Success is hard to measure objectively, although in fund management there are two helpful proxies: alpha generated and assets gathered.
On the first, there is no significant gap between the genders. Citywire’s Alpha Female report finds that just over 21% of female fund managers held Citywire ratings, which are awarded on a quantitative basis for three-year risk-adjusted performance, at the beginning of April. The figure was 23.5% for men. 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 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 are faring 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’.
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’ – i.e. 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 fund buyers.
You can access the Smart Alpha research paper here.