A report from HRT, published in 2009 found that hedge funds run by women routinely outperform their male counterparts. The analysis suggested that female run funds generated an average annual return of 9% between 2000 and 2009 while male run funds raised an average of only 5.82%. Despite those numbers male managers still dominate the industry heading up 97% of all funds. With this data in hand is it possible that women are actually better at investing than men? The Economic Times of India sought to prove just that last week in an article. And if so why do men still dominate the field? The arguments behind women as better investors theory can be persuasive, the major ones will be outlined in the next few paragraphs.
The idea that women are more cautious and less prone to taking undue risks has been around for years. Several studies have shown that females are more likely to take care and be cautious when faced with uncertainty. This idea would lead to female investors being less likely to lose a lot of money in one go and be more likely to grow their investments at a steady measured pace.. The benefit of this in investment circles could be questions, after all if women are less prone to taking risks what are they doing managing a head fund. However it is possible that these effects play out to make women better steady growers in investment rather than large risk takers.
It has also been suggested that men are more prone to bouts of overconfidence that lead them into risky behaviors. Neurological studies have suggested that in demanding stressful circumstances men react with anger and women with fear. This would mean that in a very difficult market situation women would be more likely to wait it out and see what will happen while men are much more likely to drive ahead believing themselves to be in control. The effect on a fund would be clear and it would possibly favor the cautious.
These factors may be persuasive, allowing us to see gender behaviours in everyday life and superinmpose them on hedge fund results. The only important factor so far has been the outperformance of female led funds in the last decade. The scientific studies that suggest things like over confidence in men and caution in women are only scientific studies not proven scientific fact and there is a great difference. Scientific fact comes about after tens or even hundreds of scientists have done the same experiment and come out with the same result. One experiment simply doesn’t mean truth in science. We are however well able to believe many of these conclusions based on our own non scientific observations.
The piece of evidence to suggest that women are better investors than men is a strong one. It is based on statistical evidence from real data. It shows a correlation between being female and having a higher rate of return between the years 2000 and 2009. However statistical correlation does not mean fact. The bias against female hedge fund managers, resulting in only 3% being women may have meant that the female managers were better because they had to be to break into the realm at all. They may have been the best women out there for the job whereas men who have an easier time getting into the world may have a greater range in their abilities.
The important thing is to look at fund strategies and see if there is commonality between female strategies. Once that has been shown it is possible to study whether or not women are better investors. Maybe women are better but the world hedge funds operate in is so complex and involves so many people that I personally find it hard to believe the gender of the person on top of the fund has any great effect on the fund’s performance.