Women make up about half of the world's workforce, but they are far from parity in the worlds of venture capital, hedge funds, private equity, and other Wall Street investing firms.

There are a lot of reasons for that, a thin pipeline of candidates, biases, and a lack of recruitment among them. What's certain is that it's not because women are less apt investors — some studies even show that female hedge fund managers outperform their male counterparts.

A new survey of 791 industry professionals released by KPMG outlines where progress is being made and what would need to happen to close the gender gap.

First, some background. Here's KPMG:

• Women make up only 15% of hedge fund CEOs, 11% of private equity and venture capital CEOs, and 14% of real estate CEOs. For chief investment officers, those figures are 18%, 19% and 26% respectively.
• 79% of respondents, who were nearly all women, say it is more difficult for women fund managers to succeed in the industry than men. The overwhelming majority also said it's harder for women-owned or -managed funds to raise money.
• 44% said women are hindered by the stereotype that they are more committed to their personal lives/family than their work.
• 36% said women have less access to investor networks.
• 28% said women get less PR/visibility than men's funds.
• 29% of respondents said there's "weaker interest" in women owned/managed funds.

"In alternatives, there are certain prototypical models of a fund manager: people with certain pedigrees and characteristics, physical and otherwise," PAAMCO CEO Jane Buchan said in the KPMG report. "When someone conforms to that model, there's confirmation bias. However, if a fund manager is off-model — if, for example, they are a woman — as the research shows, they need to perform substantially better to get capital."

Indeed, some research shows that female managers outperform men but don't raise nearly as much money.

Here's KPMG on a 2016 study by Rajesh Aggarwal and Nicole Boyson of Northeastern University's D'Amore-McKim School of Business. The research looked at performance of nearly 9,520 hedge funds from 1994 to 2013.

"The sixty-two surviving female run funds in the study had better returns and similar risk measures than their male-run peers (of which there were 1,669), but lagged male counterparts in several significant ways: the female funds had significantly less AUM ($150 million versus $222 million for male-run funds), lower management and incentive fees but longer tenure than their male-managed counterparts."

"Our data suggested no inherent differences in skills between male and female-run funds, but, in order to survive, women-run funds have to be better," Aggarwal, the study's coauthor, told KPMG. "And even when they survive they don't have the same" assets under management.

So how does one fix the gap? One issue is that female fund managers often say they have trouble raising money from investors, while investors say they have trouble finding female managers.

"That's the dichotomy of both sides of the coin," Kelly Rau, a KPMG audit partner who helped organize the report, told Business Insider.

About six out of the 10 investor respondents said they thought there was a lack of supply in women-run funds.

Another issue is size. Women tend to run funds that manage less money, which means they have less resources for infrastructure that bigger investors require before investing. About one in five investors cited that as a top barrier to invest in women.

"Women are saying it's harder for us to raise assets, but we're here — we're here," Rau said. "And the investors are saying they don't think there are enough women to invests assets in."

The report highlighted some areas of optimism, however. Ten percent of investor respondents now have specific mandates for funds owned or managed by women, which KPMG called a "significant improvement" since its 2013 survey, in which only 2% of investor respondents did.

"It's very encouraging," Kate Mitchell, a cofounder of Scale Venture Partners, told KPMG. "We are no longer making the business case about why diversity is important — we are now talking about what we can do to change our numbers.”

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At an investor conference in December, Cliffwater managing director Chris Solarz bluntly declared that “90 percent of hedge funds are not worth their fees.”

The data supports Solarz.  According to Hedge Fund Research, with the S&P 500 up almost 8 percent through Nov. 30^th hedge funds were up just 4.6 percent after fees.^[1]

Hedge fund managers are good at picking stocks and identifying esoteric correlation trades.  They are less good at constructing sustainable portfolios, hedging or managing complex risk.  In comparison to hedge funds, asset-management firms may not be world-class at generating alpha.  But they excel at managing large pools of capital with consistent performance.

Sovereign wealth funds, pension funds, mutual funds and other large investors are balking at the high fees and volatility associated with alternative investments—hedge funds specifically.  They are, consequently, moving assets toward market-neutral platforms with relatively tighter risk limits and consistent records of capital preservation.

Here’s the evidence: by the fourth quarter of 2016 $77 billion had pulled out of what had been a $3 trillion hedge-fund industry.  According to eVestment, in October[2] alone 61 percent of funds recorded net outflows as large investors went in search of high-capacity beta.

Large, well-established hedge funds with consistent returns are benefiting from the reallocation of funding.  The money is concentrating among its best players.  But they may not have the expertise to manage the extra capital.

True alpha in fundamental investing is becoming rarer across asset classes.  No wonder the “2 and 20” model conventional among hedge funds has been under pressure.  In 2016, Pershing Square, Brevan Howard, Tudor Investment and Och-Ziff Capital Management all lowered or eliminated management fees.

Hedge-fund stars like Paul Tudor Jones, George Soros and Alan Howard have publicly discussed difficulties in generating revenues and beating market averages.  Portfolio managers who built fortunes on fundamental, momentum-based trading are aggressively refocusing on beta neutral long and short quantitative strategies.  Quant funds like Winton, AQR and Bridgewater are raising billions to create a hybrid investment style.

Asset managers—and hedge funds with asset-management aspirations—will be beneficiaries of the trend if they have the technology and deep research capabilities to capitalize.  With these they can run high-capacity beta strategies with alpha “overlays”, taking advantage of market altering events such as Brexit or a new IPO.  Their discretionary counterparts, meanwhile, struggle to navigate such events successfully.

Too many traditional asset managers have difficulty beating benchmarks like the S&P 500.  And too many asset managers are still executing their trades via out-of-date systems and overpaying Wall Street platforms for help.

The talent challenge

Shifts in funding and investment styles create challenges for hedge funds and asset managers alike.  Their challenges cannot be solved with their existing talent configurations.  In the next three years this will have sometimes unlooked-for implications for the existing talent pools of both businesses.

One quite likely response among hedge funds and execution platforms will be investment in asset-management talent—talent previously unavailable to them and relatively overpriced.  Electronic-product development and trading staff will be hired away from hedge funds and platforms.  Banks will become less desirable employers to electronic traders, quant researchers and developers.

We can expect to see portfolio construction talent begin to move from asset-management firms to the top-performing hedge funds and banks along with other quant-equity and quant-macro researchers.  Asset-management researchers with extensive portfolio construction experience will be indispensable to running high-capacity strategies. Researchers at asset-management firms have been comparatively underpaid relative to their hedge-fund counterparts even though performing similar work with comparable qualifications.

That disparity is about to be history.

[1] Investing in 90 percent of hedge funds isn’t worth it: critics. C. English. The New York Post. December 7, 2016.

