Though the latest Preqin data shows that only 7.1% of hedge fund board positions are filled by women, firms are taking greater responsibility and looking to reform hiring processes and offering educational opportunities to improve diversity, equity and inclusion…
Over the past 18 months, DEI has become central to conversations around hiring, specifically in relation to severely underrepresented industries such as hedge funds.
More than ever, hiring managers are aware of subconscious and unconscious biases, both of which can lead to creating teams that lack diversity.
“There’s a science that has developed around decision making to optimise it and get the best quality and consistency. I think that employers now have a more psychological approach to both decision making and running a business than ever before,” observes Penny Aitken, European head of diversifying alternatives research at Mercer.
Despite this, data from Preqin shows that less than one quarter of senior positions in alternatives are held by women, and only 10% of portfolio management staff at hedge funds are women.
In Asia, hedge funds are performing better than in the US or EU, with 31% of people moves here involving women according to Solomon Page data, and 18.6% of Chinese hedge funds having the highest proportion of female employees in senior positions according to Preqin research.
In terms of representation in the hedge fund manager universe, data published by Hedge Fund Research found that women were also best represented in Asia in 2021.
Research has also demonstrated that having more women founders can affect diversity within a company.
Albourne and AIMA’s joint D&I Questionnaire from 2020 showed that when managers reported >33% equity ownership or profit participation by women, the average split between male and female employees was 55%/45%, while male-led firms showed a 70%/30% split.
On average, the data showed a 50% increase in the proportion of women at firms where women held a substantial economic stake.
Hiring
With pressure mounting, hedge funds and large asset managers are finally switching up their approach to hiring and trying to recruit beyond their traditional pool of candidates.
Managers have come under pressure from investors and legislators to diversify and make the space more inclusive.
“More and more, investors are embracing the idea that more diverse teams can lead to better decision making and that homogeneity may be a source of risk. Institutional investors, including many endowments and foundations, pensions and healthcare organisations share this perspective,” say Tathata Lohachitkul, partner, portfolio analyst and Irina Ludkovski, partner, operational due diligence analyst, Albourne.
This has led to firms changing their approaches to hiring to try and change the old narrative.
“Hedge funds are increasingly asking recruiters about what we’re doing as a supplier to help get more diverse talent pools through the door, which is a really positive step,” says Mush Ali, director at recruitment firm OneTen Associates.
“All the top ten hedge funds are making proactive changes. Once you get past $5 billion AuM, if you want to grow further, it appears to be top of their agenda when it comes to talent,” he adds.
Changes are slowly being made as more women gradually enter the industry.
In the past, women were often placed in investment relations and marketing roles, but there has been some movement and progress.
“Historically, we tended to see more women in investor relations or business development roles, which would probably still be classified as front-end. Whereas now, we’re starting to see more women making investment decisions, as portfolio managers, analysts and researchers,” notes Lisa Lewin, director, BNY Mellon | Pershing.
But the sector is still struggling to enact these demands, with as little as 5% of private equity and hedge fund firms introducing diversity and inclusion initiatives to their funds, according to the latest Preqin data.
What’s more, data from Solomon Page’s 2021 DEI report shows that only 29% of hedge fund moves were women in the US (compared to an industry average of 42%) and only 26% were women in Europe (compared to 44% across financial services).
Advisors and consultants are increasingly looking to push for more surveys on diversity, equity and inclusion as investors demand more transparency on these issues.
Pensions advisory firm Cardano recently partnered with service provider Mallowstreet to launch a new annual DEI survey of pension boards. DEI is one of the top three challenges for the UK pensions industry, and the survey is looking to identify barriers to diversity within the industry.
The survey is a response to The Pensions Regulator’s latest Equality, Diversity and Inclusion Strategy Roadmap which has set guidelines for how pension funds should be looking to change.
“Pension funds represent their stakeholders and pension members. So as these issues become increasingly important within society and therefore to their clients, they will obviously become more important to anyone servicing those pension funds,” notes Aitken.
According to Preqin data, investors have better female representation throughout the workforce, with 34.4% of junior positions, 26.1% of mid-level positions and 16.7% of senior roles filled by women.
However, for fund managers – including venture capital which is the asset class with the highest female representation – women only make up 13.0% of senior roles.
Part of the problem could lie in the policies and procedures that firms use for hiring, as well as retention and promotion issues.
“Firms often source from their existing network and may not proactively seek out female candidates, which narrows the talent pool. There may also be a lack of anti-bias training in assessing candidates at the recruitment and promotion levels in some firms,” suggest Lohachitkul and Ludkovski.
Education
Certain hedge funds have started to look into launching educational programmes to introduce hedge funds to more students.
“This is a long-term problem which requires a long-term solution. The talent pool is really limited in the space and that’s a challenge, but the hedge fund industry needs to spend more time educating at a school and university level so that people know that there are opportunities that exist for everyone in hedge funds,” says Ali.
Previously the industry had been known for requiring specific types of qualifications from candidates and only selecting people with a certain calibre, but since research has proven that more diverse teams produce better results overall, changes are being made.
“The diversity of the hiring pipeline has become a business requirement, as the financial industry competes for talent, and (based on the conversations with managers who completed the Albourne and AIMA D&I Questionnaire in 2020) many managers now want feedback and guidance on what they can do to improve DEI,” observe Lohachitkul and Ludkovski.
“At the same time, the industry is developing internship programmes that attract college students at earlier stages of their education, resulting in increased exposure of women and diverse groups to the financial industry that until recently has been perceived as being relatively homogeneous,” they add.
Opportunities and hiring processes are finally under closer examination and being reviewed in the hedge fund space.
“We’re seeing many more avenues open to hedge funds and investment managers to hire from more attentive sources of talent pools, and be more creative through either internship programmes, apprenticeship programmes, or different graduate programmes, rather than a traditional Ivy League or Oxbridge candidate,” says Aitken.
Despite this element of progress, Aitken still believes that more needs to be done.
“I think there’s still work to be done around terminology and accessibility. There needs to be more education, and that should probably start in school and be presented as a viable career option to all students,” she says.
Lewin thinks that firms have a very real role to play if things are to progress and women are to be given a real opportunity in the industry.
“Funds have started to think about different initiatives that they can implement internally to foster female talent. Whether it’s hiring more women in analyst roles, or with the intention of helping them develop into a senior investment professional or portfolio manager, we’re seeing more funds and companies undertake these initiatives to try to help provide career growth to women. That will be very helpful in continuing the trend of more women in these positions,” she observes. 
