Why ILPA has gender inequality in its crosshairs

Under-representation of women can have serious consequences in private equity.

Finance has long had an embarrassing diversity problem, and private equity is no exception.

Women account for just 14 percent of partners at UK private equity firms, hedge funds and other financial services partnerships, according to Financial Conduct Authority data analysed by law firm Fox & Partners in September. Progress is being made, but the pace is glacial; the figure stood at 13 percent five years ago.

Diversity is front of mind for a growing number of investors – a trend that has been underscored by the Institutional Limited Partners Association expanding its due diligence questionnaire to include general partner-level diversity issues and giving guidance to GPs on the establishment of codes of conduct for “defining, reporting, investigating and disciplining harassment, discrimination and violence in the workplace”.

The changes to the DDQ include a template for GP firms to measure and report the gender and ethnic diversity of their teams by seniority and role, as well as a new section that aims to enhance a limited partners understanding of a GP’s policies and procedures in areas such as hiring, promotions, family leave, mentoring, harassment and discrimination.

“[Diversity] is a question that we are asking GPs all the time given the under-representation of women and minorities in the private equity realm,” Andrea Auerbach, head of private markets at LP advisor Cambridge Associates, told Private Equity International earlier this month, noting that some LPs will take a step back if not enough has been done to tackle the issue.

“If [some of our clients] don’t see sufficient levels of diversity and inclusion, or well-intentioned and meaningful efforts to build towards a team and organisation that has more diversity of personnel, they will make an investment decision fully incorporating that information.”

A deficit in workplace diversity contributed to heavyweight managers Blackstone Group and Brookfield Asset Management being passed up for a $50 million infrastructure allocation by the $10.8 billion Chicago Teachers’ Pension Fund in June, sister publication Infrastructure Investor reported.

“Blackstone and Brookfield are still challenged with some diversity issues. And while they’re working on it, they’re just not there yet,” CIO Angela Miller-May told II at the time.

“We want to make sure we make the right decision that’s going to protect the assets of the pensioners and at the same time we want to be responsible with our investing, making sure we’re investing with diverse and inclusive managers.”

New UK legislation requiring businesses with more than 250 employees to report on pay differentials between men and women provides an – albeit limited – glance at the state of play.

Blackstone’s UK business paid male staff bonuses that were on average 75.4 percent more than those received by female colleagues for the 12-month period to April 2017. Men earned 30 percent more than women on an hourly basis, compared with the UK national average hourly pay gap of 9.1 percent recorded by Britain’s Office for National Statistics.

The firm explained the gap by pointing to the fact that close to three-quarters of its male employees are investment professionals, and these roles typically attract higher rewards than non-investment roles. It said less than a fifth of its female employees are investment professionals.

But Blackstone is something of an exception: it’s unlikely that many, if any, other UK private equity houses will have enough staff to qualify for the reporting legislation. ILPA’s questions should help, but for now gauging progress, or a lack thereof, on diversity is likely to remain a challenge.

Gender inequality and diversity will be among the topics discussed at the forthcoming Women in Private Equity Forum, happening between 28-29 November at the Waldorf Hilton, London.

– Nathan Williams contributed to this report.