Despite exclusion from old boys’ club, women outperform the industry
by Christin L. Munsch on Monday, February 11, 2013

Carrie McCabe – one of the most senior alternative investors in the industry – enjoys looking at the newspaper each morning and seeing 50 things that influence her investing decisions. McCabe, who is also a member of Clayman Institute’s Advisory Council, is passionate about finance and investment. “It’s relevant to everything that is going on in the world.”

McCabe is one of a handful of women who invest in “alternative investments,” and she’s known for being good at her job. Alternative investments are those outside of stocks, bonds, cash, and real estate, such as hedge funds, private equity, and venture capital.

With a BA in economics from Stanford and an MBA from Harvard, McCabe has managed funds well over ten billion dollars. She’s served as the chief executive officer at Blackstone Alternative Asset Management, FRM-Americas and, in 2008, she launched Lasair Capital – a firm specializing in long/short equity investment. There is no doubt that McCabe has the education, intellect, and experience to succeed in the industry.

It turns out, gender may have aided in her success as well.

Women in alternative Investments A new study called “Women in Alternative Investments” reports that, over the past five years, women-owned and women-managed hedge funds performed significantly better than the overall population of hedge funds.

That is, they outperformed those funds that are almost exclusively owned or managed by men. According to the report, women-run hedge funds produced a return of 8.95 percent through the third quarter of 2012. By contrast, the flagship industry-wide performance index, the HFRX Global Hedge Fund, yielded a 2.69 percent net return over the same period.

Only those women who are the most talented – that is, those who consistently produce large net returns – are likely to have persevered in the male-dominated business of alternative investing.

The report, the second annual published by financial services provider Rothstein Kass, documents the performance and experience of 366 senior women in the alternative investment industry. To analyze performance, the authors focused on the 67 women-owned and women-managed hedge funds in the industry.

The funds were used to create a monthly performance index, the Rothstein Kass Women in Alternative Investments (WAI) Hedge Index. Returns for the index were calculated for the five-year period and compared to the HFRX Global Hedge Fund Index over the same period.

While this is impressive, McCabe stresses that there are several caveats worth noting. First, no adjustments were made to account for survivor bias (defunct funds) or the net worth of the individual funds. Second, few investors are women and even fewer women invest in alternatives. McCabe estimates that less than 2 percent of alternative investors are women. To put this in perspective, women currently hold 20.9 percent of the seats in Congress <http://www.nytimes.com/2013/01/04/us/first-day-of-113th-congress-brings-more-women-to-capitol.htm>  and 4.2 percent of Fortune 500 CEO positions <http://www.catalyst.org/knowledge/women-ceos-fortune-1000> . Consequently, the report compares the performances of countless men and a handful of women. Only those women who are the most talented – that is, those who consistently produce large net returns – are likely to have persevered in the male-dominated business of alternative investing.

Women and risk taking Hundred dollar bill Do women manage risk better than men? (Source: Wikimedia) Nonetheless, McCabe believes the report’s conclusions are sound. “Women have a different framework on how they run money,” she said during a recent appearance

<http://www.bloomberg.com/video/what-s-ahead-for-the-hedge-fund-industry-in-2013-BKdyA_qTTKiYpiRMpK3Y5g.html>  on Bloomberg Television’s “Taking Stock” with Pimm Fox.  “Women tend to manage risk a little bit better. So that would mean, in these volatile times, they would be patient for some of the things to come through and maybe not trade and get whipsawed.”

Challenging gender stereotypes, Fox responded, “sounds like a little less emotional than the alternative perhaps.” McCabe concluded, “Having female alternative investment managers makes good business sense.”

McCabe’s explanation is supported by numerous sociological, psychological and economic studies that find women to be more risk-averse than men. For example, in 1998 economists Nancy Jianakoplos and Alexandra Bernasek published a landmark study on investment behavior in “Economic Inquiry.”

Using data from the Survey of Consumer Finances and controlling for factors such as age, education, children, and home ownership, the pair found that single women held a smaller percentage of their wealth in the form of risky assets  <http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.1998.tb01740.x/abstract>  than single men. Laboratory studies have yielded similar findings. For example, women bet less money, less often <http://aysps.gsu.edu/isp/files/ISP_Ind_3.pdf>  when they participate in experimental gambling games. Moreover, it seems that gender differences in risk-aversion are more pronounced <http://cbees.utdallas.edu/~crosonr/research/%5b59%5d.pdf>  in high-stakes settings like alternative investing.

Climate for women in the alternative investment industry In addition to performance, Rothstein Kass assessed the experiences and perceptions of women in the alternative investment industry. Nearly two-thirds of the respondents agreed that being a woman makes it more difficult to succeed and nearly one-half indicated that being a woman impacts their ability to do business.

Why aren’t more women in the alternative investment industry? Respondents cited the lack of available positions in the industry – particularly positions that would allow women to develop a verifiable track record, and they felt women often lacked the motivation to enter or stay in the industry. To be sure, this lack of motivation is not intrinsic. Rather, respondent after respondent used the term “old boys’ club” to describe the industry’s cultural climate. The respondents also indicated that women tend to have more difficulty accessing investor capital than men.

The rise of women, the importance of mentoring Despite the belief that being a woman makes success more difficult, the majority of respondents expected an increase in women in the alternative investment industry and more women-owned and women-managed fund launches in 2013 and beyond.

“When I would go to an investment summit or an investment meeting which might have 50 or 100 participants, I used to be the only female in the room,” McCabe said. “About five years ago, I started noticing a few more.

There are only a handful, but there are more than there used to be.” “When a professional woman succeeds – all professional women succeed. It’s very cumulative.”
“It’s important that professional women be there for each other,” said McCabe, who emphasizes the importance of coaching other industry women. “When a professional woman succeeds – all professional women succeed. It’s very cumulative.”
“When I sit down with a young woman, I say, ‘I’m doing this because I want to help other women, but you have to promise me that you’ll help two other women who come behind you.'”

McCabe’s perspective is not only ethical; it’s a smart business decision too. “Part of successful investing is having a diversified approach – and women have a different approach,” said McCabe. “It really comes down to framework. And when you have multiple perspectives framing an investment portfolio, it leads to more robust results. It just makes good business sense.”

In other words, if your investment team isn’t diverse, neither is your portfolio.