology – Even though women are often stereotyped as “more emotional” when it comes to investing, that may not be the case. Brain structure and hormones impact how men and women interact with the markets, and can influence everything from probability weighting to risk taking to market bubbles.
- Overconfidence – There have been a number of studies that show men have a higher tendency to be overconfident investors. Overconfidence can manifest in a myriad of poor investment practices, including overconcentration in a single stock, not taking money off the table, riding a stock too far down (“It will come back to me”) and overtrading.
- Better trading hygiene – One very crucial side effect of overconfidence is overtrading. Overconfident investors tend to act (buy or sell) on more of their ideas, which can lead to overtrading. Over time, overtrading can significantly erode investment performance.
- Differentiated approach to risk – Although women are often stereotyped as being more “risk adverse,” the truth of the matter is a bit more nuanced. Men and women weigh probabilities differently, with women generally having a flatter probability weighting scale. This means they tend to not to inflate expected gains as much as their male counterparts, which can be beneficial in risk management and in minimizing overall market bubbles.
- Avoiding the herd – Women may be more likely to look at underfollowed companies, sectors, geographies or deal flow in order to obtain an investment edge.
- Maintaining conviction – Female investors may be better at differentiating market noise from bad investments. Women tend to be less likely to sell underperforming investments simply because of broad market declines.
There have been a number of studies that showcase that these differentiated behaviors can really pay off. From studies by HFR, Eurekahedge, Vanguard, my work at Rothstein Kass (now KPMG), NYSSA, the University of California and other academic institutions, research suggests that women’s cognitive and behavioral investment traits are profitable.
Alpha and additional diversification - how can that possibly be a bad thing?
Now, before I become a complete pariah of the financial world, I’m not saying that investors should eschew male-managed funds for sole devotion to women-run funds. That would merely switch the behavioral risk from one pole to another. What I am suggesting is that if we are focused on minimizing risk and maximizing return, we should at least consider the idea that cognitive and behavioral alpha do exist and pursue them through allocations to women (and minority) fund managers.
Of course, anyone who has spoken with me over the last, oh, two years, knows by now that I’ve been faithfully working on a book that addresses these very issues. Today, after furious scribbling, interviewing, transcription, and maybe just a little swearing and throwing of my cell phone, Women of The Street: Why Female Money Managers Generate Higher Returns (and How You Can Too) was released by Palgrave Macmillan.
Available on Amazon.com and other book retailers.
To be honest, I kind of want to barf when I think about people reading my behavioral manifesto. But mostly I just hope that it makes us think about what we all stand to gain by looking not just for the next Warren, Julian, John or David, but also for the next Marjorie, Leah, Theresia and Olga.
Sources: CNN Money, The Washington Post, Bloomberg, Women of The Street: Why Female Money Managers Generate Higher Returns (and How You Can Too).
Posted
I am no stranger to making lame excuses. Just last week, in the throes of a bad case of the flu, I managed to justify not only the eating of strawberry pop-tarts and Top Ramen but also the viewing of at least one episode of “Friday Night Lights.” It’s nice to know that when the chips are down at my house, I turn into caricature of a trailer park redneck.
But in between bouts of coughing and episodes of Judge Judy, however, I did manage to get some work done. And perhaps it was hyper-vigilance about my own excuse making that made me particularly sensitive to the contrivances of others, but it certainly seemed like a doozy of a week for rationalizations. Particularly when it came to fund diversity in nearly every sense of the term, but particularly when it came to investing in women and/or small funds.
So without further ado (and hopefully with no further flu-induced ah-choo!), here were my two favorite pretexts from last week.
Excusa-Palooza Doozie #1 – “We want to hire diverse candidates, but we can’t find them.”
In an interview with Fortune magazine, Marc Andreessen, head of Andreessen Horowitz said that he had tried to hire a female general partner five whole times, but that “she had turned him down.”
Now c’mon, Mr. Andreessen. You can’t possible be saying that there is only one qualified female venture capital GP candidate in the entire free world? I know that women only comprise about 8-10% of current venture capital executives but unless there are only 100 total VC industry participants, that still doesn’t reduce down to one. Andreessen Horowitz has within its own confines 52% female employees, and none of them are promotable? If that’s true, you need a new head of recruiting. Or a new career development program. Or both.
