By Frances Denmark
When she was a 19-year-old economics major at Columbia University, Andrea Feingold, now 44, won an internship in the bond market research department at Salomon Brothers during the firm’s testosterone-fueled heyday of the 1980s. In 2001, after a stint as co-head of the high-yield group at bond giant Pacific Investment Management Co. in Newport Beach, California, Feingold and business partner Ian O’Keeffe opened Boston-based credit specialist hedge fund Feingold O’Keeffe Capital with $10 million. The firm’s assets have since grown to $1.3 billion, powered by a net annualized return of 10 percent.
Renee Haugerud traces the roots of her knack for futures and options trading to an airplane ride with her sheriff-farmer father over the cornfields of Minnesota when she was five. By the time she was ten, he had taught her all about put and call options. Haugerud, 53, went on to become a successful trader at food and agricultural conglomerate Cargill, the second-largest privately held company in the U.S. In 1999 she launched New York-based Galtere, a global macro commodities hedge fund that has produced an annualized 17.75 percent return since inception and now has $2.1 billion in assets.
Then there’s Jane Siebels, who is out to save the world with her hedge fund. Bahamas-based Green Cay Asset Management has $300 million under management and invests in socially responsible emerging-markets companies shorting those that don’t measure up. Siebels, 48, is on a self-imposed dual mission to improve working conditions in the third world as she produces alpha for her investors. When she pitched the strategy a decade ago, her former boss, famed global investment manager Sir John Templeton, found it compelling enough to become one of her first investors. The Green Cay Emerging Markets Fund has produced annualized net returns of 16.33 percent since its 1997 inception, easily outperforming the MSCI emerging markets index, which was up 11.81 percent a year for the same period.
Feingold, Haugerud and Siebels represent a largely undervalued and untapped source of alpha, as women manage a tiny percentage of hedge fund assets. Not surprisingly, these alpha females – women who are so good at running hedge funds that their returns are often better than those of their male competition – have had to crash through a multitude of barriers. When it comes to investment management, sexism is alive and well. Academic research has shown that all things being equal, investors will choose a man over a woman to manage their assets. Women have also had to overcome a natural reluctance to display marketing brawn.
“Women don’t seek out opportunities to self-promote,” says Elizabeth Flisser, until recently the president of Capital Z Investment Partners, a private equity firm based in New York that invests in and takes minority positions in hedge fund start-ups.
“Women tend to keep lower profiles,” adds Kathryn Crecelius, CIO of the $3.1 billion endowment at Johns Hopkins University in Baltimore. That may be changing lately, however, as more woman-owned firms hire marketing and investor relations professionals.
Next comes the motherhood argument. For decades women were taught that they could not have it all. Today, although some top managers choose to bypass or delay motherhood, a number of women really are doing it all – managing a hedge fund and raising three or four children. They have discovered that, unlike a career in investment banking, running your own hedge fund allows for some flexibility. But these uncommon women – Feingold, Haugerud and Siebels – aren’t so uncommon anymore. “When we started in 2001, there weren’t many women managers,” Feingold says. “That’s really changed. There are more women actually doing the investing and managing.”
As female-driven funds have grown in size and number, many of the women running them have begun working more aggressively to attract institutional assets. It may be the perfect time to do so: Many pension funds and endowments looking for safe harbors in the market storm of the past year have been turning to hedge funds that are registered with the Securities and Exchange Commission, have low or no leverage and can deliver good, consistent returns with no surprises. Most woman-run funds fit that description, and they may offer other benefits as well. Although most of these women believe that their investment acumen is no different from their male counterparts, they claim unique characteristics that add value. Among them: modesty, calmness, honesty, intuition, aversion to outsize risk and a tendency to use leverage at about half the industry average.
“I think there’s something useful about humility; it comes easier to women and is helpful in minimizing losses,” says Karen Finerman, who runs a special-situations, long-short hedge fund with partner Jeffrey Schwarz. The fund, New York-based Metropolitan Capital Advisors, has $350 million in assets and has produced 13.5 percent annualized returns since its 1992 inception.
Merely having women on a team seems to add value. “The most important thing for a trading team is diversity,” asserts Haugerud, who recruits females: Six of the 12 investment professionals at her firm are women.
Other women managers have taken a similar approach. Finerman’s three dedicated analysts are all women; Feingold has three female investment professionals on her team of 12.
“The women who are in the hedge fund industry are among the sharpest people I have come across,” notes John Casey, principal of Casey Quirk & Associates, a Darien, Connecticut-based investment consulting firm. “I think there’s tremendous progress being made in women being an important part of this world.” Casey qualifies his view, however: “It’s still in its early stages.”
