Big data set to boost prospects for female star managers

The changing world of investing is now putting a growing premium on female intuition. Traditional star culture – mostly centred on male portfolio managers – has been withering on the vine in this decade, as they have struggled to deliver their target returns after fees. The culture has also exposed fund managers to key person risk: the loss of assets when a prominent manager departs abruptly.

Most fund managers are now playing down the cult of personality and adopting a team approach that draws upon a broad range of life experiences and different perspectives. The new approach is reinforced by the rise of Big Data and machine learning.

Separating noise from signal remains a huge challenge as fund managers have sought to extract investible information and actionable insights from today’s rising mountain of unstructured data from various sources. The problem is magnified when portfolio managers use machine learning, which remains a dark box: even the rock stars of data science don’t know why their advanced algorithms do what they do.

Hence, a new form of collaboration is emerging. In it, women portfolio managers are believed by various research studies to bring a key attribute: the ability to intuit a problem when even a spreadsheet suggests otherwise; in other words, seeing what others are seeing, but thinking what others are not.

Male portfolio managers are intuitive, too. But employers now believe that women portfolio managers tend to be stronger on subtle nuances and deeper meanings. On this point, evidence from various studies is mixed. But they are agreed on one point: teams comprising male and female portfolio managers tend to deliver better investment results.

A mixed gender team translates into a richer variety of approaches to investment-related challenges and is conducive to innovation that improves returns. The implied cognitive diversity is not about equality, per se, but may lead to equality based on merit, as a side effect.

Of course, as in sports, teams don’t always succeed. But they do provide a fertile ground for female portfolio managers to exercise their talent. And this is already happening. For example, female hedge fund managers have outperformed over extended periods; as have female mutual fund managers in India.

Data on such outperformance carry the usual health warnings. But they do show that the conventional glass ceiling has been shattered. And the idea of a female star manager is no longer a pipe dream.

I have outlined these ideas in more detail in my article in today’s FTfm today (21st January 2019), if you are a subscriber.

 

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