The Morning Brief: Women Are Better at Running Hedge Funds, Study Says

Score this one for women. A new study by Rothstein Kass found that women-owned or managed hedge funds perform better than the industry as a whole as well as the market in general. Rothstein Kass, which specializes in providing professional services to the financial services industry, says that for the 6.5 years ending June 2013, its Women in Alternative Investments (WAI) Hedge Fund Index returned 6 percent, compared with 4.2 percent for the S&P 500 and a 1.1 percent loss for the HFRX Global Hedge Fund Index. The firm’s third annual report includes a survey of 440 senior women in the alternative investment industry, including fund managers, investors and service providers. It is not clear why women-headed hedge funds beat the market and the average hedge fund. One commentator on CNBC theorized one reason for the outperformance could be that women have smaller egos than men and are quicker to dump losing investments before they plunge further.
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Another interesting nugget from the Rothstein Kass report found that more than 50 percent of those who participated in its survey hope to generate returns of 10 percent or more this year. Presumably they are referring to their alternative investments portfolio. If so, that is rather optimistic given that in 2013, when the S&P 500 rose 30 percent, the average hedge fund posted gains somewhere in the single-digit range. Hard to imagine how high the S&P 500 would have to climb for hedge funds to pierce that 10 percent level.
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The multistrategy hedge funds run by Israel Englander’s Millennium Management rose nearly 13.5 percent in 2013. Assets under management climbed a little more than $3 billion, to $20.5 billion, most of the increase coming from investment gains.
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Another former hedge fund manager is headed to prison, Bloomberg reports. Aleksander Efrosman, who pleaded guilty to wire fraud in 2012 after being extradited from Poland after being accused of stealing $5 million from his clients, was sentenced to 188 months in prison, or more than 15 years, according to Bloomberg. He was also ordered to pay $4 million in restitution. Efrosman was indicted in 2006 after fleeing the country in 2005. The government accused Efrosman of defrauding investors by promising to trade in the stock market and the foreign currency exchange market.

Efrosman lied to investors, telling them he had a profitable trading record and that his trades would be protected by a stop-loss mechanism that kicked in when a trade’s losses hit 3 percent, according to the FBI. He had received over $5 million from more than 100 investors. Efrosman did not invest the money as promised, but instead used it for his personal benefit, including gambling over $3 million at the Foxwoods Casino. He traveled to Mexico, Panama and Poland using a fraudulent Russian passport, according to the FBI. He was arrested in Poland in May 2011.
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Hans Hufschmid, a former partner at the infamous hedge fund firm Long-Term Capital Management, is launching a new firm, AltB. It will offer a portfolio that will try to mimic the broad hedge fund universe, with weightings skewed toward the more common hedge fund strategies such as long-short equity, according to a report in the Financial Times. “The trend is towards indexes in everything,” Hufschmid told the London-based newspaper. “That option exists in equities and in fixed income, but it does not exist in hedge funds in an efficient manner. What does it even mean to track the industry? There is no FTSE 100 or S&P 500 to track.”

Hufschmid was a principal at LTCM for five years, serving on its risk management and management committees, when the firm had to be bailed out by more than a dozen global financial institutions in 1998. He subsequently founded GlobeOp, a provider of administrative services to the hedge fund industry that was listed on the London Stock Exchange and acquired in 2012 by SS&C Technologies.
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The Credit Suisse Hedge Fund Index rose 1.19 percent in December, bringing its gain for the year to 9.73 percent. The best performing sub-strategy in 2013 was long-short equity, up 17.74 percent, while dedicated short bias was the biggest loser, falling 24.94 percent. Managed futures lost 2.56 percent.