Female Investment Managers Outperforming Men

NEW YORK - Women advisors are more risk averse than their male counterparts and, in the wake of the financial crisis, that has proven to be a good thing.

Cathy Smith of Allianz Global Investors’ center for behavioral research told an audience of 200 advisors at the Women Advisors Forum on Wednesday that women portfolio managers and hedge fund managers have outperformed men over the past five years. Smith said this is a result of the fact that women are more risk averse and tend to hold less risky portfolio positions.

“Risk aversion is often thought to be a negative, but it has had some good ramifications when it comes to investment performance of late,” she said.

Investors in general prefer to avoid a loss rather than seek a higher return, Smith said. “People feel the pain of a loss twice as much as they feel the pleasure of a gain,” she said.

Loss aversion is exacerbated when investors look at their investments more frequently, and, in today’s 24/7 news cycle, investors are seeing market conditions constantly. She said it is important to work closely with clients so they can avoid the emotional experience and ignore short-term losses.

“We have to get our client to think of all of this as a long-term portfolio,” she said.

Smith said women are making important in-roads in the financial sector, but it remains a male-dominated industry. She said that dominance has led to over-confidence, excessive trading and lower returns among male advisors.

BARGAINING AND NEGOTITATION

Women also have less appetite for competition, especially when it comes to bargaining and negotiations.

“Women interpret it as adversarial,” she said. “Women avoid entering negotiation and often ask for less.”

According to research from Babcock & Laschever, the average starting salary for male MBA’s from Carnegie Mellon is 7.6% higher than women. According to the research, only 7% of women attempted to negotiate their salary, as opposed to 57% of men.  Of those who negotiated, they increased their starting pay by 7.4%.

Smith pointed out the similarity between those percentages as she implored women advisors to begin negotiating.  “Women need to become more comfortable with salary negotiation,” she said. “This is critical.”