Women of The Street

Why Female Money Managers Generate Higher Returns (and How You Can Too)

M. Jones

• Publisher: Palgrave Macmillan
• Year: 2015
• ISBN:
  9781137462909
• Topic: Business
• Subtopic: Financial Services
• Index: Business

Women invest differently than men. Collectively, their approach has proven profitable and reliable, and it outperforms the industry at large. The portfolio managers interviewed in this book exemplify the best traits that women investors tend to exhibit. Read Women of the Street to learn from them and start investing a little more like a girl.

PART I

The Research

Introduction: “The Women”

In 2007, I traveled to Evanston, Illinois, to meet what had up to then been for me an urban legend of the alternative investment industry—women portfolio managers. Sure, I knew that women portfolio managers existed. I had tracked several women-owned or managed funds in various hedge fund databases for a few of my nine prior years in the industry. This was, however, my first in-person sighting.

Constance (Connie) Teska and Kelly Chesney of Pluscios Capital Management run a fund of hedge funds based in Illinois. I spent all afternoon with them, exchanging ideas, talking markets, and comparing investment philosophy. They gave me their history in the investment industry, and I shared mine. We didn’t braid one another’s hair or exchange recipes, but aside from that, it was as deep a bonding experience as I have had in my professional life.

I left that meeting and did what any Southern woman does with good news to share: I called my mom.

Even though my mother is not in the investment industry, she listened intently to my re-cap of the day. From then on, she never missed an opportunity to ask about Connie and Kelly.

“How are The Women?” she would ask.

On another day: “What do you hear from The Women?

After the market crash in 2008: “Are The Women okay?”

When I look back on her use of that generic terminology, I realize that I am in many ways to blame for her language. My mom, like most people, had only a passing familiarity with the hedge fund industry. She had never heard me, or anyone else for that matter, tell stories about the market exploits of a non-male investment wizard. George, John, Warren, and Julian were familiar names to her. Connie, Kelly, Leah, Nancy, Catherine, Renee, and other female monikers were completely foreign.

My mom is not alone in believing the hedge fund industry specifically, and the money management industry in general, is a man’s world. At the writing of this book, I estimate that there are fewer than 125 female-owned or managed hedge funds out of roughly 10,000 or more funds worldwide. John Coates, senior researcher in neuroscience and finance at Cambridge University, has said that “[e]ven with massive diversity pushes I don’t think there is more than 5 percent women taking risk in the financial world, starting from the trading floors to the asset managers.”¹ Certainly, there is a wealth of female participants in the hedge fund and investment industries. You’ll often find women marketers, investor relations staff, operations and compliance personnel, or financial officers. Rarely do you find a woman in the driver’s seat as the decision-maker who decides what to buy and sell and when.

As a result, those few intrepid female portfolio managers have had to look pretty far afield to find mentors and role models. One portfolio manager I interviewed as background for this book described her investing idol to me in detail. Nicknamed the “Witch of Wall Street,” this manager’s mentor developed a tried-and-true methodology for growing and protecting wealth:

• invest conservatively

• keep substantial cash reserves

• don’t let emotion rule your investments

This investment philosophy served the Witch of Wall Street well, creating a vast pool of wealth estimated to be $2 billion.² Unfortunately, this portfolio manager has not been able to meet her mentor and learn her market wisdom directly.

Why didn’t they chat? Because the Witch of Wall Street, otherwise known as Hetty Green, died in 1916.

This female portfolio manager, faced with a dearth of investors who thought and traded like she did, researched a woman who had been dead for nearly a century to use as a role model. Hence, one of the many reasons I decided to write this book.

When people ask why I feel a project like Women of The Street is so important, I can now practically anticipate the questions and objections.

• If there are so few women in the industry, why bother?

• Why doesn’t anyone ever talk about men who perform well?

• Isn’t the sample too small to draw any real conclusions?

• Are you a sexist?

These questions come up so frequently that I now answer them almost by rote.

It has been proven, in my research and that of others, that women invest differently than men, upon whom a wealth of investment research has been conducted. Collectively, women’s approach, which is in many ways similar to Green’s tenets above, has proven profitable and reliable, and it outperforms the industry at large. More women portfolio managers in the investment industry would be good for investors. Being able to choose an investment manager whose approach more closely mirrors your own is also a positive. Diversification of investments, be it by strategy, asset class, or gender, is good for all investors. Deploying some of the techniques that women instinctually use can be beneficial to investors, male and female. The fact that I’m researching women’s unique and potentially valuable investing skill set does not mean I’m a sexist. It simply proves I’m a capitalist.

