In the current environment of corporate greed and excess risk taking, particularly in financial services, one woman takes a different tack. Susan Solovay founded Pomegranate Capital in 2008 to invest in women-owned hedge funds. It’s quite a story, and while she shuttered the fund in 2009 in the wake of the ongoing Great Recession, she’s gone on to help entrepreneurs, both male and female, navigate the shoals of technology start-ups.
Susan cut her teeth by trading commodities, and quickly saw the dearth of women, and wisely asked, ‘Why’? She soon learned the answer, as she heard comments from the mostly-male bastion. Instead of evaluating women in finance based on the merits, she listened to guys say things like, “Don’t invest with her, she just got married”, as though domesticity had anything to do with determining risk-adjusted returns. “I found that women had great investment returns but managed just 10% of the capital that men managed”, she noted, ruefully. She set out to change the ratio.
To launch a fund of funds required capacity, availability and high returns. She identified 350 women portfolio managers and co-managers determined to exploit the market inefficiency. Her fund was multi-strategy-an amalgam of various hedge funds including long/short equity, global macro, distressed and fixed-income.
For her due diligence, she focused on a 2002 study that chronicled women’s returns and found that their returns were higher than those of men. But, despite the greater returns, she also observed first-hand that women had a harder time raising capital and set out to fix the problem.
She quickly raised $10 million- no mean feat when the markets were roiling—and correctly concluded she’d need institutional backing to build assets under management (AUM in investment-speak parlance). Some international banks were interested; a Swiss one was extremely eager since it saw no overlap with its other funds. (Perhaps the Swiss reputation for neutrality helped).
At the same time, she sought out domestic institutions noting that the New York State Pension Fund, for example, had a single female hedge fund manager. She also talked to banks, but in a world where timing is everything, no bank struggling to stay afloat in the 2008 credit crisis was willing to take a risk. Like Sisyphus pushing the stone uphill, Susan knew enough to close the fund with a plan to relaunch down the road. “Sometimes you have to know when to quit”, she states.
Her zeal for the idea hasn’t faded – “I started the fund because I observed a marketing inefficiency taking place. There were many women managing hedge funds with good returns, but with far less capital than their male counterparts with similar results. Also, I found that for the most part, women were harder working and money is not gender neutral”, she says.
She remarks on Malcolm Gladwell’s book, “Blink”. He pointed out that in the early ’70′s, The New York Philharmonic held blind auditions to hire 5 musicians. Since the judges had no idea whether it was a male or female they were listening to, they could be more objective. At the end of the auditioning process, all 5 musicians selected were females. Prior to this audition there were no female musicians in the orchestra. Many of the female hedge fund managers I met were asked questions such as “are you married,” “do you have kids” and “what does your husband do?” Had there been a blind audition process, allocations might look a little different in the world of hedge fund investing!
Here’s a little background about the blind auditions episode in “Blink”. It isn’t that we necessarily set out to hire people like us. Instead, it is an unconscious tendency. He cites the example of how Abby Conant won a competition for first trombone in the Munich Philharmonic, much to the surprise of the selection committee. Without the screen behind which she performed, she would not have won the competition. This is not just a case of gender discrimination, it is a case of an unconscious bias to which we can all fall victim.
Susan also cites a study by two professors, Lydia Bigelow and Judi McLean Parks, from the Olin School of Business at Washington University in St. Louis, that dealt with gender in the financial arena. When two identical hypothetical prospectuses were submitted, each including both a female and a male CEO’s bio, the potential investors were willing to commit to the company run by a man, by a factor of 300%, versus the one run by a female.
Believing she was on to something, Susan sought out a well-known TV producer to back her idea for a TV drama with a female hedge fund manager as the protagonist, and for a time, it looked like NBC was on board. But, in 2009, as the Great Recession deepened, the network’s wise men decided against it, believing there would be no audience for a show that favorably dramatized an investment that had gotten such bad press for greed and risk taking.
“I wish the network had decided to produce the show, and I believe the decision not to do so was a mistake — pop culture can, in certain circumstances, positively influence society. Look at LA Law and the influx of female law students, or ER — that produced a significant uptick in medical school applications. A woman hedge fund manager as a leading character in a TV show could have served as a role model for women to pursue careers in finance. It would have given people a better understanding of trading and equity research and could have demystified finance.”
“Everything starts with money – power is money. If we want to change the way money is allocated and invested, we need women for balance and perspective”, she explains.
There is a closely held secret among successful women that other women don’t readily offer to help their female compatriots. Did Susan see this same trend? “I found that the women who were most helpful were those who had made money themselves and could afford to take additional risk. Most men will readily give a friend a couple of million dollars to manage. Women who have not made their own money don’t necessarily think this way. They access risk differently”.
What is she on to these days? “I now serve as an advisor to technology startups. Oftentimes, these entrepreneurs might have great ideas and enthusiasm but are looking to get advice from someone who has more wisdom and experience, which is usually someone in their mid-late 30′s, 40s and 50s who has built businesses”.
Her advice for female college students considering the world of financial services? “Girls often do not know about trading or money management – how could they? They don’t know of or have mentors they can relate to. If they were able to see that financial services is a great career choice and intellectually stimulating, it could open lots of doors and possibly could be world changing”.
Woman Around Town’s Six Questions:
Favorite Place to Eat: Da Silvano or the Food Court at the Plaza Hotel
Favorite Place to Shop: Lower East Side
Favorite New York Sight: Central Park with my dog, Lola
Favorite New York Moment: Going to Area (in the 80s)
What You Love About New York: The energy, the people, that I can walk everywhere
What You Hate About New York: There’s not enough time to do everything.