In a previous post, we discussed whether female fund managers differ from male managers with regard to performance and risk. The answer we gave: they don’t!
Differences in risk, but not in performance
In their paper 2007 “Sex Matters: Gender Differences in a Professional Setting” (catchy title, huh?), Niessen-Ruenzi and Ruenzi shift the focus: from a pure performance analysis to risk preferences, investment styles, and trading activity of male and female mutual fund managers. Differently to Atkinson et al. (2003), they do not match the funds. Instead, they run a pooled regression analysis with a dummy variable which takes the value one if the manager is female and zero otherwise. So, the loading on the “Female” dummy tells us about the gender differences.
Different method, different results
In contrast to Atkinson and coauthors, Niessen and Ruenzi find significant differences between male and female fund managers. Table 1 shows that female managers (a) take less risk, (b) show less extreme investment styles, (c) are more consistent in their style over time, and (d) trade less than male managers. But as in Atkinson et al. (2003), the performance of male and female fund managers is the same.
|Unsystematic risk/Small firm risk||Extremity measure||Trading Activity||Jensen-Alpha|
Table 1: Unsystematic risk, small firm risk, extremity measure, trading activity and performance measures. Source: Tables 2,3,5,7 of Niessen/Ruenzi (2007). *** indicates significance at the 1% level, ** at the 5% level.
Investors treat female fund managers differently
So, if female fund managers achieve the same performance with less extreme styles, more time-consistent behavior, and less trading, investors should prefer female fund managers, right? Wrong! Niessen-Ruenzi and Ruenzi again find that female-managed funds have significantly lower inflows than male-managed funds. Table 2 shows that the effect is sizeable: up to 17%!
|Normalized asset flows (Fama and MacBeth regression)||Normalized asset flows (pooled regression)|
Table 2: Net fund flows, Source: Table 10 of Niessen/Ruenzi (2007). *** indicates significance at the 1% level, ** at the 5% level.
Who then employs female fund managers?
Now, consider the problem faced by a fund family. If you hire a female fund manager, you know that investors will put less money into your funds than when you hire a male fund manager. But your earnings have a one-to-one relation to fund size: you charge a fee equal to a fixed percentage of the assets under management! So, the larger the fund, the more money your company gets to keep. This raises the question: which fund families employ female managers, even though this leads to lower inflows? And what are their reasons for doing so?
Size and age matters
Niessen-Ruenzi and Ruenzi show that large and established fund families employ a higher proportion of female managers. Also, fund families in less conservative areas of the United States employ more female managers. These differences are plausible: larger companies have to observe stricter diversity criteria, those active in less conservative areas are less likely to have investors with a high gender bias. An alternative explanation: self-selection! Job security may be a major concern for female fund managers, causing them to apply more to larger, more established companies.