Finally, providing women with role models who did not own Civil War bonds is crucial to attracting more female portfolio managers. They need to know there is a place for them in an industry that tends to celebrate only big and splashy wins, such as George Soros’ $10 billion bet against the British pound and John Paulson’s $3.7 billion subprime mortgage win.

The investment industry is one in which both the tortoise and the hare exist. Not surprisingly, we hear stories only about the hares who make a big killing on a few risky deals. Even more intriguingly, we all know that at the end of the fable, the tortoise wins. And, as Margaret Thatcher famously quipped, “The cock may crow, but it’s the hen that lays the eggs.”³

This book celebrates the steady and consistent execution of an investment strategy that results in long-term outperformance. The portfolio managers interviewed exemplify the best traits that women investors tend to exhibit. Their example will help encourage the next generation of women portfolio managers, and their wisdom can inform your investment decisions, no matter what your gender. At the end of the day, I hope you learn from them and that this book makes you invest “like a girl.”

CHAPTER 1

The Feminine Investing Mystique

Why should an investor care whether a money manager wears Louboutins or loafers?

Because money—how to keep it and how to make more of it—is on everyone’s mind. That’s why it pays to invest in the “broad” market. The research in this chapter is clear: women investors think about investing differently than men. They have a set of innate skills that can translate into higher returns on investments. These skills can foster not only better profits for investors but also more diversification within investment portfolios. If you want to be a better investor, or if you want better returns, you should try investing “like a girl.”

Why Women Money Managers?

In the past five years, the number of institutional investors (corporate and public pensions, endowments, and foundations) with mandates expressly for women-owned or managed funds has increased. Illinois, New York, Maryland, and Pennsylvania, among others, now have specific investment directives for “emerging managers,” defined as firms owned by women, minorities, disabled persons, or veterans.

In some cases, institutional investors in these states and others want to more closely match the investment style of their portfolio with their constituent base. The investment methodology of women is simply different from their male counterparts’. This divergent approach, coupled with the excess returns it can bring, is increasingly attracting investors. In the first quarter of 2014 alone, public funds in Connecticut and New York collectively allocated more than $1.3 billion to diversity mandates, including, but not limited to, women-owned and managed funds.

Many people ask me why gender does and should matter in investing. Let’s assume an investor represents a retirement plan for teachers. According to the National Center for Education Statistics, there were 3.7 million full-time equivalent elementary and secondary school teachers (as of fall 2012), 76 percent of whom were female.¹ Roughly 7 percent were non-Hispanic black and 4 percent were Hispanic.² Yet their money has historically been managed by the one group underrepresented in those statistics: white males.

For the general public, the story is much the same. According to a Family Wealth Advisors Council study, 95 percent of women will be the primary financial decision-maker for their families at some point in their lives, and women currently control 51.3 percent of personal wealth.³ In a post on “Understanding the Increasing Affluence of Women,” author Judith Nichols asserted that “American women by themselves are, in effect, the largest national economy on earth, larger than the entire Japaense economy.”⁴ By 2030, women will control roughly two-thirds of the wealth in the United States,⁵ and yet only 30 percent of Registered Investment Advisors are women,⁶ a figure that has been relatively stable for the last decade.⁷

In short, people are, and should be, thinking about who manages their money. According to the Investment Company Institute, most investors do not own individual stocks. In 2002, 52.7 million US households owned equities, primarily through stock mutual funds in their retirement plan, and only 17 percent had exposure to invididual equities.⁸ Not only was this percentage low to begin with, but the amount of money being invested directly into equities has been steadily declining, with net capital outflows every year from 2002 to 2012.⁹

In comparison, the amount of household assets invested with registered investment companies (RICs) has increased dramatically. In 1980, only 3 percent of household assets were managed through RICs. By 2012, that number had increased to 23 percent.¹⁰ As a result, most individual investors spend more time picking investment funds than individual stocks. Until recently, the behavioral component of money managers (mutual funds, hedge funds, and other investment advisors) was not much of a consideration for most investors. However, with the advancement of neurofinance and continuing research into the behavioral factors that influence how we invest, the behavioral characteristics of our money managers are gaining importance.

The simple fact is, as much as we don’t want to admit it, most investors, including professional money managers, do not always act rationally. Every investor has certain prejudices, from loss aversion to overconfidence bias, that impact investment decisions. It is impossible to find an investor without these individual predispositions. While a computer model eschews personal emotions, even artificial intelligence remains subject to macroeconomic behavioral biases. The January effe...

Table of contents

• Cover
• Title
• Part I   The Research
• Part II   From Theory to Practice: Public Equity Investing
• Credit Investing
• Private Markets: Venture Capital, Private Equity, and Real Estate
• Funds of Funds Investing
• Part III   Investing As and Like a “Girl”
• Notes
• About the Author
• Index