If you have been reading Abnormal Returns for any amount of you time you would know we have an interest in why there are so few female money managers. I touched on the topic in my book back in 2012. (You can read that excerpt at FT Alphaville.) In fact last year in a post we described it as a “market failure.” In conclusion I wrote:

Whatever is driving the gender disparity in portfolio management it is in incumbent for investors to note how they reap advantage from what is a potential market failure. Whether it be identifying more diverse teams or managers with inherently more motivation (and grit) it behooves investors to look at ways at building portfolios with this in mind.

Leah McGrath Goodman at Newsweek has an extended look at this issue of gender disparity. She talked on (and off) the record with a number of female money managers about the challenges they faced in launching their own funds. One of the biggest issues seems to be a matching problem. Getting female money managers in front of the right people. Goodman writes:

The problem, according to both sides, seems to be a disconnect between women-run funds and their would-be investors. “You have to have great performance and numbers, but, beyond that, you also have to have a vital network of people who will vouch for you,” says Victoria Hart, who launched her New York–based hedge fund, Pinnacle View Capital Management, in 2013. “Starting your own fund is a colossal endeavor…. You have to pitch people, and they have to really know you or get a feel for you if they’re going to give you money. There has to be that personal connection and trust.”

However you slice the data there is a disconnect. It could be a blatant case of bias. Or as Goodman suggest in the article it may a matching problem. That is female money managers are less able to connect with decision makers. Whatever the reason there seems to be an ongoing market failure that has not yet been addressed. Again from the Goodman article:

“I have been doing this for 15 years, and I can say that women bring a diversity of thought that can create an asymmetric profile that increases returns,” says Susan Webb, CEO and chief investment officer for Appomattox Advisory, a New York company that oversees $1.6 billion in funds and allocates capital to women-run funds as well as minority-run funds—both of which are grossly underrepresented in the industry. According to Appomattox’s data, such funds lead the market average by around 200 to 300 basis points annually.

In an earlier post I argued there may be a very good reason why female money managers outperform. In short, the challenges they have faced in getting to the point in their careers where they manage economically significant amounts of money have hardened them and ensure they are sufficiently motivated. In that post I wrote:

In addition to thinking differently it also is worthwhile thinking about the motivation of women who come to lead their own investment shop. Those women have likely experience explicit (and implicit) bias during their careers. To get to the point where they are in charge of a portfolio (or firm) shows a level of motivation that is not easily matched by male counterparts who did not have the same challenges.

It seems to be the case that recent generations of investors are more interested in socially responsible investing and impact investing. Maybe it is time to broaden the definition of these investment styles to include a more diverse set of managers. Diversity makes sense in teams and across a portfolio. Hopefully this message will one day get through.