[2] October Sees More Hedge Fund Asset Outflows. P. Laurelli. eVestment Blog. November 22, 2016.

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Manoj Narang has been using data and technology to invest for nearly two decades.

Now, he's launching a $1 billion hedge fund that combines computer-driven investing decisions and high-frequency trading with data on stock market patterns. 

In the industry, these are called quant and alternative data strategies.

Hedge funds have been adding so-called alternative data — which gives them a read on everything from spending patterns to the impact of weather on retail sales — to their investment analyses, and hiring people who can sort through it. The market for this data is expected to double in the next five years.

Narang's MANA Partners, which incorporates this kind of data with high-frequency trading, could be one of the biggest hedge fund launches next year.

It opens January 3 with about $1 billion under management at a time when most startups are struggling to raise money.

Business Insider caught up with Narang to chat about the latest trends in high-frequency trading, alternative data, and "quantamental" investing — which combines fundamental stock analysis with the use of computing power and big-data sets to test hypotheses. Narang previously founded Tradeworx, a high-frequency trading firm.

What follows is a lightly edited transcript.

Rachael Levy: Tell me about MANA Partners' strategy, which seems to be a combination of high-frequency trading and statistical arbitrage.

Manoj Narang: First of all, the fund is not just about high-frequency and stat arb. Our firm is kind of set up to take advantage of these long-standing secular trends. Essentially, as the quant trading space gets more and more competitive, I see more and more convergence happening between previously disparate or segmented areas of the space. So the ongoing confluence between high-frequency trading and stat arb is one of those. The ongoing confluence between fundamental and quantitative investing is another. And then across asset class trading — like, for example, across options and equities markets — is yet another. So we're trying to position ourselves to take advantage of all these sorts of convergences.

Levy: What's the advantage to that kind of strategy?

Narang: So the majority of high-frequency trading firms out there are proprietary trading firms. They trade their company's capital or their founders' capital or some combination of those two things. They have a pretty high aversion to risk. That presents an inherent limitation to them. Being better capitalized than other high-frequency trading firms is definitely an advantage to us that we plan to leverage.

And more importantly, it's a pretty compelling combination for investors because high-frequency trading strategies tend to do very well in volatile markets, whereas more conventional quant strategies tend to suffer in volatile markets because of the rampant liquidation pressures that go along with elevated volatility.

The overcrowding of stat arb is a big risk factor. The demand for quantitative strategies has gone way, way up, but on the other hand, the flip side of that, is that the conventional strategies that people run have limited capacity, and they're now overcrowded. And because they are overcrowded, they are subject to these periodic, protracted bouts of liquidation that tend to coincide with high volatility, and that happens to be exactly the right environment for high-frequency trading to prosper. The two strategies tend to diversify each other during periods of very high volatility.

High-frequency strategies tend to do well in all markets, but exceptionally well in volatile markets. They just have very limited capacity.

Levy: Why have the stat arb angle?

Narang: Stat arb — I think it's an extremely exciting space. I think we're at the cusp of a new renaissance in statistical arbitrage. There's been a huge explosion of the amount of data that's available in quantitative strategies, as well as recent advancements in nonlinear modeling techniques, like statistical learning methods. I think the combination of those things, as well as the rise of cloud computing, the confluence of those trends has created — I think we're at the dawn of a new era, if you will, not to be trite or anything, in statistical arbitrage.

People who pioneer new approaches in stat arb are likely to do well in the coming years. A lot of that has to do with developing strategies that are not overcrowded because they use different types of data or strategies.

There are countless stat arb strategies that are using the same inputs, analysts' inputs, company filings, or corporate announcements, what have you. Those things have been arbed to death over the last 15 years, and there used to be a lot of alpha. Now there's still alpha, the market still has to price in new information, but competition has really eroded the competitive advantage. So you need new approaches to be competitive now.

All of this newfound computational power and all this newly available data and newly available methods have made it possible to create new categories and strategies that did not exist before. In five years I think you'll see, potentially, a new set of players in the market that have been able to get traction.

Obviously, the D.E. Shaws and the Renaissances and those kinds of firms — you know, the Two Sigmas — that have been there a long time are likely to be there as well, but I think that it's possible for some new firms to get some pretty strong footing by pioneering some new methodologies.

Levy: Where will you be getting data? From outside vendors?

Narang: It will be a combination of things. There are certain areas, because of the nature of our business, where we have a proprietary edge in data collection. So for example, we have a very strong infrastructure for both high-frequency trading and for options trading, and that allows us to collect and manipulate data that arises from those markets very effectively.

And those are two of the biggest big data problems that are out there. The options market generates more than 10 times the data as the equities market does, and same with micromarket structure. You're talking about over a dozen exchanges with their own direct feeds, and you have to properly collect the data and synchronize and time-stamp it. And it's just a massive amount of data. That kind of data is, we feel, very differentiated. There aren't that many firms that have the ability to incorporate signals from those markets into their strategies.

Levy: This is data that comes naturally from the markets trading. So no one has tried to collect it?

Narang: People collect it, but it isn't really commercially available. Unless you're a high-frequency trading firm, there's no reason to collect this data.

Even with the options market, certainly you can collect the OPRA feed, but it's just a massive amount of data to process.

Levy: Can you give an example of what you can do with this data? What would you end up using that data for?

Narang: The options market definitely contains information about the equity market. The options market is all about how investors are pricing in risk. That's why there's this notion of implied volatility. Implied volatility is essentially how investors are pricing their estimates of risk into the market. There's definitely information there about the underlying stocks. We think that that is very fertile ground for alpha.

This just goes to the broader picture that I painted for you about convergence. It's very difficult to have that capability if you're not already an options trading firm. You just wouldn't have that infrastructure you need in place to collect and process that data, and the same goes for market microstructure. Unless you're a high-frequency trading firm, you simply don't have that data because you're not subscribing to the direct feeds of all the exchanges and transporting the information over high-speed networks.

You can certainly buy historical feed data, but you can't replicate the effective transporting that data around to get a unified picture of the market. You can only do that by self-time-stamping and self-collecting the data.

The data we're talking about is hard to come by, and unless you're set up to trade multiple asset classes with multiple styles, you don't really have the ability to do these kinds of trades.

Levy: That's really interesting. It almost seems like this is an access trade in a way because not everyone has access to this information by the nature of how they're set up.

Narang: Everyone can have access to it. There's no information here that is privileged. The data is just very expensive, and unless you're in that business, it doesn't make sense to purchase it.

Levy: What do you think of the idea that the strong signals in data have become too noticed, essentially? That some of these quant firms are looking for weaker rather than strong signals?