But it seems that Andreessen isn’t entirely alone in casting a very narrow net when it comes to adding diversity. A late-March Reuters piece also noted that they best way to get tapped to join a board as a woman was to already be on a board. One female board member interviewed had received 18 invitations to join boards over 24 months alone.
It seems the criteria used to recruit women (and, to some extent, minority) candidates into high-level positions are perhaps a bit too restrictive. In fact, maybe this isn’t a “pipeline” problem like we’ve been led to believe. Maybe it’s instead more of a tunnel vision issue.
So, as always happy to offer unsolicited advice, let me put on my peanut gallery hat. If you genuinely want to add diversity to your investment staff, here are some good places to look:
- Conferences – The National Association of Securities Professionals, RG Associates, The Women’s Private Equity Summit, Opal’s Emerging Manager events, the CFA Society, Morningstar and other organizations are all now conducing events geared towards women and minority investing. Look at the brochures and identify candidates. Better yet, actually attend the conference and see what all the hubbub is about, bub.
- Word of mouth – I have to wonder if Andreessen asked the female GP candidate on any of his recruitment attempts if she knew anyone else she could recommend. If not, shame on him. Our industry is built in large part on networking. We network for deals, investors, service providers, market intelligence, recruiting, job hunting, etc. We are masters of the network (or we should be) and so it seems reasonable that networking would be a fall back position for anyone seeking talent. And if Andreessen did ask and was not given suitable introductions to alternate candidates, shame on the “unnamed woman general partner.”
- Recruiters – Given the growing body of evidence that shows diversity is good for investors, it’s perhaps no surprise that there are now at least two recruiters who specialize in diversity candidates within the investment industry. Let them do the legwork for you for board members, investment professionals and the like.
- Service providers – Want a bead on a diverse CFO/CCO – call your fund auditor. Looking for investment staff? Call your prime broker or legal counsel. Your service providers see lots of folks come in and out of their doors. Funds that didn’t quite achieve lift off, people who are looking for a change, etc. – chances are your service providers have seen them all and know where the bodies are buried. Don’t be afraid to ask them for referrals.
Excusa-Palooza Doozie #2 – See?!? Investors are allocating to “small” hedge funds! In a second article guaranteed to get both my fever and my dander up, we were treated to an incredibly optimistic turn of asset flow events. It turns out that “small” hedge funds took in roughly half of capital inflows in 2014, up from 37% in 2013 per the WSJ.
Now before you break out the champagne, let me do a little clarification for you.
Hedge funds with $5 billion or more took in half of all asset flows.
Everything that wasn’t in the $5 billion club was termed “small” and was the recipient of the other half of the asset inflows.
It would have been interesting to see how that broke down between funds with $1 billion to $5 billion and everyone else. We already know from industry-watchers HFR (who provided the WSJ figures) that 89% of assets went to funds with more than $1 billion under management. We also already know that there are only 500 or so hedge funds with more than $1 billion under management. So really, when you put the pieces together, aren’t we really saying that hedge funds with $5 billion or more got 50% of the asset flows, hedge funds with $1 billion to $5 billion got 39% of the remaining asset flows, and that truly “small” and, well, "small-ish" hedge funds got 11% in asset flows?
I mean, for a hedge fund to be termed “small” wouldn’t it have to be below the industry’s median size? With only 500 hedge funds at $1 billion or more and 9,500 hedge funds below that size, it seems not only highly unlikely but also mathematically impossible that the median hedge fund size is $5 billion. Or $1 billion. In fact, the last time I calculated the median size of a hedge fund (back in June 2011 for Barclays Capital) it was - wait for it, wait for it - $181 million.
And I’m betting you already know how much in asset flows went to managers under that median figure…somewhere just slightly north of bupkis. And the day that hedge funds under $200 million get half of the asset flows, I will hula hoop on the floor of the New York Stock Exchange.
So let’s do us all a favor and stop making excuses and start making actual changes. Otherwise, we’re leaving money and progress on the table, y’all.
Sources: WSJ, HFR, BarclaysCapital, Reuters, Huffington Post
William Shakespeare once asked, “What’s in a name?” believing, as many do, that “a rose by any other name would smell as sweet.” But on this point I must take issue with dear William and say instead that I think names have power. Perhaps this notion springs from being reared on the tale of Rumplestilskin or maybe from teenage readings of The Hobbit. It could be from my more recent forays into Jim Butcher’s Harry Dresden novels.
I know, I know - I never said I wasn’t a nerd.
