ICR312: Meredith Jones, Why Female Money Managers Generate Higher Returns
My guest on the show today is Meredith Jones.
Meredith is an internationally-recognized researcher, writer, speaker and expert in the alternative investment industry with more than 20 years of experience.
She’s is an alternative investment consultant and author of Women of The Street: Why Female Money Managers Generate Higher Returns (And How You Can Too), which won an Axiom Award Gold Medal in 2016.
Meredith was also named as an Inc. magazine’s “17 Inspiring Women To Watch in 2017” and as a Distinguished Author by the Securities and Exchange Commission in 2018.
Something we talk about in this interview is Meredith’s involvement as a board director of Rock the Street, Wall Street – a non-profit that provides one-year financial and investment literacy courses for high school girls.
In this episode, we talk about the characteristics that make women better investors than men, how men can invest more like women, and how we can all make the world of investing more appealing to women.
Here’s my conversation with Meredith Jones, in episode 312 of Informed Choice Radio.
Martin: Well welcome back to Informed Choice Radio. I’m delighted to welcome today Meredith Jones. Meredith perhaps you could introduce yourself to our listeners. Tell us a bit about your background and what it is you do.
Meredith: Sure thing and thanks for having me Martin. My name is Meredith Jones. I am an author and a blogger that focuses on the investment community. I’ve been an alternative investment professional, meaning I focus on things like hedge funds, private equity, venture capital and real estate for about the last 20 years. And over that period of time I’ve had the opportunity to see a lot of trends develop. One of the trends I haven’t seen develop is an increase in the number of women that participate in this particular space and so that has become a particular area of interest and focus for me although I do write and blog about a variety of topics.
Martin: Before we start to speak and I was looking your CV, you started with a hedge fund manager, you were responsible for manager selection, due diligence, all that sort of thing for over half a million dollars, sorry half a billion dollars worth of funds.
Meredith: Yeah, half a million dollars wouldn’t have gotten me very far.
Martin: Wouldn’t have been very impressive. Half a billion’s far more impressive. But back then were women a common feature within the hedge fund market? Or were you one of very few at that time?
Meredith: It’s lucky for me, I started my first investment job in Nashville Tennessee which I’m sure your listeners are well aware is not the financial capital of the world. But interestingly enough, at the time, there was a firm called Van Hedge Funds Advisors that was one of the preeminent hedge funds consultants globally really. They were one of the first to publish large scale research about hedge funds. We testified in Congress about long term capital management. Really it was quite odd to have the firm here but they were very well known. The founder of the firm, George Van had an interesting theory, he believed that women made better researchers and so his entire research department, which I was hired into in 1998, was comprised of women. I was totally insulated from what was typical Wall Street culture. I thought it was perfectly normal to have a group of really smart, financially savvy women who were all working in the hedge fund industry.
And in fact, the department stayed single gendered, just women, until I took over as head of that department and actually integrated by hiring our first gentleman employee and I remember the fight that I had to have with the CEO in order to do that because he still maintained that women were the best researchers and I maintained that a diverse team would give us different perspective. It wasn’t until I really started getting out into the industry and attending more industry conferences that I realised that my situation might be a little unusual. In fact when I went to my first investment conference I can still remember I was wearing this very swanky red suit and I swaggered into the event and I was met A, with a sea of black and grey. I was the only person there wearing colour. I looked like the little girl in Schindler’s List or something. Just a bright pop of colour among what seemed like a black and white backdrop.
And B, I was really one of only very few women. And I walked up to the podium to join my panel and my panel were all men and as I walked up, a couple of the men on my panel raised their glasses. And I’m a nice person, I thought they were just saying, “Cheers and welcome.” Well it turned out that they thought that I worked for the conference and was there to refill the water glasses. So that tells you a little bit about how unusual it was for me to be there and for me to be on a panel of people who were speaking about investing and alternative investments and it wasn’t actually until 2007, so nearly 10 years after I started in industry that I met another woman who had my same job responsibilities and job title. I guess should say it was extraordinarily unusual but I was too isolated to know the difference.
Martin: I’d like to come on in a bit to talk about how women are perceived and treated within financial services today compared to 20 years ago but first of all I wanted to ask about something about your current duties. You serve on the board of directors for Rock the Street, Wall Street and that’s a nonprofit organisation providing literacy courses for high street girls around investment and financial matters. Can you tell us a bit more about that and how you became involved?