Narang: I would characterize it differently. There is so much data out there and there are so may people now with a data science pedigree that if you take a purely data-driven approach, there are two pitfalls there. The first pitfall is that other people are likely to find the same thing as you are, because everyone knows the same analytical techniques for the most part. And the other pitfall is that there's just so much data and the search space for models has such high dimension that you're likely to find strong signals in the data that are just really spurious in real life, just from overfitting to the data.

What I really favor are more structural approaches that reflect an understanding of how markets actually work — both at a macroeconomic level all the way down to a microstructure level, including a fundamental level in between those.

So I think an understanding of markets and securities from a fundamental level, from a macroeconomic level, and from a microstructure and policy level is crucial to building models. To me, the ultimate way to build models is to basically automate the process of discretionary investors.

That's where this whole quantamental opportunity lies. More and more, you're going to see machines replicating the decision processes that human beings engage in when they trade securities. As things stand now, humans still are responsible for the vast majority of capital allocation, and that's because long-term investors control the largest amount of capital and it's controlled by human beings. I'm not talking about passive stuff, which is mostly automated. But when it comes to active management, long-term capital allocation decisions are made by human beings.

Even when it comes to indexes and how you allocate to indexes ... it's pretty much done by human beings as well. So the way to really build a compelling quantitative strategy is to understand how humans make those decisions and attempt to replicate those behaviors, and anticipate those asset flows and those allocation decisions and investment decisions. Ultimately, that's what moves markets.

People have this misapprehension that quants make money because they're smarter. But that's not how you make money in the market. You have to make money by doing the same thing as the rest of the market, only doing it first before the rest of people commit their capital. That's the only way to make money when you're automated or discretionary.

The same thing goes for machines. To me, the most fertile ground for building quant trading strategies that are profitable is by anticipating, is by orienting those strategies to have a very strong structural component that understands how human beings make decisions. So that means incorporating fundamentals into your model. I don't mean just fundamental data, but fundamental reasoning, macroeconomic reasoning, and reasoning about market microstructure. The more human knowledge you can bring into the domain, the more likely it is that that data will assist you rather than confound you.

I would characterize that as a top-down approach to markets rather than a purely data-driven approach.

Levy: So some of the stereotypical alternative data is like credit card exhaust data or Foursquare foot traffic data at certain stores. Is that "traditional" vendor data something that you will be incorporating then, or is it more in-house exhaust data, so to speak?

Narang: There's no data that we would not be interested in. But we are by and large interested in data principally if we can figure out how a human being would model that data, rather than just a purely data-driven approach. A typical quant will trade a data set, and not really try to understand what the data means, and just fit models to it. And that's not really the approach we want to take.

The whole notion of quantamental and this convergence between man and machine — it's more than just looking at next-generation data. It's not just about looking for more and more kinds of data. That's super important, and it's a key component, but most people doing that don't have a strong grounding in how markets work, or how companies work, or how market microstructure works, or about how the macroeconomy works. And so they're relegated to taking a truly data-driven approach to mine those data sets for alpha. And that's going to lead to lack of differentiation and overcrowding. There are too many people who can do that. There's no barrier to entry to do that.

The real barrier to entry is still knowledge of how markets work, how companies work, knowledge of how fundamentals work, knowledge of how macroeconomics works, knowledge of how microeconomics works. And if you can bring that knowledge to bear, you can harness that data in a more structured way, and build models that are less overcrowded, and have considerable differentiation. Also, it's more likely to work from the following fundamental perspective — which is models should only be expected to work if they properly anticipate what other people's models are going to do. To do that, you have to understand how people who are committing capital think.

Levy: So it sounds like humans are always going to be at the helm.

Narang: Humans aren't making decisions other than how to build the models. It's a purely algorithmic trading firm. It's just when humans are making the models, the humans that are making the models happen to have a strong grounding in traditional investment styles. So what we're trying to do is automate traditional investment styles much more so than just taking a purely data-driven approach. These are two fundamentally opposing schools of thoughts of how to use data. It's bottom-up versus top-down.

Levy: In terms of the future of quantamental then, do you think there is a general push in using quantamental strategies in a top-down or more of a bottom-up approach?

Narang: The majority of people who do quantamental will take a bottom-up, so a truly data-driven approach, because data is readily available and the skill set to analyze that data is also widely available. There are plenty of people with a data science pedigree, and many of them have access to data. So it stands to reason that that's going to be a pretty widespread approach. But that approach is going to be highly commoditized. It will be far less common for people to take a top-down approach because it's much harder to do. It's much harder to find people who come from the traditional investing universe who also have the ability to put together quantitative strategies. Quantamental is about more than just data — it's also about methodology.

Really, if you want to get at the heart of what quantamental is, it's not just looking at fundamental data. Quants have been looking at fundamental data forever. That's nothing new. What really it's about is about taking the decision processes of discretionary fundamental investing firms and automating them to the maximum possible extent by systematizing the decision process.

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A new investigation casts doubts on Canadian National Railway, a popular holding for money managers.

The Southern Investigative Reporting Foundation's Roddy Boyd published an investigation of the railway company on Monday. Here is SIRF on its findings:

• "For over 15 years Canadian National earned hundreds of millions of dollars in profit by marking up rail construction costs up more than 900 percent to a public-sector client."
• "Canadian National regularly engaged in questionable business practices like charging internal capital maintenance and expansion projects to the same taxpayer-funded client and billing millions of dollars for work that was never done."
• "A just-released auditor general investigation suggested a series of reforms that will reduce these profits."
• "For years, train yard personnel, under intense pressure from management, have intentionally misreported on-time performance, helping it boost revenues by hundreds of millions of dollars."

The stock was down by about 2% in the hours after the report was published. Hedge funds that have held the stock include Point72 Asset Management, D.E. Shaw, Citadel, Two Sigma, AQR and Renaissance Technologies, according to regulatory filings analyzed by Bloomberg. Pensions like CalPERS have also been investors.

SIRF is a journalism nonprofit focused on financial investigations and runs on donations. The group previously broke news on the embattled pharmaceutical company Valeant's relationship with the specialty pharmacy Philidor.

You can read the full SIRF report on Canadian National Railway here.

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Computer-driven investing has taken hold of the hedge fund world, but people are getting it wrong.

That's according to Manoj Narang, who is launching a hot new hedge fund, the $1 billion MANA Partners.

Quantitative strategies use computers to parse data and make investment decisions.

"There is so much data out there and there are so may people now with a data science pedigree that if you take a purely data-driven approach, there are two pitfalls there," Narang told Business Insider in wide-ranging interview. "The first pitfall is that other people are likely to find the same thing as you are, because everyone knows the same analytical techniques for the most part.

"And the other pitfall is that there's just so much data and the search space for models has such high dimension that you're likely to find strong signals in the data that are just really spurious in real life, just from overfitting to the data."

