Why are more and more women setting up hedge funds?

Text/Dominique Mielle

Image source: Visual China

"So, what can women bring to hedge funds?" The interviewer asked in a phone interview with Zoom that I agreed to participate in the interview to promote my book. I stared blankly. They asked in horror if the screen was stuck. No, the screen doesn't. I blinked to prove it.

From the heart of hearts, this question sounds very meaningful, because in the next year, we will see a record 9 hedge funds founded by women. Two of these new funds may even start with $1 billion in assets. Of course, the exit of promising young professionals on the investment teams of established hedge funds, often with the support of former employers, is a well-documented practice in the history of the industry. Julian Robertson, the legendary founder of Tiger Management, which closed in 2000, alone, has spawned more than 50 new funds called Tiger Cubs or Tiger Seeds. More recently, Viking Global, spun off from Tiger Management, became the main launch platform for six funds with initial assets of more than $500 million, and they are reliable contenders for the most boring fund name ever. D1, Anomaly Capital and Voyager are my favorites. Until now, these superstar funds were founded by men. So Mara Gaonkar, who once worked at Lone Pine Capital, and Divya Nettimi, who worked at Viking Global, could start their own businesses in 2022 with about $1 billion in funding under management, which is both a sign of progress and a happy reason.

Still, no one can miss a great opportunity to confront people, and I replied angrily: Why do we mention women's hedge funds? You would ask a male hedge fund manager, what do men bring to invest?

I remember explaining in several articles that of the $71.4 trillion in assets and $100 billion in profits managed by the investment management industry in 2015, more than 1.1 percent of the funds needed to go to companies owned by women and minorities. Am I not good eloquent enough? I can't help but wonder: Will investment inclusion be a debate in 2021? Like they said, it's still like that.

As investors, we are in the creative business. "It's not enough to say that the lack of diversity is a boring thing. More diversity means better ideas. That's not even what I said, it was Adam Baidawi, the editorial director of Gentlemen's Quarterly (GQ), which is now known as a bastion for men. What exactly do I mean by creative business? I mean, the products we sell may be packaged as distressed assets, risk arbitrage, private credit, loan securitization, everything you can think of: creative thinking at its core. In this way, through the lens of imagination, originality, creativity and originality, it is clear that this profession will be better in a diversified situation.

Second, in the investment industry, the main – and perhaps the only – resource is people. This is our precious raw material, our valuable input, and our competitive advantage. Can you name a trusted company that limits its sourcing of raw materials to only 31% of its existing supply? This also means that inventory management is talent management. A trusted investment firm optimizes hiring, retaining, and promoting employees, just as a decent widget manufacturer fine-tuns inventory, stores, and uses inventory.

Now, if neither of these reasons convinces you, try this: women are better investors.

Wait, did she really say that? I watched it, but that was only because I had seen it somewhere else. Actually four times. A pioneering 2001 paper, Boys Are Boys After All: Gender, Overconfidence, and Common Stock Investing, tested the hypothesis that men are more confident than women in finance, which causes men to over-trade to the detriment of their net performance. The most striking observation is that single men trade 67% more than single women, while their returns are reduced by 1.44% per year. In 2018, Warwick Business School compared Barclays' male and female investors and their trading behaviors for three years and found that women performed 1.8% more each year than men. In 2019, Hargreaves Lansdown, a large UK retail investment platform, reported that over three years, women's returns averaged 0.81% higher than men's. Finally, a 2021 study by Fidelity Investments showed that from January 2011 to December 2020, female investors performed on average 40 basis points more than male investors in 5.2 million accounts. All studies hypothesized that women tended to show longer-term investment horizons, while men had higher transaction costs and eroded returns over time.

Wait a minute, a cynical man interjected, aren't women more risk-averse? According to several studies (2009's Gender Differences in Preferences and the 2014 BlackRock Investor Pulse Survey), yes, they are, but that in no way leads them to be inferior investors. Seeking risk is neither a strength nor a quality. There's really nothing worth writing about. Some people like to be adventurous, such as EveL Knievel, who is a stuntman who has successfully landed his Harley motorcycle from a 14 Greyhound bus at 133 feet high. But that doesn't necessarily make him a good hedge fund manager — just a good chance of causing a groin injury. Smoking is risky; even dangerous. To quote Fran Lebowitz, most smokers end up contracting a deadly disease and dying, but they never boast about it, do they? No, risk is not the end point, especially when it comes to investing. Important is the return of risk per unit, and in this regard, studies point out that women perform better.

Finally, if nothing else matters, there is one more thing: as women, we bring in half the population for investment management.

Dominique Mielle is a forbes contributor and expresses opinions on behalf of individuals only. Translated by Stephen