With competition for seed money so cutthroat these days, raising capital is a difficult process for anyone working in this tough and volatile economy. Yet, studies show that gaining access to capital is much more challenging for women than it is for men. As a result, women are at a serious disadvantage when they are looking to start their own hedge funds.
Despite the recent findings that hedge funds managed by women have performed above average while limiting losses during 2008, only a infinitesimal number of funds are managed by women. The National Council for Research on Women reports:
“While half of U.S. investment capital comes from women, women are severely under-represented on the other side of the desk. Women represent a scant 10 percent of traditional mutual fund managers and an even lower percentage in alternative investments fields. Only 3 percent of approximately 9,000 hedge funds have a woman in charge.”
Susan Solovay, founder of Pomegranate Capital, a the now-closed fund of funds firm that focused solely on female managers, told Financial News that hedge funds are “still a bit of an old boys’ club. Unfortunately, a lot of people associate richness with maleness. The large institutional investors are predominantly run by men and they naturally feel more comfortable investing with other men.”
According to the Financial News Women in Finance survey, 67% of women in the hedge fund and private equity industries feel that their gender has negatively impacted their ability to have a successful career.
In 2012, The National Council for Research on Women put out a report entitled “Women in Fund Management.” The report states:
“During the startup phase, hedge fund managers typically require significant allocations of cash from external sources in order to get the ball rolling. Here women appear to be at a distinct disadvantage. According to data from Hedge Fund Research, Inc., women and minority managers reporting to HFR have, on average, comparable experience to and better returns than the average of all managers reporting; however, women- and minority-managed funds have considerably fewer assets under management than the broader group ($73.7 million vs. $308.2 million, respectively, on average).”
Yumi Kuwana, founding principal of Cook Pine Capital, which specializes in creating customized hedge fund portfolios for high net worth families, says the number of women-run hedge funds is so small that even if investors are looking to add women-run funds to their portfolios, sometimes they are hard to find. Kuwana states:
“The lack of a critical mass of hedge funds with women portfolio managers or ownership makes it a challenge to construct a portfolio that is broadly represented by women-led hedge funds.”
The Importance of Networks
When it comes to raising seed money, robust formal and informal networks are crucial. In the “Women in Fund Management” report, Sheila Wellington, clinical professor at New York University’s Stern School of Business states:
“The insights, connections and vital career help that come from networking cannot be overestimated. Informal networks are doubly important for women, many of whom think that burying their heads in their work is what matters most. It isn’t.”
Recognizing the need to create strong networks, many powerful and dynamic networking venues have been created such as 100 Women in Hedge Funds and 85 Broads. Yet, as crucial as these organizations are for women working in the financial services industry, more needs to be done. NCRW’s report warns:
“Women cannot set up exclusive networks without marginalizing themselves even more, so they must use those networks as tools to broaden connections with men as well as with each other. In fact, most women who have succeeded at senior levels in the field developed effective relationships and networks with key men in their companies who supported their advancement.”
5 Steps to Increase Capital Flow
The “Women in Fund Management” report has some great recommendations to help increase the flow of capital into women-run funds. They are:
- Require that those who make investment decisions on behalf of institutional investors such as pension funds or endowments seek out investments and investment managers that represent more diverse perspectives and experience as well as superior risk-adjusted returns.
- Encourage women – and men – of means to use their wealth as a force for change by investing in women-managed funds and/or women-friendly companies.
- Identify and create visibility with more advertising and media coverage for successful women-managed funds.
- Highlight research that shows that women-run funds and businesses tend to have results comparable with men-run enterprises when the playing fields are level, so more investors consider a woman manager or woman-owned equity for investment.
- As customers and shareholders, exert pressure on companies to implement investment policies that support diversity.
With women-run funds performing above-average even in this tough economy now is a great time for women to enter into the alternative investment sector. As Stephanie Hanbury-Brown, an MD with Golden Seeds, an angel investor network dedicated to achieving above market returns for investors through the empowerment of women entrepreneurs, said in a Rothstein Kass report entitled “Women in Alternative Investments – Industry Outlook and Trends”: “It’s imperative that more women enter the alternative investment community. We need to demonstrate that we can be and are good stewards of capital across sectors.”