Hedge Funds Run by Women Outperform Those Run by Men

Is it because women are more averse to risk?
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Meryl Streep books a trade in 2008. It no doubt generated great returns. (Jacob Silberberg/Reuters)

This morning, the Wall Street Journal reported on funds that choose to tie their fates to the performance of companies led by women. Barclays’ Women in Leadership Total Return Index, which consists of American companies with a female CEO or whose proportion of female board members is at least 25 percent, is one of number of new funds that aims to capitalize on the finding that companies with female leaders tend to outperform those where women are relatively absent. (Amusingly and depressingly, even if Barclays were based in the U.S., it wouldn’t qualify for its own fund, due to its lack of female leaders.)

The female-favoring trend the Journal identified stems from research suggesting that companies run by women simply do better. For example, a 2011 report from Catalyst, a nonprofit promoting women in business, found that over the course of five years, companies with women on their boards had average returns on equity of 15.3 percent, while those of companies without any female board members were 10.5 percent. (Return on equity is a figure that gives a sense of a company’s ability to generate profit from shareholders’ investments.)

But the benefits of investing in female-led financial endeavors go even further than the Journal has it: Hedge funds run by women tend to outperform other hedge funds. A report put out in early 2013 by the accounting firm Rothstein Kass indicated that between January 2012 and September 2012, an index of 67 hedge funds owned or managed by women had a return of 8.95 percent—significantly more than the 2.69 percent return generated by an index “designed to be representative of the overall composition of the hedge fund universe.” (The 67 funds were chosen because they reported their monthly performance to HedgeFund.net or the Hedge Fund Research Database.) The impacts of these outsized gains, however, largely remain to be felt, as there are only about 125 female-run hedge funds in the world, according to Reuters.

Many, including Meredith Jones, the author of the Rothstein Kass report, chalk up these disparities to women’s inherent risk-aversion. Jones called the findings “not surprising,” noting that women’s preferences for financial conservatism have been borne out by countless studies. It’s true: A ton of research backs her up.

As unsurprising and clear as these results may be to some, their causes are less easy to identify. While the Catalyst report promotes the idea that women create higher returns, it could be the case that prosperous companies and hedge funds are more likely to hire women.

Moreover, those who ascribe one's financial worldview to gender-based differences might be oversimplifying. A 2012 paper took issue with the prevailing line of thinking, arguing that previous research into women’s risk-aversion overstated the differences revealed by the data. In what is probably a healthier way of viewing the world—hedge fund owners and all—the paper suggests that the correlations between gender and risk aversion are “considerably more mixed … than might be expected.”

That said, the fact remains that female-led companies and hedge funds are, almost across the board, besting their competitors.
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Joe Pinsker is an assistant editor at The Atlantic. He has written for Rolling StoneForbes, and Salon.

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