Profiling Female Hedge Fund Performance And Noting Differences

Female hedge fund managers have a decidedly more compelling risk return profile than do their male counterparts, a new study shows.

The key returns demographic, most coveted by institutions, has been dominated by females for the previous five years

When it comes to the sweet spot of returns, female hedge fund managers excel. Based on five year return percentiles, 40 percent of woman-run Hedge Funds fall in the 5 to 25 percent returns category while half as many, 20 percent of male-run hedge funds fall in this category.

The 5 to 25 percent range is critical because this area in which most institutional investors focus. Returns above 25 percent, significantly beyond the beta performance of any index, are often viewed with suspicion with the downside risk for a snap-back mean reversion event a concern. Stories involving returns above 25 percent are typically best told in the retail world.

Female hedge funds also dominate in conservative investment category

What’s perhaps interesting is the returns profile under 5 percent.

This is another area where women have a slight edge. While many might scratch their head and wonder why a hedge fund returning under five percent may be of interest? The fact is, institutional investors would love an investment that can “conservatively” and consistently deliver an investment return at this level. The differentiated institutional investors are perhaps best known not for their absolute returns performance as they might be regarding low drawdown and consistency. Ideally in a world where volatility has been predicted institutional investors might earn their keep during crisis and have a strong degree of noncorrelated investments in their portfolio. This, of course, is the talk of risk managers, and women, on a statistical basis, excel in this role.

Can one profile female hedge fund performance without logically considering gender preferences?

Reading a confidential report on “A Deep Dive into the Women-Run Hedge Fund Universe” from Kyria Capital Management, one can’t help but think of gender stereotyping and politically correct analysis. In investing is it appropriate to consider politically correct objectives or is it all about returns? If the focus is on “female” investing, what are the statistical observations that speak to investing truths for performance management? If gender profiling yields positive returns performance is it justified? We can’t answer all these questions, but can consider just a few components.

On a statistical basis, for instance, we can document that women excel in and populate compliance and risk management positions in the regulated derivatives industry, for instance, based on category distinctions and membership into their exclusive compliance societies. (I have crashed some of their meetings in Chicago.)

But can this translate into a performance edge?

KYRIA Capital Management, whose stated objective is altruistic in helping women in alternative investing, puts statistics in their study and analyze performance on a five and ten year basis.  While the report did not note this, but statistically for women a ten year track record is something few have attained, which could be a comment on societal changes keeping pace with hedge fund statistics.  Thus, the five year returns profiles are perhaps most interesting to note, and this is where the out-performance is most significant.

Even still, the number of female hedge fund managers is still low, with 132 total active hedge funds as of June 2015 with 77 hedge fund managers. As the importance of risk management and volatility control comes more in vogue among institutions – these are the mantra words of noncorrelated investing – then we might see even more female hedge fund managers.

KYRIA is forming a hedge fund index to track the female performance factor. On a side note, watching the risk management stats, separating out upside and downside volatility and keeping an eye on consistency of drawdown management, might be the most important statistic to consider of all.