ILPA’s diversity push will apply timely peer pressure

On Monday, the Institutional Limited Partners Association launched an initiative asking general and limited partners to acknowledge their commitment to take concrete steps to advance diversity, equity and inclusion. The initiative’s 46 founding signatories include Blackstone, The Carlyle Group and Teacher Retirement System of Texas.

ILPA’s scheme is timely. Social unrest in the US this year and the prominence of the Black Lives Matter movement have led to a period of introspection for industries, such as finance, with poor track records when it comes to addressing structural biases.

To give credit where it’s due, private markets firms have been making progress. Just this week, secondaries powerhouse Coller Capital teamed up with law firm Akin Gump to form the Women in Secondaries network, as reported by sister title Secondaries Investor. The initiative joins the likes of Level20, a non-profit aiming for women to occupy 20 percent of senior positions in European private equity and which is supported by more than 70 firms.

Some of the industry’s biggest names have taken major strides, as sister title Private Funds CFO explores in its December cover story. Blackstone’s latest analyst class is 44 percent racially diverse, compared with 35 percent in 2015, and 45 percent female, versus 25 percent five years prior. Some 49 percent of investment professionals hired by Carlyle in the US last year were female, Black or Latinx.

LPs are also driving change. Last month, one member of the Los Angeles City Employees’ Retirement System’s board challenged the $20.3 billion pension’s staff and consultants during a meeting to give women of colour an opportunity to sit at the table. Some, like Sweden’s AP6, include D&I as a standard component of their GP due diligence.

Unnervingly, however, D&I appears to have become less of a priority for investors during the pandemic. The proportion of LPs that consider evidence of D&I at the GP level to be a major part of their due diligence processes fell to 14 percent this year, down from 23 percent last year, according to PEI’s LP Perspectives 2021 survey. Crucially, only 13 percent of LPs have ever refused an opportunity based on a lack of D&I at the GP level.

Although behemoths in their own right, the likes of Carlyle and Blackstone represent only a small corner of the private markets landscape. Some 73 percent of firms with less than $2.5 billion of AUM have not set diversity targets for ethnic minorities and do not intend do so, while 63 percent said the same for gender, according to a survey by EY. This compares with just 25 percent and 21 percent respectively of firms with more than $15 billion.

ILPA’s initiative should compel organisations without a public commitment to D&I to consider making one. For real progress to be achieved, direct pressure from one’s peers and investment partners might be the most effective means of ensuring the entire industry is taking this issue seriously.