Walk around the offices of your typical private equity firm and you might notice something missing. Despite making up 50 percent of the population just one in seven senior professionals in the industry are women, according to the World Economic Forum (WEF).
In a bid to redress this imbalance the WEF has issued a white paper to identify the negative impact of a male-dominated workforce on the asset class and outline practical ways to redress this problem.
Women in Private Equity: The Limited Partner Perspective builds on work started at last year’s WEF conference in Davos and plays to every LP’s biggest concern: the bottom line.
It reframes the discussion of gender imbalance from a “social issue of fairness” to a business issue: diversification within a private equity investment team yields diversification of investments, benefiting both portfolios and LPs. Similarly, being able to access the broadest pool of talent is advantageous to any organisation, the paper says.
“It’s a long-term view,” Maha Eltobgy, director of investors industries at the WEF, tells Private Equity International. “More and more women are graduating from business school. If private equity firms don’t access that pool of talent, they’ll be held behind.”
Limited partners have a strong responsibility to bring diversity to the industry, according to the paper. Their beneficiaries are often diverse groups of retired teachers and public employees and that diversity should be represented in the types of investments they make.
LPs, particularly public pensions, often have specific mandates for minority-led firms, but these programmes are usually small. For a bigger push, the paper recommends that LPs factor gender diversity when assessing GPs.
“We’re not advocating quotas,” says Eltobgy, “but that LPs ask about diversity when they do due diligence.”
The Washington State Investment Board, a long-time and large investor in private equity, was central in the initiative with the WEF. The pension, which has been investing in private equity since 1981 and has a 22 percent allocation to the asset class, is currently working with its consultant, Hamilton Lane, to find the best ways to concretely include the promotion of gender diversity in due diligence.
“We’re working to come up with a simple reporting mechanism, not as an excluding factor, but more for GPs to pay attention and to continue the momentum,” says Theresa Whitmarsh, executive director at the Washington State Investment Board.
“This has never been to criticise our partners, but more as an understanding of the real structural barriers and to share best practices so GPs are tackling the problem in a systematic way.”
Sandra Horbach, a New York-based managing director at the Carlyle Group, participated in the WEF’s various working groups and says her firm is undertaking a number of different initiatives.
Women account for 40 percent of Carlyle’s employees in total, but Horbach notes there is still work to be done in retaining female talent, given that only 17 percent of the senior roles are held by women.
As the issue of gender diversity creeps up the private equity agenda, it creates a generational opportunity, says Horbach. “For young women, there’s never been a better time to enter private equity because there’s a significant awareness of the lack of diversity,” she says. “You’ll have an abundance of opportunities.”
The WEF plans to hold follow-up meetings to track progress and may also expand the initiative to other areas of the finance industry.
10 BEST PRACTICES
Proposals from the WEF workshops:
1 Set goals for gender diversity. Start somewhere
2 Leverage scale to take the lead in improving PE diversity
3 Get clear commitment from firm and industry leadership
4 Create a sponsorship path for women associates that includes both responsibility and visibility within the organisation
5 Include gender diversity components in training and professional development
6 Include gender diversity criteria or guidelines in recruiting and hiring practices
7 Extend hiring and search efforts
8 Develop metrics, policies and values related to gender diversity when conducting due diligence
9 Evaluate progress by gathering feedback and metrics
10 Speak out and share best practices or success with industry peers