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Do investors dislike women fund managers?

Female fund managers attract less money than men, despite no significant gap in performance. We review the academic literature on why this might be so.

Do investors dislike women fund managers?

In fund management success is measured in two ways: investment returns and the size of funds.

On the first, there is no significant gap between men and women. Citywire’s 'Alpha Female' report finds that just over 21% of female fund managers held Citywire performance ratings at the end of March. Our A, AA and AAA ratings are purely numbers based and derived from the three-year, risk-adjusted returns managers have generated.

The proportion for men was slightly higher at 23.5%. Similarly, 1.9% of female fund managers claimed an elite AAA rating, compared with 2.4% for men.

However, it is worth bearing in mind that the sample size for female fund managers is small: if only seven more women were AAA rated, they would have proportional parity with the men.

These results chime with other studies of gender and investment performance. A 2013 paper by Margaret Stumpp in the Journal of Investment Management found that, among US-based institutional investment managers, ‘women exhibit indistinguishable risk-adjusted performance to men within all approaches except value, where they significantly outperform’.

In the Journal of Financial Research in 2003, Stanley Atkinson, Samantha Boyce Baird, and Melissa Frye reported that for fixed-income mutual funds ‘male and female-managed funds do not differ significantly in terms of performance, risk, and other fund characteristics’.

Within hedge funds, Rajesh Aggarwal and Nicole Boyson relayed in a 2015 analysis for the Review of Financial Economics that ‘there are no significant differences between the performance of all-female [managed] and all-male [managed] funds’.

Covering European equity funds, a 2013 study by Vassilis Babalos, Guglielmo Maria Caporale, and Nikolaos Philippas for Brunel University London recorded that ‘gender does not influence fund performance and that women are not more risk averse than men’. The latter point is an important one: while some broad surveys of financial behaviour have unearthed greater risk aversion in women, these are not evident in the more homogenous group of fund managers, where the genders are closer in the factors such as background and education that have an impact on the wider population’s risk tolerance.

In the eye of the unitholder

So women are just as successful at portfolio management as men. But by the other measure of success – asset gathering – female fund managers fare far less well.

Citywire’s Alpha Female investigation revealed that only 7% of funds are run exclusively by women, and these funds represent an even lower proportion – 4% – of total assets under management. Women also typically run smaller funds than men: $315 million on average versus $533 million for male-managed funds.

Again, the academic literature concurs with these data. Atkinson, Boyce Baird, and Frye discovered that ‘net asset flows into funds managed by females are lower than for males, especially for the manager’s initial year managing the fund’.

Aggarwal and Boyson stated that female-managed hedge funds have ‘much lower assets under management’ than male-managed peers, putting the mean difference between them at a statistically significant $71.3 million in favour of the men.

Alexandra Niessen-Ruenzi and Stefan Ruenzi of the University of Mannheim documented in 2015 that flows into female-managed mutual funds were around one third lower than those into male-managed funds.

This is not some historical anomaly either. Niessen-Ruenzi and Ruenzi noted that ‘the fraction of female fund managers in the US equity mutual fund industry has hovered around a very low level of about 10% for the past 20 years’.

Buyers’ bias

Why this is the case, given the equivalent performance between men and women, is puzzling. ‘We find no evidence for gender differences among fund managers that would support the view that shying away from female managers could be rational: their investment styles are more persistent over time than those of male fund managers, while average performance is virtually identical and male fund managers exhibit less performance persistence,’ commented Niessen-Ruenzi and Ruenzi. ‘Thus, if anything, fund investors should prefer female fund managers.’

However, theories for the gulf in asset gathering also suggest why there are so few women in fund management in the first place.

The common ones of the past have been that fund management firms discriminate against hiring and retaining women, that women choose not to work in investment, and that ‘career interruptions’ – ie, maternity leave – adversely affect flows into women’s funds.

None of these is entirely satisfactory, though: explicit discrimination has been legislated against, although of course plenty of implicit biases may remain; a far higher proportion of fund groups’ staff outside portfolio management is female, although still closer to 20% than 50%, so it is not clear that women are deterred from the industry; and male fund managers increasingly take sabbaticals too without the same impact on flows to their products.

Niessen-Ruenzi and Ruenzi therefore proposed an alternative reason: what they term ‘customer-based discrimination’. In other words, investors simply won’t give women money.

