Put Into Perspective: Hedge Funds’ Missed OpportunityGuest Post
“Put into perspective” – the monthly newsletter of Skenderbeg Investment Management
“The best investors in the world have more of an edge in psychology than in finance.” – Morgan Housel
Face-to-face access prized above all else
Gross and net exposure over the last 5 years
US cyclicals versus defensive sector long/short ratios since 2017
Hedge funds’ missed opportunity: closing the gender gap
The hedge fund world is undergoing a period of profound change due to performance headwinds, pressure to lower fees, and increased com-petition from other alternative-asset classes. Savvy managers are going to great lengths to adapt. But most of the industry is overlooking one the biggest barriers to future success: our massive gender gap. Less than 5% of the world’s 100 largest hedge funds are currently run by women, and women hold only 10% of portfolio-management and investment-team roles across the industry. This is evidence of a missed opportunity.
The HFRX Diversity Women index, which reflects returns linked to women-run hedge funds, has outperformed the HFRI Fund Weighted Com-posite index over the past three, five, and 10 years. While this shouldn’t be considered an indicator of how female managers will perform in the future, the results warrant exploration.
Numerous academic and industry-commissioned studies have found evidence of ways in which women’s approaches to investing diverge from men’s. The most notable ones include adhering more to analysis rather than instinct, prioritizing long-term returns over immediate gains, and generally trading securities less frequently.
There are a few clear steps that firms could take immediately.
Even though the number of college students pursuing finance and math degrees is close to evenly split along gender lines, most internships and entry-level jobs at hedge funds still belong to men. Firms can start levelling this out and identifying a larger pool of women investors by emulating what Silicon Valley is already successfully doing on college campuses.
Tech firms, ranging from Apple to Salesforce.com, have reimagined how they strike a connection with tomorrow’s talent. Companies such as Apple have used their digital footprint to share stories, information, and social-media content about their culture and life in the industry.
Others have sponsored hackathons and on-campus gamification experiences that replicate what a day in the life could be like. This type of communication has an inclusive, welcoming effect that is often lacking in the alternatives world. Leading hedge funds could forge an ongoing dialogue with students about the appeal of a career in investing — whether through regional events, sponsorships, guest-lecturing programs, or hosting classes at their offices. We can’t expect young women to embrace our industry out of school if they don’t understand it or feel welcomed.
Creating the right infrastructure
Many firms have made great strides when it comes to recognizing that women, particularly mothers, require more workplace flexibility. It finally is no longer taboo to take full maternity leave, periodically work remotely, and sometimes maintain flexible hours. We need industry standards to ensure that women at hedge funds have access to this infrastructure and that their organizations fully support them in using it. Respected outfits such as the Managed Funds Association and Alternative Investment Management Association can help provide guidance for all firms.
Investing in women
It is a difficult asset-gathering climate, but that doesn’t mean we should stop trying to increase access to capital for current and future women-run funds. Allocators of capital, ranging from funds of funds to public pensions, can play a critical role. Setting specific allocation targets for female managers, even if it’s only 20% over the next five to 10 years, will help ensure that women don’t remain perpetual outliers in the industry. We also need more programs like the ones supported by New York City Comptroller Scott Stringer.
The Comptroller’s Diversity Working Group was formed in 2017 to identify opportunities for greater diversity among emerging and estab-lished investment managers hired by the city’s pension plans. There is no silver bullet for increasing the number of women in our industry. But if we want a stronger and more diverse industry in the years to come, we must take meaningful and substantive steps today.
Main reasons for investing in alternative UCITS strategies
Average TER* charged by alternative UCITS funds
*TER includes management fees and additional expenses but does not include performance fees
Average performance fee charged by alternative UCITS funds
The impact of artificial intelligence on front-office models is significant
Use of big data continues to proliferate
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