Meredith: Sure. I’ve focused a lot of my effort in the marketplace on building gender diversity and other types of diversity around trying to inspire demand for more female investment professionals. To do that I’ve focused on things like how do women’s returns differ from men’s? What type of benefits could there be to having more women investing in other women? What type of job creation? What type of job stability could be created? What type of reductions in market volatility would we see if there were more women in the investment industry? And that’s been pretty successful. There’s a lot of investors these days that have a much stronger interest in having more women in the investment industry. Unfortunately however, we continue to have a pipeline problem. We continue to have a lack of women who either enter or stay in the investment industry for a variety of reasons.
And one of the primary reasons is that we start losing women or girls I guess I should say, in STEM related topics right around ninth grade. And so I realised that in order to be able to solve this problem and to have meaningful movement, I couldn’t just focus on demand, I had to also focus on supply. So I couldn’t just focus on hey we need more female managers without also providing a pipeline through which women could become female investment managers. And Rock the Street, Wall Street does great work in that respect. We actually go into a high school, we have a number of different cities in the U.S. that we currently work in and we’re expanding all the time.
But what we do is we come in and we provide a year long course for high school girls based around financial and investment literacy. We also provide them with mentoring. The hope there is that we can A, increase the financial savvy of girls in general so that they’re able to take the reins of their life financially. B, we also want to inspire women to join this industry and pursue a career in investing because without that supply, it doesn’t matter how much investors may want gender diversity, they still may not be able to have it.
Martin: This is ninth girls, so is that sort of 12, 13 year old girls?
Meredith: We actually do ninth, 10th, 11th or 12th grade. It really depends on what the sponsors and what the schools think we should do. We have sponsors that provide programmes in Dallas Texas, Fort Worth, Nashville, New York, we’re starting one in L.A. very soon, Charlotte, we’ve been in Chicago. A lot of it is driven by how the actual educators, where they feel the best use would be. Where the sponsors within the school are. But generally speaking we’re focused on ninth grade to 12th grade and so that would be somewhere in the neighbourhood of 15 to 18 years old. Maybe 14 to 18 years old.
Martin: And you’ve written a book, it’s called, Women of the Street, why female money managers generate high returns and how you can too. What prompted that? Was this based on the same theory that George Van had that women make better researchers when it comes to money?
Meredith: Obviously like I said, I didn’t run into a whole lot for roughly the first 10 years of my career but when I did start to see more women who were managing capital, the unifying theme that I saw was that generally speaking they were all extremely successful. I became intrigued with the idea that maybe there was something there. Maybe there was something that investors could harness to improve their financial and investment results. And so I started looking into it and I did identify a number of distinguishing behaviours and thought processes that made women invest differently. And those differences generally speaking translated into higher investment returns. They could also translate if there were more women in the industry, into lower market volatility and if you look at something the venture capital industry where right now I think it’s 2.19% capital was invested in female founders in 2016, if there was more money coming into female founders there is evidence that suggests that A, those companies can be extraordinarily profitable and B, that women run companies actually create jobs at a faster rate and that those jobs are more stable through financial crisis.
There were a lot of knock on benefits there. What investor doesn’t want potentially higher returns? What investor doesn’t want relatively uncorrelated or diverse returns? And what investor wouldn’t want a stronger economy through more job creation and stable jobs through a recession? It seemed like a win win for everybody. And considering that we currently only have about 5% of the investment industry that is taking risk with capital are women, it seems like a small ask to say, maybe there should be more.
Martin: What are these differences between the way in which men and women invest? I know we’re often told that men are from Mars and women are from Venus. Is it down to these sort of innate biological differences and the way that we think and behave?
Meredith: There certainly are biological factors at play. Women and men have different brain structure at the end of the day. And so you can’t expect to have those types of physical differences without necessarily seeing some sort of cognitive differences come out of that. For example, if you look at the amygdala which is the part of your brain that processes how you react to stress, it’s the oldest part of your brain. It was the part of the brain that said, “You should run from this giant bear that wants to eat you.” Which allowed humans to evolve and to come to where they are today.