The New York firm is riding a wave of interest as hedge funds have been adding so-called alternative data to their investment analyses and hiring people who can sort through it. This kind of data includes credit card payment data to track sales trends and satellites tracking weather patterns that would affect the prices of commodities.

The market for this data is expected to double in the next five years. At the same time, quant funds have been attracting capital as the old guard of traditional fund managers incorporates new ways to parse the fresh data.

That surge in interest has the potential to create overcrowding, according to Narang, as all the models would have similar results:

"The whole notion of quantamental and this convergence between man and machine — it's more than just looking at next-generation data. It's not just about looking for more and more kinds of data. That's super important, and it's a key component, but most people doing that don't have a strong grounding in how markets work, or how companies work, or how market microstructure works, or about how the macroeconomy works. And so they're relegated to taking a truly data-driven approach to mine those data sets for alpha. And that's going to lead to lack of differentiation and overcrowding. There are too many people who can do that. There's no barrier to entry to do that."

In other words, settling on a quant strategy and hiring a bunch of people with doctorates isn't enough to beat the market. Investors still need to be able to understand the fundamentals behind why other investors make decisions, Narang said:

"The real barrier to entry is still knowledge of how markets work, how companies work, knowledge of how fundamentals work, knowledge of how macroeconomics works, knowledge of how microeconomics works. And if you can bring that knowledge to bear, you can harness that data in a more structured way, and build models that are less overcrowded, and have considerable differentiation. Also, it's more likely to work from the following fundamental perspective — which is models should only be expected to work if they properly anticipate what other people's models are going to do. To do that, you have to understand how people who are committing capital think."

Read the rest of the Q&A with Narang »

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People are getting quantitative hedge funds all wrong, according to a manager who is launching a new $1 billion fund.

Manoj Narang is launching New York-based MANA Partners next month, using a mix of quant and alternative data strategies.

Quant funds have historically analyzed data using mathematical techniques to search for patterns of trends. The idea here is that quants can pick up on relationships between financial assets that human traders miss out on.

That model is outdated, according to Narang. Quants funds don't generate returns by being smarter, and picking out trends before everyone else, but by predicting what everyone else is going to do. 

"People have this misapprehension that quants make money because they're smarter," Narang told Business Insider in a wide-ranging interview. "But that's not how you make money in the market."

He added:

"You have to make money by doing the same thing as the rest of the market, only doing it first before the rest of people commit their capital. That's the only way to make money when you're automated or discretionary. The same thing goes for machines. To me, the most fertile ground for building quant trading strategies that are profitable is by anticipating, is by orienting those strategies to have a very strong structural component that understands how human beings make decisions."

In other words, quant funds need to think like humans, but make moves before the humans act.

He said: 

"More and more, you're going to see machines replicating the decision processes that human beings engage in when they trade securities. As things stand now, humans still are responsible for the vast majority of capital allocation, and that's because long-term investors control the largest amount of capital and it's controlled by human beings. I'm not talking about passive stuff, which is mostly automated. But when it comes to active management, long-term capital allocation decisions are made by human beings.

Even when it comes to indexes and how you allocate to indexes ... it's pretty much done by human beings as well. So the way to really build a compelling quantitative strategy is to understand how humans make those decisions and attempt to replicate those behaviors, and anticipate those asset flows and those allocation decisions and investment decisions. Ultimately, that's what moves markets.

You can read the rest of the interview here. 

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A small hedge fund that is having a knockout year just gained the backing of a big-name investor.

Svetlana Lee's $25 million fund, New York-based Varna Capital, is receiving an investment from Paul Leff, cofounder of Perry Capital. 

"Svet is going to do fantastic," Leff told Business Insider in a phone interview. "She is a very, very good investor. I'm hoping this is going to be a long-term relationship."

Leff declined to say how much money he was investing with Varna, which runs a long-short equity special situations strategy.

Leff, a minority owner in the Oakland Raiders, left Perry Capital in 2014. He has since been managing his own money within a family office.

Perry Capital is an iconic name in the hedge fund industry, with a 28-year run that ended this year when the firm announced it would shut down after suffering poor performance and management changes. 

Leff knows Lee from the late 1990s and early 2000s when Lee worked as an analyst at Perry. Lee later worked at Seth Klarman's Baupost Group and David Einhorn's Greenlight Capital before launching Varna Capital in 2008.

Varna is up about 34.4% net of fees through the end of November, bolstered by a knockout November. Varna gained about 16% on the back of President-elect Trump's win.

"We are in a good place now," Lee said.

The fund was already having a good year before the election, but Trump's win bumped performance.

"I owned a number of companies in coal mining and industrials that were suffering from regulation that was put in place by the Obama administration that I thought was unlikely to continue to be implemented in its current form, regardless of who won the election," she said. "It just so happened that when Trump won the election, he was very clear that deregulation was going to be part of his presidency."

Lee had long positions in Arch Coal, a coal producer which recently emerged from bankruptcy, and EnPro, which makes parts for chemical plants and pipelines, she said. 

A position in Fannie Mae and Freddie Mac, meanwhile, was the biggest winner for Varna in November, she said. The stocks got a big bump after Trump's election, with his Treasury secretary pick Steven Mnuchin supporting privatizing the mortgage giants.

"At the end of the day, I like to invest in US-based small cap companies," she added. "A lot of the things that the incoming president is talking about favor US based smaller companies via deregulation."

Her investments would have also worked if Democratic candidate Hillary Clinton won, she said.

"I didn't know for sure who would be the president, but there were certain areas I stayed out of, namely healthcare," she said, adding that such stocks would have had a much more binary reaction.

Lee is also one of the few women who run hedge funds, and Varna has been around since 2008.

"I've had my ups and downs on the business side more so than the portfolio side," Lee said.

One of the firm's seed investors, FRM Holdings Group, left the seeding business after it was aquired by Man Group in 2012, for instance.

Performance has also been rocky in the past, with 20% plus losses in 2011 and 2015. Still, the firm has also posted strong returns, notably in 2009, 2010 and 2013.

• 2014: 5.1%
• 2013: 19.5%
• 2012: 5.6%
• 2011:  - 21.5%
• 2010: 10.3%
• 2009:  16%
• 2008: 0.10%

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A hot new hedge fund says it has found a way to beat competitors by parsing info about the stock market that few are looking at.

Manoj Narang of MANA Partners told Business Insider that his New York hedge fund would process data from the options market.

"There are certain areas, because of the nature of our business, where we have a proprietary edge in data collection,"Narang told Business Insider in a recent interview. "So for example, we have a very strong infrastructure for both high-frequency trading and for options trading, and that allows us to collect and manipulate data that arises from those markets very effectively."