Within the 10,000-fund, nearly $2 trillion hedge fund world, there are roughly 325 women managers, according to Susan Solovay, CEO of New York-based fund of funds Pomegranate Capital Management. Collectively, they report returns on $60 billion in assets to Pomegranate, which Solovay founded in 2006 to exploit perceived inefficiencies in the hedge fund market by investing solely with women managers. Some women are heading for hedge funds straight out of college or business school, bypassing investment banks and proprietary trading desks. “We’re seeing more women because of the way the industry is growing,” notes Flisser.
And an increasing number of seeding platforms like Capital Z and Chicago-based Citadel Group?s PioneerPath are giving women more start-up opportunities. A Greenwich, Connecticut-based women’s group called 85 Broads which began as a coalition of current and former Goldman, Sachs & Co. employees in 1997 (85 Broad Street is Goldman Sachs’ address in New York) has launched Bench Strength, a program to encourage the top tier of female college graduates to join hedge funds. Janet Hanson, founder of 85 Broads, is working with John Pierson, president and CEO of hedge fund search firm 10X Partners, to funnel qualified women into hedge funds. “Although I see fewer women than men, I see more women flowing in now,” Pierson says. “These women are pretty exceptional.”
Although many investors may not have noticed, dozens of women have been quietly posting impressive returns. Sandra Manzke, CEO of Maxam Capital Management, a $2.4 billion fund of hedge funds in Darien, Connecticut, began investing in long-only women managers in 1986 soon after she founded her first investment firm, Tremont Partners. More recently, she designed the Maxam Diversity Fund to invest with ten hedge fund managers, all minority or female. The Chicago Transit Authority committed $10 million in 2005 and has seeded half of that so far. That fund has already proved its value, and the woman-run funds have performed even better. Maxam tracks 150 minority- and woman-managed hedge funds – 43 are woman-owned – and the six woman-owned funds in the Diversity Fund collectively produced an 11.28 percent annualized return for the five years ended June 30, 2008, compared with 9.45 percent for the Diversity Fund as a whole and 7.65 percent for the HFRI fund-of-funds composite index. For the 12 months ended June 30 – arguably one of the worst periods in financial history – the six woman-managed funds were up 5.36 percent, outperforming the total fund (up 3.89 percent) and the HFRI fund-of-funds index (up 0.35 percent). By comparison, the Standard & Poor’s 500 index was down 13.11 percent.
Despite their investment success, women for the most part have struggled to attract seed money. “Women have a harder time raising money,” observes Johns Hopkins?s Crecelius. Although a handful of women oversee more than $1 billion in assets, none of their funds has made Alpha’s annual list of the 100 largest hedge funds. With about $3 billion in assets, Traci Lerner’s Chesapeake Partners in Baltimore, a value-oriented distressed fund, is the largest woman-owned fund.
Being small can make it tough to win mandates from institutional investors. Antonio Munoz, CEO of EIM Management USA, the U.S. arm of the $15 billion Swiss fund-of-funds firm EIM, estimates that no more than 20 to 30 woman-run hedge funds are big enough for institutions to consider. Eight of them, he says, are in his firm’s portfolios, including Haugerud’s Galtere.
Anne Casscells, CIO and co-president of $6.5 billion Aetos Capital in Menlo Park, California, has just three women managers on her roster of 45, but that’s three more than most funds of hedge funds have. “I guess I know a lot more women hedge fund managers than a lot of people do,” Casscells says.
In 2006 researchers at the Olin Business School at Washington University in St. Louis designed an experiment meant to determine the relative appeal of investing in a company run by a man compared with one run by a woman. They created almost identical pitch books for two companies positioned as potential private equity investments. Firm personnel, top-management and company financial details were all exactly the same. Only one factor distinguished the companies from one another: In one case the CEO was a man; in the other it was a woman. The photos of the two CEOs – who had identical education and work histories – were carefully chosen to present a similar level of attractiveness. Then the two pitch books were randomly distributed among a group of more than 200 sophisticated private equity investors, 20 percent female and 80 percent male.
The results were startling: Three times the number of investors, both male and female, selected the male-owned firm. “I thought there would be a difference of maybe 30 percent more for the male firm,” says Judi McLean Parks, an Olin professor of organizational behavior and co-author of the study. “But 300 percent!”
Magnifying the stark results, the majority of the investors participating in the study said that the woman-owned firm was a riskier investment and that the female principal would be less able to handle a crisis. Parks says their results shatter the commonly held assumptions that “professionals are making their decisions by the numbers” and that “if you are a sophisticated investor, the sex of the CEO should be irrelevant.”
