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News! This year the HFRX Women index reported returns of 9.95% compared to 4.81% for the broader range of hedge funds. That’s 5.14% women doing better at managing funds! Exciting, but we forget one thing: sample size. There are indeed less of us in the financial world than men. Actually, only one in 20 hedge funds will employ a female portfolio manager, according to a 2015 study by Boston’s Northeastern University. Not only that, but women do have to go through some extra milestones to achieve fund manager status. Why is that? Let’s dig into this a bit more.
We lack women in the financial industry, and we all know it. Fewer than 10% of equity income managers in the UK are women, and just 7% of retail investment funds are managed by women. In America, women represent 18% of the field force compared to nearly half in medicine. This proves that the sample size is indeed smaller, but why is it that women have to accomplish more to get there? According to FT, this is because of the problems women face when trying to raise money from investors. It’s much harder for them to raise capital for investors, maybe because of survivorship bias or some other social bias.
This means that the female fund managers who overcome this milestone are obviously better equipped and are more likely to get the position. We are comparing the top 25% of female managers to all male counterparts, which explains the 5.14% index gap. However, there are some more interesting things to say: men and women do have slight differences when managing portfolios. That said, women and men do have some differences when managing a portfolio. Hedgenordic explains that men become overconfident, which then increases trading activity resulting in lower performance. Women are not so much into high risk taking, meaning it’s less likely for a company to fail or crash.
So does that still mean women are better than men at managing a fund? Of course not. Although men may manage differently from women, both methods will have their pros and cons, balancing the overall performance. For the best performance, a company should have an equal mix of male and female fund managers. This will reduce the amount of market crashes and large economic losses, says Daniel Ladley. We need more ladies!!!! How can we get them to join?
How can we encourage more women to join?
First of all: Education.
Girls in school don’t get to admire great female engineers, scientists and finance gurus, so they may feel discouraged to take a certain subject. We need to do the opposite: encouragement. Women need to be told that it’s ok to be into finance, that it is not a ‘male’ job and that they will feel comfortable and respected working in those fields.
Second of all: Finance is flexible
Finance is one of the more flexible job fields in terms of employment and work hours. Many can be done through computers at home, and can turn into a self-made business. Finance is an essential part to entrepreneurship, which is another great vocation for women with families and other hobbies. So by demonstrating how Finance works as a path to financial independence, women will be more encouraged to try it out.
Third of all: Conditions
Although we know that it’s about hiring the best person and not the black/gay/female, some effort must be put into making women feel more comfortable in the work force. Catherine Stott from RB found that female traders in the UK felt awkward and unable to ask questions when on courses mostly attended by men. These women ‘felt unconfident to talk in an environment where they felt unwelcome‘ and so do not realise the important part they have to play in the trading environment.
It’s a problem, and we know it. But things are improving! It makes me so happy to see SO MANY female Personal Finance bloggers. And they all have very interesting and different angles to finance in general (being a mother, cooking, mental health and so many more). More and more women are talking about finance and it’s great for the country, the economy, and of course, the people. I’m excited to see more of us up there learning about money and how to make it work for us. Maybe my dream of seeing the next ‘Grandma Warren Buffet’ won’t be so far off…
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