The data is technically available to anybody but is hard to access unless the firm is already set up to trade options, according to Narang. He said:

"The options market generates more than 10 times the data as the equities market does, and same with micromarket structure. You're talking about over a dozen exchanges with their own direct feeds, and you have to properly collect the data and synchronize and time-stamp it. And it's just a massive amount of data. That kind of data is, we feel, very differentiated. There aren't that many firms that have the ability to incorporate signals from those markets into their strategies.

It is possible to collect this data on the options market from OPRA, or the Options Price Reporting Authority, but few firms do, Narang said. He added:

"The options market definitely contains information about the equity market. The options market is all about how investors are pricing in risk. That's why there's this notion of implied volatility. Implied volatility is essentially how investors are pricing their estimates of risk into the market. There's definitely information there about the underlying stocks. We think that that is very fertile ground for alpha."

Read the full interview with Narang here.

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On Wall Street, the end of the year is a race to balance portfolios and finish crucial business.

This has especially been the case for Valeant Pharmaceuticals and its billionaire investor, Bill Ackman.

Over the last week they've covered a lot of ground, including getting through a few well-paid departures and a substantial stock stale by Ackman's fund, Pershing Square.

First, the goodbyes.

The company is saying farewell to three key executives, Anne Whitaker, head of Branded Rx;  Dr. Ari Kellen, the head of Basuch & Lomb; and CFO Rob Rosiello are all leaving the company.

They are, however, not leaving without some parting gifts, according to Wells Fargo analyst, David Maris:

We are surprised that Valeant's CEO provided Rosiello and Kellen with consulting agreements on an ongoing basis, as despite these outgoing executives being very highly compensated while at Valeant, the company has lost nearly $80 billion in market value.

Shortly after Valeant's new CEO came onboard, these same executives also received special retention awards, enhanced severance benefits equal to 2x each's annual base salary and target bonus, and continued employment despite Valeant's missed earnings and poor business performance. Additionally, the new CEO and board awarded former CEO Michael Pearson a $9 million severance and a consulting contract. We are unaware on what Pearson is being paid to consult.

Former Valeant CEO Michael Pearson's consulting contractalso includes a non-disparagement agreement.

Valeant's stock crashed over 90% starting last October after accusations of accounting malfeasance from a short seller combined with government scrutiny over drug pricing to drag the company down. Since then, several government agencies have opened numerous investigations into the company.

A day after Valeant announced the departure of these executives, Ackman's fund Pershing Square sold $3.47 million worth of Valeant shares. The WSJ reports that this was done in order to help generate a loss for tax purposes.

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NOW WATCH: The US is $19.9 trillion in debt — here are the countries we owe the most

Hedge funds have historically marketed themselves as a prestige investment, promising an exclusive group of investors higher returns in exchange for higher fees.

The higher returns haven't been there of late, though. Now the high fees are starting to budge, too.

Tricadia Capital Management has lowered its management fees for existing investors who opt into a new share class, according to a September investor letter viewed by Business Insider. The letter didn't specify the new fees. 

The letter said that existing investors could add money to the fund at reduced minimum amounts up until March 1. For one class, for instance, existing investors can add just $5 million, as opposed to $25 million for new investors. 

Meanwhile, Valinor Management, a long-short equity Tiger fund launched by David Gallo, is dropping it management fee, according to a person familiar with the matter. A spokesman for Valinor declined to comment.

Both Tricadia and Valinor have seen their assets fall by nearly a quarter in recent months. They both managed $3.1 billion each as of mid-year, according to the Hedge Fund Intelligence Billion Dollar Club ranking.

For Tricadia, that was a 24% drop in assets from mid-2015, and for Valinor it was a 23% drop, according to the ranking.

Tricadia's flagship credit fund was down 1.7% through the end of November, according to a person familiar with the matter.

Hedge fund critics have long complained about high fees, which are traditionally priced at 2% management and 20% performance on assets. The fees are some of the highest in asset management. But as fund performance has slumped, investors have been less willing to pay the fees.

Other big hedge funds have also reduced their charges in recent months.

Caxton Associates, Och-Ziff Capital Management and Tudor Investment Corp have also all dropped their fees this year, Reuters reported. Moore Capital has also cut fees on its biggest fund, according to a Wall Street Journal report.

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Chipotle has named four new people to its 12-person board of directors, including two people who work with the activist firm Pershing Square Capital, which took a stake in the company earlier this year.

The appointments are Paul T. Cappuccio, Robin S. Hickenlooper, Ali Namvar, and Matthew Paull.

Namvar is a partner at Pershing Square and has worked there since 2006, according to a Chipotle press statement. Paull sits on Pershing Square's advisory board.

Cappuccio is Time Warner's executive vice president and general counsel, and Hicklooper is the senior vice president of corporate development at Liberty Global.

"We are pleased that Chipotle has taken the important step of refreshing its board, which will position the company for continued growth and long-term success," Bill Ackman, the founder of Pershing Square, said in the statement.

Ackman's $11 billion Pershing Square hedge fund took a 9.9% stake in Chipotle in September. The firm's performance has dropped since last year. Pershing Square Holdings, a proxy for the firm's flagship hedge fund, is down about 12% through December 13.

SEE ALSO: A hot new hedge fund is based on smart computers picking off dumb ones

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A small short-seller that says its reports have led to the resignation of several CEOs has a new big short.

Ben Axler's Spruce Point Capital Management, a $25 million stock-focused hedge fund, has released a new report on Ultimate Software, a tech company that provides cloud-based human resources software. Short-sellers bet that a company's stock will go down.

Among Spruce Point's reasons for betting against the company: Ultimate Software is "in denial about changes in its competitive landscape" and has the "worst governance" Spruce Point has ever seen, according to a presentation sent to Business Insider.

Axler has been managing his own money for the past few years, but in August started trading with outside money.

A person familiar with the fund declined to provide exact performance figures but said the fund is up since August.

The New York-based firm, with about $25 million under management, is a tiny player in the world of activist hedge funds. By comparison, as of mid-year, Bill Ackman's Pershing Square Capital managed about $11.5 billion and Jeff Ubben's ValueAct Capital managed about $16.2 billion, according to the Hedge Fund Intelligence Billion Dollar Club ranking.

Still, the firm has drawn attention for its short bets. SumZero, a website for buy-side investors, has previously ranked Spruce Point the number one short-seller on its platform.

Spruce Point has previously released reports on several companies, including Greif, Caesarstone, and the Intertain Group, among others. Spruce Point says that its reports helped prompt the resignations of those firms' CEOs.

Greif's CEO David Fischer resigned in October 2015, Caesarstone's CEO Yos Shiran resigned in May this year and Intertain's CEO John Fitzgerald resigned in June.

Spruce Point has also targeted stocks that have subsequently dropped in value. Greif, for instance, dropped last year, after the Spruce Point posted its report in February 2015 (though the stock has since rallied). Caesarstone is down from its 2015 highs, as is Intertain.

