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ANALYSIS

THE ‘DAVID’ PROBLEM

WRITTEN BY MILES KRUPPA

Just how bad is the fund industry’s gender gap? More men named David launched funds in the past five years than all women combined, Absolute Return research found

hilton Investment Com- Chilton usually makes final trading after September 11, 2001, when she pany may be typical for decisions. had travelled to Los Angeles while C bearing the name of its “He trained me, so we think about seven months pregnant to meet male founder, Richard investing in the same way,” Foster with the chief executive of one of Chilton, a billionaire known for his says. “But the other good news is we the firm’s portfolio companies. careful style of stock picking. are two different generations, we The executive never made it after But these days, investment deci- are two different individuals and we dying in one of the hijacked planes, sions are just as likely to come from are two different genders. That has and Foster suddenly found herself Jennifer Foster, the $2.5 billion firm’s brought some diversity of thought in a Los Angeles hospital receiving co-chief investment officer. to our yin and our yang, which has treatment for premature labor. Af- Foster took on Chilton’s top in- been helpful.” ter a one-week no-fly order expired, vestment role in 2016 after nearly Foster valued Chilton’s mentorship Chilton chartered a private plane for two decades of working at the firm. her and two others who had been Recruited by Chilton out of Harvard Specific features of stranded on the West Coast. Business School, Foster says the patrimonialism – trust, loyalty “I think Richard just did a gentle- eponymous founder served as her manly thing and what he thought direct mentor from her first days and tradition – allow elite white was right to do,” Foster says. “I don’t as an analyst. She now calls herself men to maintain monopolies think he was doing it to solidify my the Charlie Munger to his Warren loyalty. But it did.” Buffet. of power and authority in Chilton’s decision to make her hedge funds, which stymies the Post-crisis co-chief investment officer, she Foster is a statistical rarity in the says, was recognition of her role at advancement of women and male-dominated indus- the firm and not part of a broader minority men. try. Since Alfred Winslow Jones succession plan. The two contribute started the first “hedged fund” in equally to investment ideas, though MEGAN NEELY 1949, investment heads have almost

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Even son Capital Management, is typical- George Soros. “It is also the charac- as the industry has grown to man- ly not listed as a co-founder of the teristic of any investment manage- age $3 trillion for some of the world’s firm led by her husband, Clint. She ment operation or any Wall Street largest institutions, women have owns between 10% to 25% of the operation. It is largely been locked out of money firm compared to Clint Carlson’s the exact same phenomenon.” management roles. 50% to 75%, according to regulatory One result is that women have Of the more than 250 billion-dol- filings. Similar for NWI Manage- been cut out of the hedge fund in- lar American hedge fund firms, ment, where Chandrika Hariharan dustry’s massive wealth generation. none were started by a solo female owns 25% to 50% and her husband, Fewer than 10% of billion-dollar founder, according to Absolute Re- Hari, owns 50% to 75%.) American hedge funds are at least turn research. Women co-founded part-owned by a female employee, just seven, or less than 3%, of the There are way too many hedge according to an Absolute Return billion-dollar hedge funds. analysis. Women occupying execu- Only two of those firms were funds and there’s way too much tive positions in compliance, legal founded by women who also hold money still in the space. And not and operations are often excluded a top money management role, from the firm’s equity structure, such as chief investment officer. enough of them are women. But viewed as incidental to the predomi- Altogether, just 10, or under 4%, of in what I do, allocating to man- nately male portfolio managers. billion-dollar American hedge funds Male control of the hedge fund in- were either founded by women or agers, I’m trying to find the best dustry has also come under scrutiny employ women in top investment talent on the planet. That is not a in the wake of the broader #MeToo roles. movement. An HFMWeek survey of Absolute Return calculated the gender-specific exercise. hedge fund employees found that numbers after reviewing regulatory 60% of women experienced some BETSY BATTLE filings, public documents and web- form of harassment at a previous sites associated with firms included employer. 39% of women said senior in the most recent Billion Dollar The hedge fund industry is not an management was not doing enough Club ranking. Brazilian and Canadi- anomaly among its peers. A 2011 Har- to promote a discrimination-free an hedge funds were excluded from vard Business School study found work environment, according to the the analysis, as were asset manage- that women held just 6% of senior survey. ment conglomerates where hedge investment roles at , Men have maintained a more pos- funds are not the primary business. real estate and firms. itive view of the industry’s response A review of the most recent hedge (About half of all marketing and to workplace concerns. Only 15% of fund startups produced similar re- investor relations jobs were held men said working conditions have sults. From 2013 to 2017, 4.28% of new by women, by comparison.) Female not improved in the past five years, hedge fund firms managing more chief executives also lead only 4.8% compared to 25% of women. than $50 million were founded or of Fortune 500 companies. co-founded by women, according to “I don’t think this is just specific to Investing in women data from Absolute Return surveys hedge funds,” says Betsy Battle, who Some investors have begun to re- of new fund activity. More men founded the fund of hedge funds think their practices in light of the named “David” founded hedge funds Lone Peak Partners after running investment management industry’s than all the women combined dur- investment manager selection for stark gender imbalance. ing the five-year period, and wom- About a quarter of Athena Capital en-led firms managed just 3.10% of KEY DATA Advisors’ wealthy clients have asked the assets measured by the surveys. the investment advisor to structure Of the seven women who founded their portfolios using so-called “en- billion-dollar American hedge funds, vironmental, social and governance” two did so as part of a husband-wife factors. That process can include team: Mary Naphtal with her hus- what the firm calls a “gender lens” of band Warren (P/E Investments) and investing. Victoria Zoellner with her late hus- 3.1% “Just as lenses in a telescope can band, Robert (Alpine Associates). allow us to see galaxies light years Forbes magazine ranked Zoellner as away, a gender lens can be used to one of the America’s wealthiest “self- see, more clearly, a distant vision of a made women” this year, with a net more gender inclusive society,” Ath- New fund assets (2013-2017) managed worth of $510 million. by women-led hedge funds ena employees wrote in a January (Nancy Carlson, a partner at Carl- 3+97+C paper explaining the concept.

