When Women Manage Money, Investors Win

Laura Lutton: Hi, I'm Laura Lutton. I'm here at the Morningstar Conference with Meredith Jones. She is the author of Women of the Street: Why Female Money Managers Generate Higher Returns (And How You Can Too). Thanks for joining us.

Meredith Jones: Thanks for having me.

Lutton: So, what was the inspiration for the book?

Jones: Well, I actually started in the hedge fund industry in 1998, about six months before Long-Term Capital blew up, which was great timing on my part. And I have spent a lot of time wondering why I had gotten involved in the industry to begin with. But what was really interesting, I think, and a little disheartening was that I didn't actually meet another person who looked like me who had a similar job to mine until 2007.

So, nearly 10 years after I started, I met another female who was doing manager selection, due diligence, portfolio construction. After that, I became really interested in the dearth of women money managers. Why I hadn't I come across more? So, I started to do research on women in minority-run funds and discovered that there was significant outperformance by these types of diversity funds. And over time, that interest really crystalized into me being more interested in the women's side of the equation for fairly obvious reasons. That's what inspired me to write the book.

Lutton: In your book, you lay out some of that research at the beginning about why women tend to outperform, and then you go into great detail on a number of women money managers at very diverse strategies. What do they have in common?

Jones: There are some traits that women tend to exhibit in terms of how they interact with the market, and those are influenced by biology, they are influenced by cognition, and they are influenced by behavior. So, for example, women tend to invest away from the herd. They are not necessarily looking for trendy. They tend to be long-term investors, and so they're looking for investments they can make that will sustain them for the long term. And if you look at all the women that I interviewed, you tend to see that recurring theme across all of them, whether they are in hedge funds, long-only, venture capital, private equity, or real estate. The holding periods were in the two-, five-, 10-, even 15-year periods sometimes.

Women are also very good at sticking to their knitting. So, they are very good at consistently executing a strategy. If you look at the women that I interviewed, they all are very specific about what they look for in an investment, what causes them to invest, and what causes them to get out of an investment.

The other thing is, even though people might think that women are more emotional when it comes to investing, that's actually the complete opposite of what's true. Women tend to be less emotional. So, when you look at the women that I interviewed, they were all very unemotional--they weren't attached to their investments. They were investing strictly according to their guidelines. They were perfectly happy to take a step back. They weren't net sellers into the market meltdown of 2008, for example--and as a result, they have, over time, generated exceptionally high returns.

Lutton: So, they have shown a lot of patience?

Jones: A lot of patience, a lot of creativity, and also they have been willing to take risks. They all are risk-takers. You can't generate returns without taking risk, and they've taken risks both within their portfolios and with their careers.

Lutton: That's really interesting. At Morningstar, we recently did a study, and we found that the numbers of women mutual fund managers are similar to what you're talking about in private equity, hedge funds, and so forth. So, what do we do in financial services to attract more women to money management?

Jones: Well, you are right. The numbers are abysmally low. The Morningstar study was yet another nail on that coffin, I think. Right now, if you look at Wall Street, only about 5% of the people who are taking risk with capital are women. If you look at the hedge fund industry, there is an 80 to 1 male/female ratio. If you look at private equity, for example, there are six men named John, James, William, or Robert for every zero female portfolio manager within a private equity firm. So, the numbers are distressingly low.

And I think that probably the best way to boost the numbers is to show research that there is a compelling financial reason to include more women within companies and to include more women within portfolios. We all know that investors and Wall Street are the most profit-driven individuals and companies that you can possibly find. So, if there is a dollar to be made in including more women in a portfolio or from hiring more women, I think that's really the key to changing behavior. And that will definitely increase demand as we go forward, and that will boost the number of women in the ranks of money management.

Lutton: Thanks, Meredith. It's great to have you here.

Jones: Thank you.