Regardless of the origins of my belief, my theory was, in a way, proven earlier this week, when the New York Times ran a piece by Justin Wolfers entitled “Fewer Women Run Big Companies Than Men Named John.” In it, the writer created what he called a “Glass Ceiling Index” that looked at the ratio of men named John, Robert, William or James running companies in the S&P 1500 versus the number of women in the same role. His conclusion? For every one woman at the helm of a large company, there are four men named John, Robert, William or James.
To be clear: That’s not just one woman to every four generic men. That’s one woman for every four specifically-named men.
Wolfers’ study was inspired by an Ernst & Young report that looked at the ratio of women board members to men with the same ubiquitous monikers. E&Y found that for every woman (with any name) on a board, there were 1.03 men named John, Robert, William or James.
The New York Times article further showed that there are 2.17 Senate Republicans of the John-Bob-Will-Jim persuasion for every female senate republican, and 1.12 men with those names for every one female economics professor.
While all of that is certainly a sign that the more things change, the more they stay the same, it made me think about the financial world and our own glass ceiling.
In 17 years in finance, I have never once waited in line for the bathroom at a hedge fund or other investment conference. While telling, that’s certainly not a scientific measure of progress towards even moderate gender balance in finance. As a result, I decided it would be interesting to construct a more concrete measure of the fund management glass ceiling. After hours of looking through hedge fund & private equity mogul names like Kenneth, David, James, John, Robert, and William, I started referring to my creation as the “Jim-Bob Ratio,” as a good Southern girl should.
I looked at the 100 largest hedge funds, excluded six banks and large fund conglomerates that are not your typical “cult of personality” hedge fund shops, created a spreadsheet of hedge fund managers/founders/stud ducks and determined that the hedge fund industry has a whopping 11 fund moguls named John, Robert, William and James for every one woman fund manager. There was a 4:1 ratio just for Johns, and 3:1 for guys named Bill.
(c) MJ Alts
And even those ratios were generous: I counted Leda Braga separately from Blue Crest in my total, even though her fund was not discretely listed at the time of the 2014 list.
I also looked at the monikers of the “grand quesos” at the 20 largest private equity firms. There are currently three Williams, two Johns (or Jon) and one James versus zero large firm female private equity senior leadership.
Of course, you may be saying it’s unfair to look at only the largest funds, but I doubt the ratio improves a great deal as we go down the AUM food chain. There are currently only 125 female run hedge funds in a universe of 10,000 funds. That gives an 80:1 male to female fund ratio before we start sifting through names. In private equity and venture capital, we know from reading Forbes that women comprise only 11.8% (including non-investment executives) and 8.5% of partners, respectively. Therefore, it seems extraordinarily unlikely that the alternative investment industry’s Jim-Bob Ratio could fall below 4:1 even within larger samples. Ugh. One more reason for folks to say the S&P outperformed.
Now, before everyone gets their knickers in a twist, I should point out that I am vehemently NOT anti-male fund manager. The gentlemen on those lists have been wildly successful overall, and I in no way wish to or could diminish their performance and business accomplishments. And for those that are also wondering, I am also just as disappointed at the small (read virtually non-existent) racial diversity ratio on those lists as well.
What I am, however, as regular readers of my blogs know, is a huge proponent for diversity (fund size, gender, race, strategy, fund age, etc.) in investing and a bit of a fan of the underdog. Diversity of strategies, instruments, and liquidity are all keys to building a successful portfolio if you ask me. And, perhaps even more importantly, you need diversity of thinking, or cognitive alpha, which seems like it could be in short supply when we look across the fund management landscape. Similar backgrounds, similar stories, and similar names could lead to similar performance and similar volatility profiles, dontcha think? While correlation can be your friend when the markets are trending up, it is rarely your bestie when the tables turn. And if you don’t have portfolio managers who think differently, are you ever truly diversified or uncorrelated?
In the coming months and years, I’d like to see the alternative investment industry specifically, and the investment industry in general, actively attempt to lower our Jim-Bob Ratio. And luckily, unlike the equity markets, there seems to be only one way for us to go from here.
Sources include: Institutional Investor Alpha magazine, Business Insider, industry knowledge and a fair amount of tedious internet GTS (er, Google That Stuff) time.
Did Myth Busters ever disprove the "sucked from an airplane" myth?