This would not be news to Haugerud, who is unhappy with the glacial pace of women?s entry into hedge funds. She believes that the lack of leadership diversity in the financial industry and the sameness of vision that it engenders has been a major cause of the recent market turmoil. To help address the problem, Haugerud is considering starting a school for women traders. “There are men who want to take advantage of women’s trading skills, but they don’t know how to tap into them,” she says.
Haugerud’s belief in the added value women bring to the investment arena is backed up by a study by professors Brad Barber and Terrance Odean of the University of California. The research, which was published in the 1999 paper “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” found that overconfidence is ultimately what leads men to fail at investing. Barber and Odean determined, in a sample of 35,000 discount brokerage accounts, that men traded 45 percent more than women, lowering the men’s investment returns by 93 basis points compared with those of the women.
“Overconfidence causes people not to recognize risk and to use more leverage,” explains Odean, who a decade later stands by the pair’s conclusion. “People have not changed.”
Women also outperformed men in a study by Brooke Harrington, an economic sociologist who holds a doctorate from Harvard University. Harrington found that mixed-sex teams delivered the best returns. She looked at the annualized returns of about 700 investment clubs in the U.S. from 1986 to 1997 and compared them with those of the Standard & Poor?s 500 index. The clubs were either all male, all female or mixed. The female clubs beat the S&P by 28 basis points while the men-only groups performed 56 basis points below the index. The coed groups outperformed the S&P by 198 basis points.
“You have an additional layer of checks and balances when you have diversity on the senior management team,” says Theresa Welbourne, an adjunct professor of organizational behavior and human resource management at the University of Michigan and the University of Southern California. “People are more likely to question each other and have a robust dialogue and come up with better decisions because of that.”
Maxam CEO Manzke, who began researching hedge funds after she founded Tremont in 1984, says she is not surprised by such research but is mystified by how little it seems to matter. “Guys blow up, lose all their investors? money, start up a new fund and get people to invest again,” she says. “I don’t get it.”
Neither does Green Cay founder Siebels. After the emerging-markets meltdown in the late 1990s, several hedge fund managers closed their funds to reset their high-water marks. “I wouldn?t do that, and I think most [other] women wouldn?t either,” asserts Siebels. In 2006, at Templeton’s suggestion, legendary hedge fund manager Julian Robertson Jr. invested in Green Cay. Robertson also invited Siebels to participate in his twice-monthly luncheon meetings, nicknamed “The Investment Group,” at his Tiger Management Corp. offices in New York. (The two other women who have standing invitations are Anne Dias Griffin, founder of Aragon Global Partners in Chicago, and Joanne Stone Morrissey, co-founder of New York-based Firemark Investments.)
Most women who work in hedge funds hold positions in marketing, client services and investor relations. It seems natural, then, to expect the women who do manage assets to trumpet their achievements. Siebels says she realized how much less outspoken she was than male rivals when she hired a marketing consultant. “He told me, You are not nearly as arrogant as a typical hedge fund manager,” and chastised her for being too self-critical when writing investor letters. “He told me not to do that.”
It was Nancy Havens’s investment acumen that prompted Bear, Stearns & Co. to make her its first female employee-director in 1992 (she started at the now defunct investment bank as a merger arbitrage analyst in 1979). “I subjugated the woman stuff until 1992,” Havens recalls of her former reticence to highlight her gender. Once she became a director, however, she began to use her position to make sure women were treated fairly. When she left in 1995 to start her own merger arbitrage and distressed-investing firm, New York-based Havens Advisors, Havens, who has a Harvard MBA, didn’t focus on self-promotion – a decision she has come to regret. Despite delivering annualized returns of about 10 percent in her flagship Havens Partners, her firm has only $200 million under management, prompting Havens recently to hire a marketing professional.
Feingold, the Boston-based manager, has relied for more than a year on a full-time marketing executive, which has allowed her to concentrate on portfolio management. She has been in the thick of the credit crunch and at the request of an investor in January launched the Feingold O’Keeffe Distressed Loan Fund with $70 million in assets. That fund is up almost 4 percent, and the firm’s flagship Feingold O’Keeffe Capital I Fund was up 2 percent in the first half of 2008, compared with -1.28 percent for the Merrill Lynch high-yield index. Feingold, a marathon and triathlon competitor who has climbed Mt. Kilimanjaro, has built a proprietary database to help sort loan market opportunities that go largely unpublicized, unlike better-known megadeals. “We are looking for underfollowed ideas where there is little or no Street research and our experience gives us an edge,” she says.
