Story of the Year: Diversity takes center stage

The industry stepped up its diversity efforts this year, with major players setting new targets for women and minorities, hiring diversity and inclusion champions and signing onto an ambitious DEI initiative.

A year marked by crisis and uncertainty has been a historic opportunity for the private equity industry to reset and ensure that workplaces are more diverse, inclusive and just.

The racial justice movement in the US and across the globe was the societal turning point.

Firms set new targets for women and minorities, hired diversity and inclusion champions and laid out more concrete initiatives across talent acquisition, retention and engagement policies.

In July, Carlyle Group expanded its portfolio board diversity goal to 30 percent of all directors for companies controlled by Carlyle’s private equity arm by 2023. In September, French investment firm Eurazeo said it aims to have at least 30 percent female representation among its portfolio companies’ executive management team members by 2030. And in December, Advent International reportedly teamed up with Harvard Business School to offer a executive training programme for women, people of colour and those who identify as LGBTQ+ across its North American portfolio companies.

LPs have been pressuring their managers on diversity, too. In October, David Swensen, chief investment officer of the Yale University endowment, wrote to the fund’s investment managers, highlighting the need for a more systematic approach in addressing the lack of women and minorities within their ranks. Attached to the letter was a diversity survey for its managers to fill out.

The pressure LPs are putting on GPs around diversity will speed up, predicted Nina Kraus, vice-president at Hamilton Lane.

“We have been talking about it for 10 years or so,” Kraus said during an LP panel at Private Equity International’s Women in Private Equity Forum in November. “Now we are in a period where there is a lot of it, and this ultimately will weigh into LPs’ decision-making as we think about the composition of investment committees and the composition of owners. We are seeing GPs take it seriously within their own management companies, but also within their portfolio companies.”

Earlier this month, nearly 50 buyout firms and investors signed a global initiative that aims to improve diversity and inclusion among their ranks. Blackstone Group, KKR, Canada Pension Plan Investment Board and the Teacher Retirement System of Texas are founding signatories to the Diversity in Action initiative launched by the Institutional Limited Partners Association.

Under the ILPA initiative, participating private equity firms and investors are required to have in place a DEI statement or strategy, track internal hiring and promotion statistics by gender and race/ethnicity, set organisational goals for more inclusive recruitment and retention, and provide data to investors making new commitments during fundraising.

The initiative is not just about quotas and goals: signatories will publish their progress on these collective goals every quarter beginning in March.

Diversity and inclusion, however, is still low on investors’ priority lists. Fewer than 15 percent of investors in private markets consider reviews of diversity and inclusion policies and practices to be a major part of their due diligence process, according to PEI’s latest LP Perspectives Study. Some 20 percent do not undertake any reviews of diversity and inclusion when making fund commitments.