Why Women-Led Hedge Funds Love Risk

SMITH BRAIN TRUST – It’s long been believed that if you want to rein in risk-taking at an organization, employing women as top managers can help with that. But new research from Maryland Smith’s Cristian Dezső suggests that it can have the opposite result. 

That’s because of what Dezső and his co-authors refer to as a “safe haven” effect. They found that the presence of female managers actually encourages colleagues in the same family of funds “to express their investing individuality by taking on more risk.”

In their research, Dezső and co-authors Evan Rawley of the University of Minnesota and David Gaddis Ross of the University of Florida parsed two decades of data on more than 20,000 mutual fund managers.

“Male and, especially, female fund managers take on significantly more idiosyncratic risk — a measure of a fund manager’s unique investment style — and their funds exhibit a higher market beta — a measure of the non-diversifiable risk to which a fund’s investors are subject — when they have a higher proportion of female fund manager colleagues,” says Dezső, an associate professor of logistics, business and public policy with the University of Maryland’s Robert H. Smith School of Business.

The findings, contained in a working paper, adds an interesting caveat to existing literature, which finds that female leaders are linked to lower risk-taking in acquisitions, financial leverage, capital expenditures and stock volatility.

Read more: The Gender Composition of Firms and Risk-Taking Behavior: Evidence from Mutual Funds