At their heart, private equity firms seek to de-risk decision-making, and this naturally leads to their most vital ‘asset’ being talent. The hiring, development and retention of that talent is therefore of the utmost importance.
Private equity firms are small organisations in that despite the amount of assets they manage, their employment figures could range from tens or hundreds of people, to, at most, a few thousand. Due to this, they tend to hire experienced professionals, most often from investment banks and strategic consulting firms, for their core activities of raising and deploying capital. This can make them reliant on the diversity of hiring at those organisations.
Over the past decade, increasing importance has been placed on operating partner and value creation teams. By their nature, these teams often have strategic consulting backgrounds with ‘real world’ experience managing businesses and P&Ls. They can and should be more diverse in their thinking, in their background and in their experience.
However, they also have to compete with their immediate peers in the investing and fundraising teams, and tend to come from similar top universities and training grounds, such as professional services firms, including strategic consulting practices or the ‘Big Four’ accountancy firms, during the early parts of their careers.
Change is underway
There are already examples of change taking place in the industry. Take for example, analyst hiring programmes designed with Harvard Business School to encourage and seek out diverse candidates, rotating diverse portfolio talent through the GP itself and putting diverse GP talent on to portfolio boards to help increase diversity within the portfolio company. These are positive developments and they will only continue to grow and progress, which will lead to greater diversity in the industry.
“There are proven gains to having a diverse team”
So, can true diversity and inclusion be achieved? Yes, but it will take time. GPs could have done more earlier, but we must not condemn them for putting the right actions in place now. There is a definite sense of obligation on GPs to bring diversity into their organisations and to promote inclusivity. They want their organisations to better represent the demographics of modern society as not only is it their responsibility to do so, but it also makes their company more appealing to future employees looking for the best firms from an outside perspective.
Could they do more to support lateral senior hires into the firm which are diverse? Yes, but it likely requires more support from within the firm in the form of time, resources and patience. However, it is of immense value for firms to do this. On average, diverse companies are 70 percent more likely to capture new markets, according to research in the Harvard Business Review, and a BCG study suggests they have 19 percent higher innovation revenues.
There are proven gains to having a diverse team. They have been shown to drive innovation and profits through the diversity of thought, skills and perspectives. When all is said and done, isn’t that what these firms strive for?