You can view a sampling of the firm's 314-page presentation on its new short below.

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LONDON — Lobby groups representing Britain's hedge funds is going to outline their wish list for Brexit talks between the UK and European Union to mitigate the damage a "hard Brexit" could have on the City.

That's according to the Financial Times, which saw the draft document from the Alternative Investment Management Association, Managed Funds Association and the Alternative Credit Council.

A "hard Brexit" is the UK leaving the European Union without unfettered access to the single market, in exchange for full control over immigration.

However, for financial services, this is the worst possible outcome as it would mean the loss of passporting rights.

The loss of passporting rights following Brexit is one of the biggest fears in the City of London. If the passport is taken away, then London could cease to be the most important financial centre in Europe, costing the UK thousands of jobs and billions in revenues. Around 5,500 firms registered in the UK rely on the European Union's passporting rights for the financial services sector, and they turn over about £9 billion ($11.2 billion) in revenue. 

According to the FT, citing AIMA figures, 85% of European hedge fund assets are managed from the UK.

The hedge fund document is allegedly going to point out that the industry contributes nearly £4 billion annually in tax while also providing more than 40,000 jobs.

On top of that, the document will also say that if Britain does decide to opt out of the Freedom of Movement act — and therefore stop the free movement of EU citizens into the UK — this could hit the industry hard because 20% of its employees in London come from the EU.

Read the full story here.

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NEW YORK — The founder of the New York-based hedge fund Platinum Partners was arrested Monday as prosecutors unveiled an indictment charging him and six others with participating in an approximately $1 billion fraud.

Mark Nordlicht, Platinum's founding partner and chief investment officer, was taken into custody at his New Rochelle, New York, home in connection with charges contained in an indictment filed in federal court in Brooklyn.

Others arrested included David Levy, Platinum's cochief investment officer, and Uri Landesman, the former president of the firm's signature fund, FBI spokeswoman Adrienne Senatore said.

Platinum is liquidating its hedge funds, two of which have received bankruptcy protection.

The indictment said that since 2012, Nordlicht, Levy, and Landesman schemed to defraud Platinum investors by overvaluing illiquid assets held by its flagship fund.

This caused a "severe liquidity crisis" that Platinum at first tried to remedy through high-interest loans between its funds before selectively paying some investors ahead of others, the indictment said.

Nordlicht, Levy, and Jeffrey Shulse, the former chief executive officer of Platinum's majority-owned Black Elk Energy Offshore Operations LLC, also defrauded the Texas energy company's bondholders, the indictment said.

A Platinum spokesman declined to comment. Nordlicht's lawyer did not immediately respond to a request for comment. Michael Sommer, Levy's lawyer, said he looked forward to clearing his client's "good name."

Lawyers for Shulse and the other defendants could not be immediately identified.

Founded in 2003, Platinum Partners until this year had more than $1.7 billion under management, the indictment said. The flagship fund reported returning profits of more than 8% in 2015 and 7% from January to April 2016, it said.

But this year, a series of investigations tied to Platinum came to a head, leading a Cayman Islands court to place its two main funds into liquidation in August.

In June, Murray Huberfeld, a Platinum associate who prosecutors say was a founder, was charged in Manhattan federal court with orchestrating a bribe to the head of the New York City prison guards' union, Norman Seabrook, to secure a $20 million investment. Both have pleaded not guilty.

Two weeks later, the FBI raided Platinum's Manhattan offices in a separate fraud investigation that culminated in Monday's indictment.

Others indicted include Joseph Sanfilippo, the former chief financial officer of flagship fund Platinum Partners Value Arbitrage Fund LP; Joseph Mann, a former Platinum marketing employee; and Daniel Small, a Platinum managing director.

The case is US v. Nordlicht et al, US District Court, Eastern District of New York, No. 16-cr-640.

(Reporting by Nate Raymond in New York; Additional reporting by Lawrence Delevingne; Editing by Chizu Nomiyama and Lisa Von Ahn)

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Several employees of a troubled New York hedge fund, Platinum Partners, were arrested earlier on Mondayon charges of participating in an approximately $1 billion fraud.

Here are some of the key allegations against the Platinum employees who were charged, according to the government's indictment. We're publishing a full copy of the 49-page indictment below.

• "Platinum reported that PPVA had returned profits of more than eight percent in 2015 and more than seven percent for the period from January 2016 through April 2016."
• "In or about and between 2011 and 2016, the defendants Mark Nordlicht and David Levy, together with others, engaged in two separate schemes: (i) a scheme to defraud investors and prospective investors in funds managed by Platinum; and (ii) a scheme to defraud third-party holders of the BE Bonds." BE Bonds refers to bonds issued by Black Elk, a energy company that was controlled by Platinum from 2010 to 2015.
• "In or about and between November 2012 and December 2016, the defendants Mark Nordlicht, David Levy, Uri Landesman, Joseph Sanfilippo and Joseph Mann, together with others, engaged in a scheme to defraud investors and prospective investors in Platinum through material representations and omissions relating to, among other things: (i) the performance of some of PPVA's Level 3 assets; (ii) PPVA's liquidity; (iii) the purpose of PPNE and the use of PPNE's proceeds; (iv) PPVA's preferential redemption process; and (v) related party transactions involving PPVA and PPCO."
• "Specifically, Platinum fraudulently overvalued some of PPVA's Level 3 assets in order to, among other things, boost performance numbers, attract new investors, retain exiting investors and extract high management and incentive fees."
• "Platinum's overvaluation of some of its Level 3 assets precipitated a severe liquidity crisis, which Platinum initially attempted to mitigate through high-interest loans between its hedge funds... When the...loans proved insufficient to resolve PPVA's liquidity problems, Platinum began selectively paying some investors ahead of others, contrary to the terms of its governing documents."

The case is US v. Nordlicht et al, US District Court, Eastern District of New York, No. 16-cr-640.

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Employees of a troubled New York hedge fund, Platinum Partners, were arrested Monday on charges of participating in a $1 billion fraud.

Mark Nordlicht, Platinum's chief investment officer, Uri Landesman, a Platinum marketer, and another coconspirator sent emails about fleeing the US, according to a government indictment out Monday.

This is how it went down, according to the charges. On or about December 13, 2015, Nordlicht, Landesman, and an unnamed coconspirator sent emails "that contemplated Nordlicht and Co-Conspirator 1 fleeing from the United States and illustrated their knowledge and awareness of the fraudulent scheme perpetrated on Platinum's investors and prospective investors."

The unnamed coconspirator sent the following email to Nordlicht, the indictment said:

"Don't forget books. Assume we are not coming back to ny[.] Just to be safe. Depends on Miami[.] We can fly straiggt [sic] to europe from miami on Tuesday[.] Take passport."

