Private markets represent a huge and growing share of the global economy. Instilling a DE&I ethos throughout portfolios therefore represents both an enormous challenge, and an incredible opportunity to have a transformative impact, and deliver outsized returns.
“We know that diverse and inclusive teams are stronger and more effective, so we strongly encourage our portfolio companies to transform their operations to reflect this belief,” says Ardian’s Jeremie Delecourt. In fact, the firm has created Ardian Circle, a community that gathers the leaders of portfolio companies, and the first series of four workshops are focused on DE&I.
KKR, meanwhile, has developed a handbook for its portfolio companies that includes the business case for DE&I, information on goal setting, a range of best practices and case studies, communication techniques, a self-assessment and extensive resources. “It is a step-by-step guide to creating a best-in-class diversity and inclusion strategy,” says the firm’s Pete Stavros, adding that in 2018, KKR’s private equity business in the Americas set and met a goal of having at least two directors with diverse backgrounds on the board of every company it controls.
Even as a debt investor, with less direct control, however, Kartesia also monitors ESG performance across its portfolio, including D&I, using an annual questionnaire. Up until 2021, this only covered the firm’s primary deal companies, but secondary portfolio companies are now also required to provide metrics including the number of female and disabled full-time employees; the average unadjusted gender pay gap; incidents of reported discrimination or harassment; the average ratio of female to male board members and female to male company executives.
Of course, there is no one-size-fits-all solution. “The D&I subject requires an individual approach due to the different industries and sizes of our companies,” says Pawel Gierynski of Abris. “Our plan is to increase knowledge and suggest different ways of implementing D&I solutions that could fit their business strategy.” For example, in 2020 Abris organised training for ESG co-ordinators and HR managers on how to use DE&I to achieve HR goals. The topic is being continued this year, with a focus on employing people with disabilities.
Actis, meanwhile, believes that it is not only a question of investors challenging portfolio companies, but of investors being willing to learn from the businesses that they own. “Some of our companies have really creative ideas around how to foster inclusion,” says the firm’s Lucy Heintz, citing Atlas Renewable Energy, a pan-American solar business that runs a solar installation training programme focused exclusively on female empowerment.
Tying compensation and credit facilities to diversity is another innovative measure. Carlyle, for example, recently structured a $4.1 billion revolving credit facility for its Americas corporate private equity funds that ties the price of debt directly to its goal of having 30 percent diverse directors on boards within two years of its investment. In addition, the buyout group has tied the compensation of its CEO to the firm’s performance on DE&I goals. Chief diversity, equity and inclusion officer Kara Helander says this will trickle down to other employees as well.