If you look at the differences between women and men, men have a larger amygdala and they also have different connectivity within their amygdala. And what that means is that men have a tendency to react to stress externally. They want to fix things. And women have a tendency to internalise stress and I can say for sure in my case at least, that often when I’m under stress I tell to mull on it and perhaps eat a pint of ice cream but I don’t necessarily feel the need to take significant action immediately.
In the marketplace one of the things that causes stress is a volatile market or a market sell off. And so if you internalise stress, you may not feel compelled to necessarily take action in an attempt to make that stress go away. If you externalise your stress then you generally are going to want to try to make that stress go away by doing something. And we actually saw this in 2008, there was a study that was done by Fidelity after the market crash had ended and what they found was that women were 10% less likely to sell at the bottom the market and as a result they generated returns that were three percentage points higher and so if you go back to things like how do you handle stress, that’s one of the ways that you can see really definitively how that brain structure and how that cognitive process may actually impact trading.
There’s obviously a host of other things. Women have a tendency to perceive risk differently than men. You might have heard that women are for example, risk adverse. It’s actually not necessarily an aversion to risk. What it is is that women process and think about risk differently. They actually do an extraordinarily good job, studies have shown, in matching their anticipated return with their actual outcome. Think about this like buying the car. They did a study and they asked men and women to estimate how much they were going to pay for a new car. Then they asked these men and women to go out and buy cars. The men said, “I’m going to get this car for $10,000.” And they ended up paying, I don’t know $9,000. Women might have said, “I think I’m going to pay $9,500.” And they got the car for the same amount ultimately as the guys but that ability to match the expected result with the actual result means that women have a tendency to trade differently as well.
If you have a very high target return on something then you may experience a lot more volatility as you stay with that investment for maybe longer than you should. If you match what you think the expected return to what it is then you’re much more likely to A, achieve those numbers and B, to experience less volatility in your portfolio. Like I said, there’s just a host of factors that come into play here but they all lead to differentiated trading behaviour and trading behaviour that could be very useful within an investor’s portfolio.
Martin: So these factors we’re talking about are innately female because a lot of them are biological differences. But could men potentially copy some of those attributes and become more successful investors?
Meredith: Absolutely. There’s a number of ways that men could profit from women, either adopting some invest like a girl tactics or through simply engaging more with women portfolio managers, women investment advisors or having more women on their team so that they have a more balanced approach to investing. One of things that could be very useful for example, is to have rules based investing so that you have very definitive targets and stop losses and things that help you keep good trading and investment hygiene. Those types of things can be implemented really by any trader and can help save us from some of our own bad habits.
I have to say, both men and women have bad trading habits. It’s not that women are perfect investors and men are terrible. But certainly it’s interesting, I think that women often get tarred with the brush that they are more emotional. But when it comes to investing they’re actually a lot less emotional. They don’t get freaked out if the market’s going down if they still believe that their particular investments are strong. They can filter out whatever market noise or short term volatility. And those are things that could be implemented by men by again having more rules based investing or by simply taking a step back and asking questions as you’re investing like, is this a market scenario where everything is being affected, my investments are still fundamentally strong? Or is this a situation where I need to reevaluate my specific investment? Sometimes just having that distance and not reacting immediately can be beneficial again to traders or investors of any sex. But that is certainly that comes very innately to women who are investing.
Martin: So thinking about the supply side, encouraging more girls into investing, into finance, what makes for a good role model for the next generation of female money managers?
Meredith: Well sadly there’s not a tonne of role models. If you look at the percentages of women in various areas of the investment industry, the numbers are terrible. If you look for example, at registered investment advisors, roughly 35.5% of investment advisors are women. If you look at certified financial planners, roughly I think it’s 23% of CFPs are women. If you look at chief investment officers, so those would be the people that are managing corporate pensions or public pensions or endowments or foundations, only about 19% of those individuals are women. If you look at private equity, the numbers are even worse there so about 11.7% of senior women in private equity including both investing and non-investing functions are women. If you look at mutual funds, about 9% of mutual fund managers are women. If you look at venture capital, depending on which study you look at, seven to 8% of the investment professionals in venture capital are women. And if you look at hedge funds, about 2.5% of the funds managers are actually women.