In response, Nordlicht asked for $2.5 million to pay off the firm's brokers and said he was ready to take $7.5 million from a second mortgage on his house to deal with the hedge fund's liquidity crisis, the indictment added.

Later, he sent another email to the unnamed conspirator.

"Am on my way to jfk with kids for their 6 pm flight to Israel," Nordlicht's email read, according to the indictment. "[My wife] is literally making me get on Israel flight if we don't connect and agree what we are doing."

Nordlicht then forwarded the email exchange to Landesman, according to the indictment. Landesman responded: "You should get on the flight if there is no bridge [loan], probably even if there is...We need to go through the mehalech of how we are going to share this with clients and employees, going to be very rough, big shame."

The Hebrew word "mehalech," roughly translated, means "overview" or "process."

About two months later, Landesman told an investor by email that Platinum was "sound" and that he "hope[d] to be beyond liquidity concerns forever by end of May, we welcome your further investment."

A representative for Platinum declined to comment. Lawyers for Landesman and Nordlicht could not immediately be reached.

Platinum managed about $1.7 billion firm-wide as of March 2016, according to the indictment.

You can read the relevant excerpt from the indictment below.

SEE ALSO: Here is the indictment against the New York hedge funders who were charged with a $1 billion fraud

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NOW WATCH: Bernie Madoff explains in rare interview from prison how he rationalized his crimes

Ray Dalio, the founder of Bridgewater Associates, the world's biggest hedge fund firm, says people should expect a major shift under President-elect Donald Trump.

"Regarding economics, if you haven’t read Ayn Rand lately, I suggest that you do as her books pretty well capture the mindset," he wrote in a LinkedIn post on Monday. "This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers."

The post continued:

"It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power. The shift from the past administration to this administration will probably be even more significant than the 1979-82 shift from the socialists to the capitalists in the UK, US, and Germany when Margaret Thatcher, Ronald Reagan, and Helmut Kohl came to power." 

Dalio also suggested that those interested in this shift read Thatcher’s “The Downing Street Years.”

Dalio described Trump as a "deal maker who negotiates hard, and doesn’t mind getting banged around or banging others around." He added that the president elect had picked a team of people who are "bold and hell-bent on playing hardball" to enact change in economics, foreign policy, education and environment policies. 

"It is increasingly obvious that we are about to experience a profound, president-led ideological shift that will have a big impact on both the US and the world," he said. 

Dalio also notes that Republicans in Congress have shifted farther to the right on economic issues in recent years.
"Trump’s views may differ in some important ways from the Congressional Republicans, but he’ll need Congressional support for many of his policies and he’s picking many of his nominees from the heart of the Republican Party," he wrote. "As the chart below shows, the Republican members of Congress have shifted significantly to the right on economic issues since Reagan." 

By comparison, Trump's cabinet is also very conservative economically. "Trump’s administration is the most conservative in recent American history, but only slightly more conservative than the average Republican congressman," Dalio wrote.

This isn't the first time Dalio and Bridgewater have opined on Trump. The day of the election, Bridgewater predicted markets around the world would tank if Trump won, according to an investor note viewed by Business Insider. Markets have since rallied, hitting all time highs. 

Then, in mid-November, Dalio said that "we are at one of those major reversals that last a decade." Building on that thesis on his note December 19, he said Trump's shift in policy could do more for the economy than is easily estimated through tax cuts and spending plans.

Trump's policies "could ignite animal spirits and attract productive capital," the billionaire investor said.

He added: 

"A pro-business US with its rule of law, political stability, property rights protections, and (soon to be) favorable corporate taxes offers a uniquely attractive environment for those who make money and/or have money."

SEE ALSO: Hedge funders charged in $1 billion fraud emailed about fleeing the US, prosecutors say

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Blackstone Group is winding down its "big bet" hedge fund Senfina Advisors LLC after it faced mounting double-digit losses on its investments this year, a spokeswoman confirmed on Tuesday.

It is a rare setback for the private equity titan, which invests roughly $70 billion in hedge funds, and launched Senfina, which means "everlasting" in Esperanto, to great fanfare in 2014.

The fund was one of last year's top performers, gaining 20 percent, but is down 24 percent this year through November after wrong-way bets in its so-called center book where declines were most pronounced.

"The market environment in 2016 for long/short hedge funds was unprecedented. We did what was in the best interest of our investors to preserve their capital," said Paula Chirhart, a Blackstone spokeswoman.

A number of Senfina's nearly one dozen portfolio managers, including Parag Pande, who joined Blackstone in 2014 and now heads Senfina, will be leaving the firm, said a source familiar with the decision who asked not to be named because the discussions are private.

Pande ran Senfina's so-called center book, featuring fund managers' best ideas.

Some Senfina managers are expected to stay on at Blackstone and much of the $1.8 billion that Senfina invests for large clients, including state pension funds, is expected to stay at Blackstone, the source said.

Blackstone's Alternative Asset Management arm (BAAM), headed by J. Tomilson Hill, saw inflows of $1.65 billion this year and overall performance for BAAM has been positive, Chirhart said.

BAAM began laying the groundwork for Senfina years ago as demand for multi-manager funds picked up. Blackstone started hiring fund managers, including Pande, who came from Ziff Brothers, in 2014.

By the end of last year, Senfina was one of Blackstone's crown jewels. But after 2015's strong gains, some Senfina managers struggled early in 2016 as worries about slower growth in China and the pace of U.S. rate hikes sent stocks spiraling lower. Losses at the start of the year were deepest in the center book. 

In the January-June period, Senfina lost 15 percent after a 12 percent gain in the second half of 2015. Things appeared to stabilize some in the second quarter with a 2 percent gain. Adjustments were made in the center book.

Losses mounted anew in November with a 6 percent drop. Again the majority of losses were seen in the center book which was caught off guard by Donald Trump's unexpected White House victory and the ensuing stock market rally. Some managers betting on industrial and consumer companies were also hurt as markets repositioned.

Since its launch Senfina's performance has slightly negative but redemption requests have been minimal, the spokeswoman said.

Senfina isn't the only multi-manager hedge fund to struggle this year. Folger Hill Asset Management, founded by former SAC Capital Advisors chief operating officer Sol Kumin, is off 15.3 percent through November.

Managers like Senfina use large numbers of small investment teams and centralized risk oversight to keep bets on securities increasing in value, or long positions, roughly in balance with those on them declining, or shorts.

The strategy also uses leverage, or borrowed money, which can exacerbate losses if risks are not properly controlled. The so-called market-neutral approach is supposed to preserve client money in any market environment.

(Editing by Carmel Crimmins and James Dalgleish)

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A 27-year-old has raised $10 million for an unusual hedge fund — with the support of venture capitalists like Andreessen Horowitz and Union Square Ventures.

