If women ruled the funds world, would the past two years have been any different? Academics suggest yes. Angele Spiteri Paris speaks to leading female executives about risk taking...In times of market turmoil, many investors are likely to seek stability and a more measured attitude to investment. Recent studies suggest that women fund managers are more likely to provide this than men because, in part, they are more risk averse. By tempering risk-taking and other extremes of behaviour to which men are supposedly more prone, women can generate more consistent performance.
They also hold longer-term investment views, say researchers.
Yet the same research also shows that funds run by women suffer from lower inflows. Academics now suggest that women should step out of the wings and into the asset management limelight. Had more women been involved in investment decisions taken in recent years, the fund management industry might not be in the mess in which it currently finds itself, believe some researchers.
Dr Linda Basch, president of the National Council for Research on Women says: “The current financial crisis was very much the product of a culture driven by a group-think and boys’ club mentality which emphasised short-term returns at all costs.
“It was very much a culture of irresponsibility characterised by overleveraging. All the decisions were made by people from a very similar demographic – Caucasian men of a certain age.”
The council issued a report called Women in Fund Management to challenge the status quo and encourage more diversity within fund management.
Stefan Ruenzi, a finance professor at the University of Mannheim, also spoke about the competitive culture between men in the funds industry.
Ruenzi says: “There’s the concept of a ‘tournament theory’ in which mutual fund managers try to reach the top position by the end of the year. This is because they would get huge inflows if they succeeded in achieving this.
“So if in the middle of the year you see you’re leading as compared to colleagues, you tend to decrease your risk in order to lock in your position, but if you’re lagging behind you would increase your risk to catch up and have a chance of winning.”
This behaviour can be very dangerous for investors as it is all centred around the ego of the fund manager, rather than on making the right decision from a risk/return perspective.
Ruenzi says preliminary research found that women tend to engage less in such tournament activity. The professor conducted several studies on the effect of gender in the funds industry, including one named Sex Matters and another entitled The Impact of Work Group Diversity on Performance.
Following on from this research, Ruenzi believes the crisis and the resulting investor sentiment could see female fund managers improve their standing.
“I think it would make sense to see increased inflows into women-managed funds, particularly in the current situation. Right now, a lot of investors had bad experiences, especially with risky investment strategies. So, they would be looking for more conservative investment styles or approaches and this is typically what women deliver,” Ruenzi says.
But some women in the industry do not necessarily agree that they tend to take less risk.
Helena Morrissey, CEO of Newton Asset Management, says: “When I look at the women who manage money at Newton, several of them will take significant positions… I honestly haven’t noticed a holding back from committed investment on the part of the women we have.”
Morrissey says that when a man had been appointed to take over one of her portfolios, he was surprised at how risky she was being.
Danièle Tohmé-Adet, head of the EasyETF platform at BNP Paribas Asset Management, says: “If you’re a trader you already have a bias towards risk – whether you’re a woman or a man. If you’re racing with cars it means you already like to drive, it means you like speed and you like to take some risk.”
Other female fund management executives say that women are not necessarily more risk averse than men, but rather they have a different approach to risk.
Elizabeth Corley, CEO of Allianz Global Investors Europe, says: “Women make decisions in slightly different ways, which might look less or more risk averse.”
Corley speaks of an experience from her involvement in a micro-loan charity – charities that give small loans to developing countries. “The lending out is far more successful with women than it is with men because women might be more inclined to spend the loans carefully whereas men might be more inclined to go for the big idea,” she says. Corley adds that the actual loan taking on behalf of women is a big risk in itself but they then go on to use it in a very carefully considered way.
In addition to this, another winning virtue women in the industry speak about is the female ability to discuss failures as well as successes.
Tanya Beder, a seasoned Wall Street player, now chairman of SBCC Group, an independent advisory firm, says: “In a trading environment a good trader is expected to win more than they lose. So this means even good traders who win over half the time, say 60% of the time, still have 40% losing trades. Yet it’s human nature to discuss winning rather than losing trades. Men seem to trump winners more on the trading floor but perhaps this is because there are more men.”
Industry players feel that men tend to be less inclined to have these discussions. There seems to be a certain element in male interaction that prevents them from telling each other about anything other than successes.
Lucy MacDonald, chief investment officer global equities at RCM, says: “I would agree that women are more willing to discuss their failures as well as their successes. Everyone with any experience in this business knows that things can go wrong as well as right and clients expect you to be able to talk about it.”
There is no doubt that clients appreciate communication when investments do not go in the right direction and, possibly, in the current environment, women are more apt to hold this open dialogue.
Corley, at Allianz, says: “It is definitely true that there is no hang-up about acknowledging you’ve made a mistake and what can you do better. There are also no hang-ups at all about giving credit where it’s due.” But she adds that she can think of several male colleagues who also demonstrate these same characteristics.
According to Newton’s Morrissey, it boils down to individual characters. “I honestly wouldn’t say that there is a gap between how women and men behave, it’s more to do with the individual characters.”
Although it’s true that one shouldn’t generalise, the research studies make a quite clear distinction between male and female investment styles. The studies also show that funds managed by women have historically attracted lower inflows.
Ruenzi says there could be some prejudice against women, together with the assumption that they’re not so good at investing money. But how to change this perception?
“Maybe it’s a matter of communication, of convincing investors that females offer interesting investment strategies and that they might help attract higher inflows in their funds,” he says.
Hopefully, figures being released by various parts of the industry can convince investors to get over any preconceptions they have about women managers.
Basch says: “The Hedge Fund Research Diversity Index, that looks at funds managed by women and minorities, has performed dramatically different from funds managed predominantly by men. Since 2008 the diversity index lost only 5.5% while the broader and less diverse index lost nearly 20%, four times as much during the same period.”
There are some signs that the message may be getting through. For example, two of the funds that have the highest inflows at RCM, the global equities and eco trends funds, are managed by women. Similarly, Newton’s higher income fund has experienced strong flows and is managed by a woman.
The fact that women in the industry have had experiences that were different to what these studies have shown could suggest that things are slowly changing and women are gaining a more equal footing to men.
In Corley’s opinion gender is becoming more irrelevant as time goes by. She says: “Female colleagues in their 30s feel that an over-emphasis on gender is old-fashioned. Ten or fifteen years ago it was important to try and correct what appeared to be an imbalance, but now they find gender distinctions almost counterproductive.”
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