How to promote diversity at a private fund firm

LPs are asking questions about diversity and inclusion within private fund firms; how do you make sure you have the right answers?

Preaching diversity and actually taking the steps to become a diverse private equity firm are not the same thing. At PEI’s Responsible investment forum in New York 2019, barely a panel session or keynote passed without reference to the hot-button issue of diversity and inclusion.

By now it’s understood that the industry has an issue with diversity. A report earlier this year from the Knight Foundation found that of 2,814 US firms surveyed, 146 were women-owned and 106 minority-owned, representing 5.2 percent and 3.8 percent of all included firms, respectively. In the UK, the British Private Equity and Venture Capital Association and Level 20, a membership advocacy group with the goal of increasing the proportion of women in senior roles across the European private equity industry, surveyed 179 UK private equity firms and found that just 6 percent of senior investment team roles are held by women.

One panelist at the event – a chief compliance officer – explained during a Chatham House rule discussion how they implement basic strategies to improve the diversity in their recruitment efforts. But even these simple strategies aren’t implemented across the industry as much as they expected.

“When I go to ask recruiters to implement very basic things, I’ve been told consistently on both sides of the Atlantic, ‘Wow, you’re the first person to ask me this’,” the CCO said.

One of these “basic things” is accepting blind résumés during the hiring process for the firm. Unlike a traditional résumé, blind résumés are submitted with the candidates’ names, gender and ethnicity redacted. This is supposed to eliminate any unconscious bias a hiring manager might have and create a more objective process.

To further eliminate unconscious bias, the CCO’s firm provided training to all members of their team to ensure that “people are aware they need to put objective reasoning first”, during the interview process. “We don’t want to hear anymore ‘they’re not a good fit’ or ‘that person’s a good cultural fit.’ We don’t want to hear that anymore; we want to hear specific objective criteria.” Hiring managers are asked to provide reports on how they conducted their interviews.

Niamh McBreen, investment director, asset management, infrastructure, Europe for AMP Capital, describes the measures her firm takes to encourage diverse shortlists.

“When we make senior appointments at AMP Capital, we have diversity targets and also have diverse shortlists. It’s therefore really easy for me to say, ‘Look, we do this, so why should we hold our portfolio companies to different standards?’” she told sister publication Infrastructure Investor at a London roundtable discussion in February.

The fact that AMP Capital practices what it preaches allowed McBreen to demand that a diverse shortlist be compiled for the recruitment of a chief executive at one of its portfolio companies.

Angelika Schöchlin, senior partner at European fund manager Antin Infrastructure Partners, described similar experiences.­­­­

“It is interesting because in some jurisdictions more than others, when you suggest the idea of a more diversified board, you often get pushback – often from the headhunters who claim there are no women,” she said. “The outcomes vary. Some headhunters still do not deliver a diverse shortlist, while others do when pressured. ­­­­

It is a thought echoed by a panellist at the New York event in March: if a headhunter complains that a diverse list is too difficult, push back.

LP demands

Limited partners are starting to ask more about diversity policies within a firm. “I’ve seen a real uptick in requests for more diversity and inclusion but no specific metrics,” said one of the panellists. “The number of requests coming in are three times as much as they were 18 months ago.”

AMP Capital’s McBreen echoes these thoughts at the London roundtable: “I think what we’re moving towards now is that with our more sophisticated LPs, they’re saying, ‘We expect you to be more diverse because we know that diverse groups make better decisions and better decisions reflect themselves in better financial performance.’”

Indeed, the Oregon Investment Council, which alongside the Oregon State Treasury, manages about $101 billion in assets across several pension funds, including the Oregon Public Employees Retirement Fund, stated just that in its recent meeting documents.

“The OIC believes a wide range of perspectives, ideas and opinions will ultimately produce better investment outcomes,” the organisation said.

Lead by example

One conference panellist underscored the importance of leadership embracing the importance of diversity as much as other members of the firm.

“We provided half-day training for each of our offices, at all levels and I had the support of my CEO,” they said. When some members of the firm tried to make excuses to get out of the training, the CEO said, “I don’t care what deal you’re sourcing or how important this meeting you’ve been trying to get is, you’re going to the training.”

Back at the roundtable, the importance of not just having “buy-in” among senior figures, but also actual diversity, is becoming clear. Says Angelika Schöchlin, senior partner at European fund manager Antin Infrastructure Partners: “At Antin, we have two women on the investment committee, out of a total of seven members. I think that is a very powerful statement for the organisation and it attracts junior talent. It might not be 50 percent female, but it is quite a good sign.”

Ardian is also diversity-conscious, said Marion Calcine, managing director, infrastructure at the Paris-based firm. “Bringing diversity and empowering people is what we’re trying to do not only at the firm level, but also at the portfolio companies’ level,” she said. “As mentioned before, setting the example is important.”

Speaking of examples, Partners Group managing director Esther Peiner provides one that demonstrates how having a more diverse team can have an impact.

“I’m one of few senior women on the investment side of Partners Group, but I also enjoy a relatively heavily female-skewed team under me,” Peiner said.

“There are times when we walk into a meeting with an investment committee and have a very different – and arguably more constructive – interaction because, I think, we bring a little less aggression to some of the discussions.

“I think one of the best ways to attract and retain diverse talent – whether it’s female or other talent – is to have more diversity in the first place. Don’t just have one or two, but have a group of diverse people.”

Kalliope Gourntis contributed to this report