On a recent flight from New York to Nashville, I took my seat on Barbie’s Dream Plane, otherwise known as a commuter jet, and was faced with a vehicle in such disrepair it actually unnerved someone who has flown more than 1.5 million miles in 15 years. And yes, that would be me.
I looked across the aisle and found a similarly “fixed” window one row back, and suddenly my thoughts were filled with being sucked out of a plane somewhere over West Virginia. The flight was virtually empty (leading my pessimistic mind to conclude that everyone else was smarter or luckier than I not to be on the explosive decompression-mobile) so I asked the flight attendant about the rather homey “repair.”
“It’s amazing!” she said. “And our CEO makes $57,000 per day and still uses duct tape.”
Well, I guess $57,000 will buy a helluva lot of duct tape - 16,913 rolls at WalMart by my calculations.
After I had safely landed in Nashville, however, I started wondering: Why do folks get so worked up over what hedge fund, private equity and other fund managers get paid, and don’t get nearly as vitriolic over a $57,000 per day gig at a corporation? I asked some friends and did some soul searching, and here’s what I came up with:
1. Financial services professionals don’t do “real work.” Over the course of several days, I asked friends and family why it was ok for an airline CEO to make $20 million plus per year, but complete, foaming at the mouth, anathema for a hedge fund or private equity fund manager to make bank. Their (almost universal) response? Managing money isn’t “real work.”
The first time this response was given I chuckled a little. But after the next five to six responses I began to bristle and wonder, do people even understand what money management entails?
Running an investment firm requires the same skills and efforts of running a small business. You must manage, hire and fire employees. Appropriate policies, procedures and compliance must be established and followed. Relationships with service providers must be initiated and maintained. Client communication is required. Marketing is not optional. Of course, you have to create and maintain a successful investment track record. And if you think that is easy, chew on this: Only 1 in 100 day traders are “predictably profitable.”
Managing an investment firm is really no different than running an airline, albeit on a much, much smaller scale. And of course, investment firms find the use of duct tape is generally verboten when dealing with institutions and high net worth individuals.
2. We think the “Rich List” is reality. Every year, Forbes and other publications publish their “Richest Hedge Fund Manager” lists, striking envy and loathing into the hearts of readers around the globe. And while it’s easy to be gobsmacked by the fact that Ray Dalio is worth $15.2 billion, John Paulson $13.7 billion and Paul Tudor Jones $4.3 billion, this is not the reality for most fund managers.
I’ve done the math for you before, but suffice it to say that the base pay for the AVERAGE hedge fund manager is something closer to $500,000-$750,000. While this is certainly a lot of money, it’s not as far in the stratosphere as one might think. Medscape reports that an orthopedic doctor can bank $413,000 or more annually as well. One study showed the median CEO pay package at companies with $1b in revenue was $15.1 million in 2012. And the top 0.1% of earners in the U.S.? Roughly 40% of them are top management at corporations, excluding finance.
If you want to know what pay is really like in the hedge fund universe (or if you're negotiating your bonus), look at SumZero’s report on hedge fund compensation. And remember, only 0.07% of hedge fund managers are billionaires.
3. We focus more on fees than value. Roughly two weeks ago ago, I tweeted that CALPERS would be reducing the number of private equity managers in their portfolio to reduce fees. Almost immediately after the tweet, um, tweeted, I received a reply asserting that maybe CALPERS just didn’t get enough out of their private equity investment to justify costs.
How much has CALPERS made off private equity per their own website? $31 billion over 14 years. Likewise, hedge funds have returned $1.5 trillion after fees over the last decade according to AIMA.
At the end of the day, investors invest to generate returns. We all know this doesn’t happen in a vacuum, without skill or without a significant investment of time and energy and business acumen on the part of those managing money. Frankly, my biggest concern when looking at my investment portfolio is my net return. If I am happy with that, I don’t necessarily dwell on what someone else is making. After all, I don’t likely have the skill, staff, time or expertise to generate a similar return.
It’s truly unfortunate that we’ve become almost singularly focused on investment manager income rather on diversification and value creation, but that’s where we seem to be. As a case in point, a February 1, 2015 article on the dearth of female fund managers pointed to one possible reason for the lack of estrogen on Wall Street: “On average, women appear to place more importance on feeling that their job has a clear value to society,” said Anne Richards of Aberdeen.
And I guess that leads me to wonder, when did making folks money, safeguarding retirement and financial goals, or helping pensions fund liabilities lose its value?