The 27-year-old in question is Olaf Carlson-Wee, and he's launching a strategy that invests in cryptocurrencies.

To be clear, the $10 million managed by Carlson-Wee's Polychain Capital is peanuts in the hedge fund world. But Polychain's strategy is rare, with few other funds trading in cryptocurrencies. Most hedge funds trade stocks, bonds, and currencies, with variations of different strategies.

So what is a cryptocurrency?

A cryptocurrency is basically a digital, encrypted currency that is decentralized, so no one power oversees its value. Bitcoin is the most famous of cryptocurrencies — nobody knows who created it — and it's divorced from any government. It's considered a secure, private currency, drawing the attention of antigovernment and privacy-minded folks.

But it's not the only one — several other cryptocurrencies exist and are being developed.

Transactions for these currencies are recorded in blockchain, a private and encrypted ledger.

Carlson-Wee is betting that he can choose the cryptocurrencies that will increase in value — and he expects hundreds of them to enter the market.

"The challenge for someone running a hedge fund is how to build a portfolio across that spectrum of risk and how to choose which of the new issues are going to become important and which are not," said Brad Burnham, partner at Union Square Ventures, which is investing in the fund.

Polychain, based in San Francisco, will be small, hiring only a handful of people. And Carlson-Wee is not looking for traditional Wall Street types.

"An amateur trader in the cryptocurrency market may have a more relevant background than someone who has had a traditional background on Wall Street," Carlson-Wee said.

Carlson-Wee, a Vassar College grad, wrote his undergrad thesis on bitcoin.

"I was immediately enamored and sort of obsessed," he said. "I thought the prospect of [bitcoin] had massive implications."

He then went to Coinbase, a digital asset exchange, and headed risk, overseeing things like fraud prevention and account security, he said.

Not only is his background unusual for hedge funds — so is his strategy. For instance, the normal research avenues for common hedge fund trades are unavailable, though there are some parallels.

Qualitative research

Instead of talking with sell-side researchers or looking at credit agencies (there are none), Carlson-Wee spends his time reading through the white papers that describe the protocols, interviewing the lead developers, and looking at a protocol's machinations in the GitHub repository.

"This qualitative research is supplemented by market data such as price and trading volume as well as network data such as transactions per day, dollar value transacted per day, and the estimated cost of a network-scale attack," he said.

He also embeds himself within the groups that are using the protocols to get a sense of how they are interacting with them, he said.

That model is similar to other funds that have launched in the space. MetaStable, another small hedge fund based in San Francisco, launched in 2014 with a handful of employees. The firm manages a few million, said Lucas Ryan, one of MetaStable's staffers.

Its investors tend to be those who are already sold on blockchain but "aren't necessary sold that bitcoin has solved all the problems," so they are seeking to invest in other cryptocurrencies, Ryan said.

Ryan, who has a programming background, says his job is to evaluate the protocols that people are developing and the problems they are trying to solve.

"The market is so immature and requires a high degree of technical understanding to wade through the stuff that isn't bull----," Ryan said. "A lot of stuff I couldn't do if I wasn't a programmer with a cryptography background. There's not, like, a ratings agency for any of these."

Still, like with Polychain's strategy, there are parallels. Ryan meets with protocol developers and tries to get a sense of how serious they are and whether their source coding is legit.

To be sure, this world of funds is very young. Until recently, Ryan was working on the fund part time, he said.

And it's unlikely these kinds of funds would grow to be large. Bitcoin, the most popular cryptocurrency, has about a $13.7 billion market cap.

"Bitcoin is like 80% of the total market of coins," Ryan said. "It would give someone pause to start a $50 million fund."

BI EXPLAINS: What is a hedge fund?

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NOW WATCH: Bernie Madoff explains in rare interview from prison how he rationalized his crimes

The money-management industry has a diversity problem.

Morningstar's global study out earlier this year showed that only one in five mutual-fund managers is a woman – a rate that hasn't budged since 2008.

In the US, that number drops to one in 10. The US is a laggard, far behind countries such as Singapore (30%), Portugal (28%), and France (21%).

For hedge funds, the numbers are similar: Only 15% of hedge fund CEOs are women. For minorities, the figures are just as lackluster, with only a handful of Latino and African-American managers.

There are a lot of reasons for the gap, among them biases, cliquey hiring, and weaker professional networks for women.

Given the dire numbers, I wondered what it's like to be a woman, minority — or both — working in the industry. So I started asking around.

Some spoke of annoying biases — one woman who launched her own fund said she stopped wearing her wedding ring at investor meetings because she grew tired of questions about what her husband did. Others spoke of being ignored for the investment ideas they presented or hearing crass talk about female colleagues.

Most said their experiences had, on the whole, been otherwise positive. Investing proves a quantifiable measure on which to be measured, something other careers lack, several people mentioned. There are fewer gray areas on which to be measured, the thinking goes, if you can point to a number that proves your performance for the year.

Everyone asked to be kept anonymous so to not jeopardize their careers. Here are their stories.

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"There's a general theme of being discounted"— Female investor on an otherwise all-male investment team

"I have developed a lot of thick skin. It's not uncommon when we discuss an investment idea, I'll raise my hand, the question will be dismissed, and then a [male] colleague will ask the same question and there will be a 30-minute conversation."

"When I travel, when I'm in boardrooms, people will direct questions to my [male] boss and not me, even though I presented ... There's a general theme of being discounted almost or doubted and a general assumption of 'she must be the IR [investor relations rep].'"

"It's a delicate line. I want to be treated equally and be one of the boys. Sometimes they say lewd comments and it goes in one ear and out the other. I want it to be a natural environment where they feel they can speak freely." 

"There’s a certain approach to conversation that comes out of knowing what is expected in a conversation"— Female minority hedge fund investor who studied engineering

"I've always operated in an environment where the distribution was highly skewed ... There's a certain approach to conversation that comes out of knowing what is expected in a conversation. Sticking to a need to say basis. Speak about what's relevant. The content matters ... being to the point."

"If you're in the minority, being the only woman on the team, your voice is heard more. I think of it like a parent with 10 kids and you think you have an underdog in the family. You think you need to call out the weakest link, the quietest child so you can hear what the quietest child has to say ... The fact that you are the only one on the team makes you more visible in many ways. And the reason you made the team is because you met certain criteria and you deserve to be on the team. And you have a level of credibility that you get to be heard, and amplified."

"He was surprised I wasn't pitching a more 'girly' name"— Female hedge fund analyst

"It has always been a more uncomfortable game of numbers where the ratio of male to females in any event is 10 to one and the men huddle together and the women are sort of separated. In one instance, I was meeting with an analyst from a hedge fund in the city and he asked whether I had any names I could pitch him. I began to talk about a semiconductor company when he interrupted to say he was surprised I wasn't pitching a more 'girly' name."