ABSOLUTE RETURN SEPTEMBER 2018 ANALYSIS

But Athena has encountered a KEY DATA smaller, women-led managers. challenge applying the gender lens Other billion-dollar hedge funds to hedge funds: There aren’t enough led by female investment profes- established, women-led firms that sionals include Chilton, Cowen provide the kinds of risk-adjusted % Investment Group and Criterion returns their clients expect. Athena 9.73 Capital Management. In total, wom- Firms with women holding has instead sought out hedge funds ownership stake en-led billion-dollar American firms employing diverse teams, and espe- managed about $31.5 billion at the cially firms that show a propensity of whom are women: Mala Gaonkar beginning of the year, or less than for promoting women to top posi- and Kelly Granat. Beginning in 2019, 2% of the total. (Women also hold tions. Mandel plans to cede all money high-ranking investment positions “That’s different than the other management duties to the group of at firms like AQR Capital Manage- fund that maybe has the same sta- portfolio managers, who each own ment and , tistics, but it’s just luck. It’s not part 5% to 10% of the firm, according to where no one person controls in- of their culture,” says Kate Hunting- regulatory filings. vestment decisions.) ton, who co-heads Athena’s research Lone Pine ranks as one of the Promoting women in the indus- and manager selection team. most profitable hedge funds of all try would have a range of benefits, Lone Pine Capital, founded by Ste- time, making $27.2 billion in net according to academic research. phen Mandel, is one notable outlier. gains since the firm’s inception in Multiple studies have shown that di- The firm is now led by a group of 1996, according to data from the verse teams produce better business three investment professionals, two London firm LCH Investments. The results. One 2016 study found that firm managed $10.5 billion in hedge women-led funds outperformed funds at the beginning of the year. their male counterparts by almost Bracebridge, the roughly $10 an entire percentage point. Yet some billion firm co-founded by Gabriel investors still caution against over- Sunshine and Nancy Zimmerman, weighting gender in the manager is the next largest American hedge selection process. fund to feature a female investment “There are way too many hedge head. The firm’s early backers in- funds and there’s way too much clude the Yale University endow- money still in the space,” Battle says. ment and Tom Steyer, the retired “And not enough of them are wom- founder of en. But in what I do, allocating to Management. In one example managers, I’m trying to find the best cited by Athena, a client decided talent on the planet. That is not a to invest with Bracebridge after gender-specific exercise.”