Some will immediately object that they would love to invest more with female fund managers, but there just aren’t enough. One observation and one experiment by Niessen-Ruenzi and Ruenzi challenge this convenient excuse.

The observation is that ‘fund flows decrease significantly if a male manager is replaced by a female manager, but not if a female manager is replaced by a male manager’.

The experiment is even more arresting. Participants were asked to split a certain amount of money between two index funds. The only difference between the two trackers presented to the individuals was that one had a manager with a male name and the other had a female manager’s name. The subjects invested ‘significantly less’ into the index fund if it had a woman’s name attached to it. ‘The effect is mainly driven by male subjects, while female subjects do not seem to be biased,’ Niessen-Ruenzi and Ruenzi highlighted.

This raises the question of whether fund groups are justified in not hiring more female managers. ‘If the presence of women on an investment-management team negatively impacts asset gathering, there might be a rationale for investment managers to hire and promote fewer of them into key positions,’ Stumpp acknowledged.

Change may well have to be driven by investors.

You can access the Smart Alpha research paper here.

4 comments so far. Why not have your say?


Jun 01, 2016 at 18:17

Is the performance adjusted for tenure/survivorship bias/longevity in the job? Not that there is any reason women aren't the same as men, just that most academic studies aren't worth the paper they are written on as the assumptions contain measurement errors because of the agenda of those that "data mine" to prove the point they wanted to make in the first place.

The key point for me is that poorly performing fund managers (male or female) are not sacked by the regulator.

The other point is that there is no evidence of risk adjusted alpha persistence in perfromance by any fund manager over discrete, consecutive 3 and five year periods. That is, fund managers don't outperform their benchmarks consistently over long term periods, even before fees and without adjusting for the risks they are taking to get the additional "excess" return.

Point to point alpha is not an indication of consistency or a persistent adjusted Sharpe ratio of greater than zero.

Fair go to the ladies, they can kick ass with any man. It's just that neither is worth the candle.

Smart beta seems to be really catching on in the US. Of course, that will be the solution that costs investors even more money in terms of crap performance over the long term - but by that time (ten years) fat fees wil have been earned, lots of conferences attended and wasit lines extended with a smugness and an "elitist" smirk in your face when you ask "how come you did not deliver".

Hedge funds have also had another awful month, marking a terrible two years for them because of the cancer that is Q/E - charging 2% and 20% along the way.

Lastly, private equity is being used more and more to pursue returns that might get close to 10% p.a. Of course, this won't be achieved either and the incidence of fraud and corruption on investmentes that never see the light of day will be making headlines for decades.

My portfolio remains 20% in 5 directly held UK companies that pay my bills (and cost £200 a year to warehouse) 30% in inflation linked annuities and the remaining 50% in cash.

My expected total returns from overall asset classes are

equities -2% per annum for the next ten years - risk 18% per annum

bonds zero - risk 10% per annum

cash zero - risk zero

property zero - risk 8% per annum

inaltion 2% per annum risk 1% per annum

good luck!= to one and all

oh and by the way, if BREXIT fails you can take 2% per annum off these returns and add 2% to each risk, with no change to inflation since the ECB has no impact on it whatseover - inflation happens whether the ECB or the BoE are doing anything or doing nothing - they are irrelevant.

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Law Man

Jun 01, 2016 at 19:29

The article suggests some care has been taken to exclude other reasons; but I find it hard to believe anyone would not invest in a fund because the manager is female, on the basis of anti-female prejudice.

Surely we choose on one basis only: that the fund will perform better than its comparable alternatives.

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kevin clayton

Jun 02, 2016 at 10:09

I would invest in a female fund manager for the simple fact that they have to be better than a male to get to that position

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Jun 05, 2016 at 18:22

"Fair go to the ladies, they can kick ass with any man. It's just that neither is worth the candle." Absolutely spot on.

Apart from the X Factor tv show perhaps, or EastEnders version of today's East End of London, there is no more fraudulent a proposition than that offered by fund managers.

It amazes me that year after year they extract fantastic lifestyles from us the cattle they graze on. Royal London managed to shrink my pension fund by 10% in 2015. A performance I could have easily managed on my own with no professional guidance. Did they say sorry? Did they return their management fees? No, of course they didn't.

A song I recall asks, "What are they good for?" and replies " Absolutely nothing.". The lyricist must have had fund managers in mind.

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