Bloomberg News
This was written by Cara Slear and James Munro. It first appeared on the Bloomberg Terminal.
Hedge funds owned or managed by people who are not white men significantly outperformed their peer groups in the last three years, according to a Bloomberg analysis. The analysis, based on Bloomberg’s database of 2,934 funds, found these managers returned 6.63% on an annualized basis in the last three years, vs. a 3.85% annualized return for their peer white male peers.
While the results may inspire you to rethink the racial and gender makeup of managers in your portfolio, funds that aren’t run by white men are rare. Less than 1 percent of the fund industry’s assets under management were controlled by women- and minority-owned hedge funds as of mid-2017, according to a 2019 report commissioned by the John S. and James L. Knight Foundation.
Bloomberg offers one way to find these managers. In February 2019, Bloomberg expanded the Hedge Fund Search function {HFS <GO>} to include women- and minority-owned and/or managed as a searchable attribute. Using this data, Bloomberg’s performance analysis compared 35 of these managers with 908 peer funds. “Diverse” here means funds that have described themselves to Bloomberg as being owned (more than 50%) or managed (C-level investment role) by a woman or minority.
The diverse funds fell under five investment strategies: equity hedge, credit hedge, event driven, macro, and relative value. Over three years, diverse-managed macro funds, which invest in broad, macro economic trends, had the best performance versus their peers. Over a five-year time horizon, all types of diverse hedge funds outperformed their peers by an average of 1.25% on an annualized basis, for a total return of 4.30%, vs. 3.05% for the broader industry. Bloomberg used the Bloomberg Hedge Fund Index {BHEQTY Index } as a benchmark.
While looking at outright return on capital can provide an initial picture of a fund’s value in your portfolio, the goal of hedge funds is to hedge against market risk, making it essential to evaluate a fund’s factor exposure relative to their peers. You can do this with Bloomberg’s Portfolio & Risk Analytics function {PORT <GO>}, which allows users to stress test a fund’s performance during market disruptions. Looking across seven events, Bloomberg found that when the market was down, diverse funds preserved capital better than their peers by 2% on a monthly basis. Down-market scenarios included the Lehman default, the 2010 Greek financial crisis, and a potential drop in equity markets by 10%. Conversely, diverse funds underperformed relative to their peers in up-market scenarios, suggesting they are less beta sensitive, providing better market diversification.
Hedge fund data is restricted to Bloomberg clients who have completed the Accredited Investor and Qualified Purchaser questionnaires required by Bloomberg Compliance in accordance with published SEC guidelines. Any client wishing to access this data must complete the questionnaires available at {HFND <GO>}.
If you’re looking to evaluate and compare a fund in your own portfolio, reach out to your Bloomberg representative.
