The hedge fund industry is often thought of as a boys club. U.K.’s Guardian newspaper once spoke of hedge funds as “one of the most misogynistic, male-dominated environments in the world- up there with Michelin-starred restaurant kitchens and oil rigs”.1 Apparently, Karen Finerman didn’t get the memo. She is the co-founder and CEO of Metropolitan Capital, a successful, New York City-based hedge fund.
Like another profile from our ‘Women in Finance’ series Meredith Whitney, Ms. Finerman worked as a former research analyst before making the leap to launch her own hedge fund. Ms. Finerman has become known for her contrarian market calls, most notably Lehman Brothers during the financial crisis. Ms. Finerman has a reported net worth of approximately $100 million.2
Karen Finerman grew up in Beverly Hills, California and is the daughter of Gerald and Jane Finerman, an orthopedic surgeon and homemaker, respectively. No slouch in the classroom, she attended the University of Pennsylvania’s prestigious Wharton School of Business, earning a bachelor’s degree in Economics with a Finance concentration.3 She is a regular panelist on CNBC’s Fast Money television show which focuses on shorter-term trading opportunities (hence the moniker ‘Fast Money’).
Ms. Finerman began her career on Wall Street as a trader at First City Capital and later went on to become the lead research analyst at DLJ Securities.4 But Finerman realized she is a trader at heart and wanted the ability to make investments on companies she researches. So she started her own fund at age 27.
Ms. Finerman co-founded Metropolitan Capital back in 1992 with partner Jeffrey Schwarz. In a 2007 interview with The Guardian, Finerman said that a big chunk of her hedge fund was her and her partner’s own money.5 Metropolitan Capital reportedly had $400 million in assets under management at the time of the interview.6
This brings up a noteworthy bit of information for the hedge fund critics.
The founders of many (if not most) hedge funds have personally invested a substantial amount of their own capital in the fund, so their risks are aligned with investors.
To manage risk for the fund, and their own investments, Metropolitan Capital has positions both on the long and short sides of the market. This is known as being “hedged”.
Ms. Finerman is a self-described ‘value investor’, often invested in large, cheaply-valued financial stocks. Since many banks have traded at a discount to their tangible book values, following the financial crisis, it is no surprise that Ms. Finerman would be attracted to these stocks. What is a surprise was her revealing to Melissa Lee in a CNBC interview that she had sold a number of bank stocks, following the Brexit vote.7 She mentioned that she had sold some Citigroup and JP Morgan shares because of short-term uncertainty even though she likes them over the longer term.
Maybe tangible book value doesn’t tell the whole story. This metric can mean different things to different analysts and is one of the more subjective financial ratios out there. Tangible asset ratios try and assess what a company is actually “worth” (if it were to be liquidated).
Tangible Book Value per Share can be written as:[(Total Assets – Total Liabilities) – Intangible Assets] / Common Shares Outsanding8
As you can see, to get to the tangible value, you must remove the value of the non-physical or ‘intangible’ assets (things like patents, intellectual property, covenants, brand and goodwill). This is where things can get tricky since there are no readily available market prices for these, so their true values can be all over the place.
Tangible book value can also understate valuation because, for example, real estate is carried as purchase price less depreciation, so any appreciation in commercial real estate markets is not accounted for.9 During periods of strong economic growth, where real estate values have increased, tangible book value could be indicating an overly conservative valuation. You really need to do a deep dive into a particular company’s assets and liabilities to get a true value of the company because there are still be plenty of financial information that needs to be determined off-balance sheet as well.10
Ms. Finerman’s husband is Lawrence Golub, the Chief Executive Officer of Golub Capital, a credit asset management company (a.k.a. private equity fund) in New York. Mr. Golub has some very impressive credentials, including an MBA from Harvard University and being the former Treasurer of the White House Fellow Foundation.11 He is also known for his philanthropic endeavors, giving generously to help the fight against Parkinson’s disease and ALS (also known as Lou Gehrig’s disease).
Golub Capital focuses on ‘middle market’ lending which is an alternative form of lending for businesses with less than $50 million in annual EBITDA (earnings before interest, taxes, depreciation and amortization- a fancy way to say operating earnings).12 Prior to starting Golub Capital, he worked for Allen & Company where he worked on mergers and acquisition deals. Together with Ms. Finerman, they make a powerful financial duo.
Careers in Finance for Women
A few years ago, Trader Magazine threw a party for women traders at New York’s upscale Le Cirque restaurant, with attendees ranged from green college grads to established traders and asset managers. During her interview with a New York Times reporter at the party, Finerman revealed “Many career paths are inconsistent with a family life, like being a top corporate lawyer or investment banking; you have no control over your hours.”13 She inferred trading is actually manageable with pretty set hours since you can only trade when the market is open.
Ms. Finerman would know about the complications of work-life balance since she has not one, but two sets of twins.
You may be wondering how she’s able to run a successful hedge fund, be on the set of Fast Money every weekday and tend to the needs of four kids. Since you can’t be at all these different places at once, she ‘outsources’ some of the help- in the form of a nanny. Actually, four nannies. It’s a good thing Ms. Finerman is so successful because having four nannies in Manhattan would bankrupt most people by itself.
Karen Finerman is a testament to women trying to make it on Wall Street or on any street where a financial institution is located.
She proves a career in finance is open to anyone willing to work hard and work smart. We applaud her philanthropic endeavors with her husband and wish her the best of luck in the future.