In recent years, there have been an increasing number of pensions and other institutional investors who have expressed interest or started investing in women and minority owned investment companies. Indeed, such investing is now mandated for public pension plans by several states, including Ohio, California and Illinois. However, the debate over these practices remains fierce, while the number of women and minority owned funds continues to be relatively small, even as demand increases.
Barclays Capital has published a paper – Hedge Fund Pulse - Affirmative Investing: Women and Minority Owned Hedge Funds, which attempts to answer some of the practical, performance- and risk-related questions surrounding women and minority owned hedge funds, including:
What is the rationale behind launching a women and minority owned
investment company initiative?
What are some of the objections to “affirmative investing”?
What is the potential growth in AUM of women and minority owned hedge funds?
What does the universe of women and minority owned hedge funds look like?
Can supply meet demand?
Is there a performance differential between women and minority owned hedge funds and the full hedge fund universe?
Are there differences in volatility and “risk” within the women and minority
owned hedge fund universe?
Why is the universe of women and minority owned hedge funds relatively
Are there advantages to being a woman or minority owned hedge fund?
What are the particular challenges faced by women and minority owned hedge funds?
Who are the primary investors in women and minority owned hedge funds?
To answer these questions, Barclays Capital constructed a women and minority owned hedge fund index, and also surveyed and interviewed more than 25 managers and investors.Key findings of the report include:
The appetite for women and minority owned hedge funds appears to be growing, and the potential assets at play could be very substantial, eventually topping USD378 billion.
The number of women and minority owned hedge funds remains quite small, representing only 3.3% of hedge funds.
The number of women and minority owned hedge fund launches increased from 2006 to 2008, but has retrenched in 2009 and 2010, probably due to the economic meltdown.
Qualifying as a women or minority owned fund is very precise, and can be derailed by initial seeding or funding options if a manager isn’t very careful.
Women and minority owned hedge fund firms tend to be smaller (median USD65 million assets under management) and younger than their non-diversity peers.
Performance, both in terms of absolute returns and risk-adjusted returns, is substantially stronger for women and minority owned hedge funds than for the hedge fund universe at large.
Risk aversion, while academically noted in women investors, seems to play a role in capital preservation, with women and minority owned funds outperforming their nondiversity peers in market downturns.
While women and minority owned hedge fund firms are generally optimistic about the opportunities available for such companies, they still see barriers to entry.
There exists some controversy around “Affirmative Investing” with some amount of public outcry against the policy.