Sometimes the marketing lesson learned is simply not to give up. When Joanne Egrovich’s partner pulled out of their Greenwich, Connecticut-based, $650 million Heirloom Capital in early 2006, she was forced to close it and was briefly at a loss as to what to do next. But the consumer sector of the fund that she had managed had realized a 16.7 percent annualized return (before fees) over its four-year life and one happy investor encouraged her to start anew. In November 2006 she launched Kacela Partners, hoping to continue to capitalize on her expertise in the consumer and retail sectors. Kacela had a total return before fees of 14.9 percent in difficult markets through August 31 of this year, easily outperforming the S&P consumer discretionary index, which was down 23.7 percent for the same period. Still Egrovich, 37 and a self-described optimist, realizes that it?s going to take time to stage a full comeback. (Her experience as a seven-year-old immigrant from Ukraine made her a firm believer in U.S.-based investing.)
“The funding environment is more focused on international markets and larger multibillion-dollar funds,” notes Egrovich, who began her career as a junior general analyst at mutual fund company AIM Capital Management in 1992. “Given that we are a little under $100 million and are U.S.-equity- and consumer-sector-focused, it?s probably going to take a little longer.”
Small though it is, the latest generation of women hedge fund managers is well represented by people like Jennifer Pomerantz. One of three women among 20 portfolio managers at Highbridge Capital Management, Pomerantz, a classically trained pianist, co-manages the firm’s roughly $1 billion global natural resources fund with Nick O?Grady. She joined Highbridge in 2006, two years after JPMorgan Chase & Co. acquired a majority stake in the now $28 billion New York-based firm.
Pomerantz, 29, wrote her thesis at the University of Chicago on the geopolitics and economics of oil and follows such arcane details as oil tanker capacity and traffic. She was early to predict the huge spike in energy prices during the past 18 months. “We ascertained that there was a mismatch between supply and demand for refining capacity before the market knew that,” explains Pomerantz. Her research on energy markets takes her to Latin America, Asia, the Middle East and Europe, where she quizzes CEOs and government officials.
The increasingly global nature of the hedge fund industry offers many opportunities for women around the world. Aude Lagey is a Paris-based senior portfolio manager on the high-yield and corporate loan desk at $13 billion Dexia Asset Management, which runs about $5 billion in hedge fund assets. Lagey, who manages the $1 billion Dexia European High Yield and Corporate Loan Fund as well as the $90 million Global High Yield Fund, says she has witnessed the benefits of gender diversity firsthand, particularly during the credit crunch of the past year. When the credit crisis first struck in July 2007, Lagey was at the helm. “We didn?t know how much money we were going to lose or how many clients were going to call and ask to take their money back,” she recalls. Juggling anxious clients and market mayhem as she worked 12-hour days, Lagey credits her ability to stay levelheaded in a crisis with pulling her through.
Women don’t manage stress the way men do, notes Lagey, 29, who earned a postgraduate degree in finance from the Sorbonne in 2001. “We don’t necessarily have the same reaction as men. We can have a different sensitivity when we analyze a situation, such as micro or macro views of the world. We bring a kind of diversity.”
Women managers are making their mark on Asian hedge funds too. Wing Mui Chris Tang, the 33-year-old CIO of Hong Kong-based Marco Polo Pure Asset Management, has managed that firm’s Marco Polo Pure China Fund since its September 2004 inception. The $150 million fund has had annualized returns of 34 percent but suffered this year along with most China funds. The Shanghai A-share index is down 54 percent; Tang’s fund is down 34 percent. She was able to salvage some losses by shorting index derivatives and going to cash. After picking among the wreckage, Tang says her current core holding is Guangdong Kangmei Pharmaceutical Co., a leader in traditional Chinese medicines. Reform of the Chinese medical system is expected to provide opportunities for this company, and Tang, a CPA who does her own research, is predicting growth in sales and profits of 40 to 50 percent over the next three years.
Cara Goldenberg, 28, one of the youngest women ever to launch a hedge fund, in June opened Permian Investment Partners in New York with $65 million in assets. She starts out with an impressive pedigree. Goldenberg, who has an undergraduate degree in chemistry from Yale University, has been a buy-side analyst at Morgan Stanley, a financial analyst at Highbridge and a portfolio manager at New York-based Brahman Capital, where she helped construct and oversee a European equity portfolio whose assets exceeded $2 billion.
Like other women who have succeeded in hedge funds, she believes performance is all that should matter and someday may be all that does in an industry that seems not to be so irrationally awash in testosterone as it once was.
“It is a great field for women to succeed in,” says Feingold.
Adds Kacela’s Egrovich: “It isn?t about the X or Y chromosome. It’s about the performance chromosome.”