So the numbers are abysmal. That’s one of the things I think that’s really problematic for women in this industry is that if you ask people to name a famous investment professional, most of them can throw out names like Warren Buffet or George Soros or Julian Robertson. The male names are very easy to identify but there hasn’t been A, a huge population of women to be role models and B, they’ve tended to really fly under the radar. That was one of the reasons why I wrote the book that I wrote was because the first concentrates on the research but the second part looks at very successful fund managers in each part of the market. Long only equity, credit, hedge funds, private equity, venture capital, real estate. It looks at successful women in all of those areas to in part to provide role models for women who are either in the industry now or who want to get involved in the industry.
And I think that’s really important because having no role models myself for the first 10 years that I was in the business, there were times when I just felt like I was a fish out of water. The fact that I looked at the markets differently. The fact that I evaluated investments differently was wrong because I didn’t really have anybody else to say, “Yeah I think the same way too.” And that’s a real problem. The other thing I think that it does is most of the women that I talk to and really a large percentage of the men as well, talk about why they went into the investment industry. And I think that the industry tends to celebrate the cutthroat wins and the really big deals and the slashiness and we’ve all seen the Wolf of Wall Street and so there’s often a lot of focus on the non-investing part of the investment business.
But when I talk to women who are in investing about why they do this I always get the same answer. And that answer is, I do it because I’m helping people. I’m helping firemen to retire or to have a safety net after they’ve been injured. I’m helping teachers to have financial security in their old age. I’m helping couples find ways to send their kids to college or to get higher education. I’m helping individuals have a secure retirement. And so I think that is a perspective that is really not an area of focus for a lot of people. I think that if you were to ask the average person, “What does the investment industry do?” You might get an answer like, “They screw over everybody and take all the money.”
One of the things that they have identified is that women generally want to be involved in industries that are perceived as helping people. So that perspective is very important. To the extent that the media can focus on successful fund managers. To the extent that people, women who work in this industry can talk about what they do. That they can mentor others or they can show their daughters that it is an industry that isn’t about throwing midgets at a dartboard or hanging out with hookers or cocaine or taking down governments by undermining their currency. If we can show that there is actually a benefit and that there is the possibility to have work life balance, I think that can only help us in the long run.
Martin: Well talking about hookers and cocaine, we’ve got in Hollywood the Me Too movement haven’t we? Also here in London a recent high profile incident with city businessmen behaving very inappropriately at a charity dinner. What do you think will make the world of financial services, which is often viewed as very male dominated with instances of inappropriate behaviour, what do think will make it more appealing, also more accessible to women?
Meredith: I think the number one thing that has to happen is that limited partners, meaning the actual investors have to focus on how investment companies integrate women and recruit women. The reason that they have to do that I think is that it really isn’t A, if you accept my thesis that women can be a boon for investment performance or provide an extra layer of diversification that’s great. As an investor you should focus on issues like fund manager diversity, fund manager female recruitment, fund manager harassment policies and things like that because you want that firm to be diverse and therefore to deliver more attractive returns for you.
But the other thing is that it also I think we’ve seen in Silicon Valley in particular with a few prominent fund closures that this a hidden operational risk that can possibly take down an entire investment fund complex. So for investors I think they really need to dig into the policies and procedures and everything of their underlying fund managers and investment managers so that they are reaping the rewards of diversity and so they’re not taking on a risk that may be buried but can be extraordinarily explosive and extraordinarily disruptive if something happens to, if a lawsuit comes up or if there is a public black eye.
You can think about it in terms of the ESG investment movement. When you look at ESG integration, it’s really about incorporating non-financial data into your analysis of a particular investment. In the case of selecting fund managers or investment professionals you want to look not just at their performance but how do they, what types do they have in place? What types of diversity do they have in place? What types of HR policies do they have in place? Because those types of non-financial data can actually help the investor to A, potentially achieve higher returns and B, avoid what could be some pretty painful and spectacular and headline risking blowups of their underlying fund managers.
Martin: Meredith, thank you so much for joining us today on Informed Choice Radio. Before you go, how can we find out more about you online? And where can we order a copy of your book?
Meredith: The book is available on Amazon. I don’t know if you can get print copies in the U.K. but I do know you can get Kindle copies in the U.K. and you can also check out my website which is www.aboutmjones.com. There you’ll find my blog and also some of my ridiculous tweets that come out on a pretty regular basis and on Twitter I am @mj_meredith_j.
Martin: Fantastic. We’ll make sure we put links in the show notes as well so our listeners can find you nice and easily. Thank you for your time.
Meredith: Thank you so much.