There is no discernible difference between the performance of mutual funds run by teams of just men or just women, but when you mix the sexes in fund management, a new study has found, fund performance often suffers.
The problem is not gender diversity, the study’s authors and other researchers suggest, but social and cultural biases that need correction if the benefits of diversity are to be realized.
The study is titled The Impact of Work Group Diversity on Performance: Large Sample Evidence from the Mutual Fund Industry. The study’s authors are Stefan Ruenzi, an assistant professor of finance at the University of Cologne in Germany and visiting professor at the University of Texas at Austin, and Michäela Baer and Alexandra Niessen, both Ph.D. students at the Centre for Financial Research in Cologne. Their study has been circulating this fall as an academic working paper and is available at www.ssrn.com/abstract =1017803.
The researchers focused on actively managed domestic equity funds in the US that were managed by a team at some point from January 1996 to the end of 2003—an average of around 300 funds a year. They were interested in any correlations between the performance of the funds and the gender composition of their management teams. They found that gender diversity was inversely correlated with performance. To put this into an investment context, the researchers ask us to imagine two hypothetical mutual funds, one managed by a team of four men and the second by a team of three men and one woman. On the assumption that the future is like the eight years covered by their study, the researchers predict that the first fund will outperform the second by an average of 1.22 percentage points a year.
In an interview, Ruenzi emphasized that he and his fellow researchers did not think their findings were caused by any inherent differences in men’s and women’s abilities as managers. The researchers had found no detectable difference, on average, between funds run only by men and those managed only by women. Both types of single-sex teams outperformed funds run by teams containing both men and women, on average, regardless of the exact make-up of the mixed team. Ruenzi said he thought the negative effect of gender diversity on fund performance could be traced in large part to the poorer communication that often exists in mixed teams. As a result, he said, the single-sex teams were more likely to operate more effectively.
Woman power: Gautami Desai (left) with Swati Kulkarni at the UTI office in Mumbai.
Women fund managers are few in India. UTI Mutual Fund (UTIMF), and Sundaram BNP Paribas Mutual Fund are among the handful of asset management companies (AMCs), where women fund managers can be found. These women fund managers do not quite agree with Ruenzi’s findings. Or, one can say they are not really vocal about the problems of perception they encounter at work. Mint spoke to a few such women fund managers, who have been in the business of managing other people’s money for several years and are part of teams that are male dominated. They said gender bias does not come in their way of being a great fund manager. Swati Kulkarni, a 43-year-old fund manager with UTI MF, manages more than Rs4,000 crore across five actively managed equity funds and four index funds. Kulkarni manages a few of these funds with her male colleagues. “We all work towards the common goal of meeting the fund’s objective,” she said. “I have rarely come across an instance where we have had any differences or communication gap with male colleagues.”
Kulkarni’s colleague Gautami Desai, 33, who manages Rs1,500 crore across five equity funds of UTI, agreed. “There are no concessions and advantages of being a woman in this profession,” Desai, a six-year industry veteran, said. When the industry is facing an acute shortage of fund managers, and there is lack of continuity, women fund managers can prove to be more patient and persistent in staying with a fund, she added.
Jyoti Vaswani, 37, an associate director of fund management at Aviva Life Insurance Co. India Pvt. Ltd, who has spent 14 years in the fund management industry, echoed the views of her peers. “Good or bad performance of a fund has nothing to do with the gender,” she said.
A woman fund manager, who did not wish to be identified, said there are sometimes subtle differences as to how her response is treated. “If I am not aware of something, it is looked upon with suspicion,” she said. “If it were my male colleague, then that’s not the case.”
At first, this new study’s findings seem to be at odds with some past research that found instances when gender diversity improved investment performance. E. Brooke Harrington, an assistant professor of sociology and public policy at Brown University and visiting scholar at the Max Planck Institute for the Study of Societies in Germany, found that mixed investment clubs, on average, outperformed the typical single-sex investment club. She attributed this so-called diversity premium to the added perspectives included in decision-making when both sexes are present. She will report these results in her book, Pop Finance: Investment Clubs and Stock Market Populism, scheduled to be published by the Princeton University Press in February.
Ruenzi said he thought his findings and those of Harrington were not as contradictory as they might appear. Compared with Wall Street, he said, the typical investment club is far more welcoming to women and better able to benefit from the added perspectives that diversity can bring. Women have traditionally made up about 60% of the membership of these clubs, according to Bonnie Reyes, president and chief operating officer of BetterInvesting, a national organization of investment clubs. By contrast, according to Ruenzi, fewer than a third of team-managed mutual funds have even one woman on the management teams. When a woman serves on a fund management team whose other members are all men, for example, she may not be willing to share her ideas, or will not be taken as seriously when she does. As a result, the fund may realize few, if any, of diversity’s benefits. ©2007/THE NEW YORK TIMES
Mark Hulbert is editor of The Hulbert Financial Digest, a service of MarketWatch.
Rachna Monga contributed to this story.