RICHARD CHILTON AND JENNIFER FOSTER cycling through a succession of Huntington thinks investors have

AMERICAN HEDGE FUND STARTUPS RUN BY WOMEN (2013-2017)

AuM $m (Jan. 1 of Firm Name Strategy Founder Founding year Current status following year)

Tse Capital Management Macro Irene Tse 2013 635* Running

Cormorant Asset Management Global Equity (Healthcare) Bihua Chen 2013 485 Running

Quadratic Capital Management Nancy Davis 2015 398 Running

Centenus Global Management U.S. Equity Sara Nainzadeh 2017 265 Running

Margate Capital Management U.S. Equity Samantha Greenberg 2016 210 Running

One Tusk Investment Partners Event Driven Vivian Lau 2016 131 Running

SCP Investment Global Equity Sanford Colen, Kara Dille 2017 100 Running

Ailanthus Capital Technology Genevieve Kahr 2015 80* Running

Kenbelle Capital U.S. Equity Meredith Whitney 2013 62* Closed

TriLinc Global Advisors Credit Gloria Nelund 2017 53 Running

Source: Absolute Return research *estimate been conditioned to invest in male- led hedge funds because, in part, it BILLION DOLLAR CLUB ASSETS has for years appeared to be the only BY GENDER OF INVESTMENT HEAD(S) option. Industry groups such as 100 Firms led by male Firms led by female Women in Finance have attempted investment heads investment heads to rectify the issue by promoting 98.06% 1.94% women in the industry and working as an informal broker for firms look- ing to hire more women. 980+20= “You know what you see,” Hun- Source: Public filings, websites, Absolute Return research tington said. “If the universe of pos- sible managers to choose from are primarily men, then that’s familiar, “Specific features of patrimoni- the industry continues to do well.” that seems to be the population and alism – trust, loyalty and tradition Foster, however, says she has rare- that works.” – allow elite white men to maintain ly felt excluded from Chilton’s inner monopolies of power and authority circle. “Richard has welcomed me as Hedge fund ‘patrimonialism’ in hedge funds, which stymies the a protégé almost from day one,” she For all the hand-wringing and statis- advancement of women and mi- says. “There are golf outings every tics, the hedge fund industry is reluc- nority men,” Neely wrote in a paper now and then…that I’m not invited tant to propose inward-looking ex- published by the journal Socio-Eco- to, but I don’t get terribly offended, planations for its gender imbalance. nomic Review. since I don’t golf.” As in other heavily-male, white-col- These tendencies emerge most Perhaps optimistically, Foster lar professions, people sometimes prominently, she says, in lines of thinks the hedge fund industry in- point to factors that extend beyond hedge funds descended from a sin- creasingly sees the value of hiring the industry, such as deficiencies in gle patron, such as Julian Robertson and promoting women. She encour- math and science education and the of . ages young women to work at hedge structure of entry-level investment “My research suggested that these funds, despite their reputation as a banking jobs. forms of patronage may not be wan- boy’s club. Megan Neely, a sociologist and ing, but becoming less publicly visi- “The industry genuinely wants postdoctoral fellow at the Clayman ble, especially to people outside the more women at the table,” Foster Institute for Gender Research at industry,” Neely writes in an email. says. “…I think you’re going to find Stanford University, uses the philos- “The considerable research on how people who welcome you. Not every- opher Max Weber’s theory of “patri- wealth is passed down, both among body, but show me one institution monialism” to explain the problem families and in businesses, suggests that welcomes everybody well.” of “white male domination” in hedge that these structures will endure Michael Rodwell contributed funds. beyond a few generations, as long as research to this article.

BILLION DOLLAR CLUB HEDGE FUNDS FOUNDED BY WOMEN

Firm Name Strategy Founders Founding year AuM $bn (Jan. 1)

Bracebridge Capital Macro Gabriel Sunshine, Nancy Zimmerman 1994 10*

Avenue Capital Group Distressed Sonia Gardner, 2000 9.5

P/E Investments Macro Mary Naphtal, Warren Naphtal 2000 6.79

Varde Partners Distressed George Hicks, Marcia Page 1993 6.39

Contrarian Capital Management Distressed Jon Bauer, Janice Stanton 1995 4.8

Criterion Capital Management Global Equity Louis Chang, Tomoko Fortune, Chris Lord, David Riley 2002 2*

Alpine Associates Merger Robert Zoellner, Victoria Zoellner 1984 1.83

Source: Absolute Return Billion Dollar Club *estimate

ABSOLUTE RETURN SEPTEMBER 2018