Socio-economic provenance: the issue of class in Private Equity 

Your background should not determine your future. Yet, for too many people in the UK, it does. In this section, we examine whether people from more privileged backgrounds are over-represented within the UK private equity industry.

There is a large body of evidence which shows that social class is a huge factor in defining the professional outcome of children and that social mobility has been an exception rather than a rule. According to Diane Reay, Emeritus Professor of Education at the University of Cambridge, the historical English educational system, which educated the different social classes for different functions in society, is still prevalent in 21st century Britain. Reay’s research reveals that the English educational system does not allow all children to realise their potential, with those on free school meals (meaning their parent/carer is in receipt of welfare) and receiving pupil premium 27% less likely to achieve five or more GCSEs at grades A*-C, including in English and Maths. Four-fifths of children from working-class minority ethnic families are taught in schools with high concentrations of other immigrant or disadvantaged students – the highest proportion in the developed world. This evidence implies that top academic institutions are not accessible to socially disadvantaged pupils, among which ethnic minorities are over-represented, regardless of their potential. There is also an extensive amount of research tackling the issue of the ‘forgotten’ white working-class pupils. Hence, your quality of education is directly linked to your socio-economic background.

Based on data from ISC/NSO, as of January 2021, c.82% of children attended a non-selective state school, while 11% attended a selective state school and 7% of children attended fee-paying schools in the UK. It is worth noting that ethnic minority children and children in receipt of free school meals are concentrated in state funded schools.

In comparison and according to research published by The Sutton Trust in 2014, 34% of new entrants to investment banking over the previous three years had attended a fee-paying school, and 14% had attended a selective state school. Overall, 51% of current leaders were privately educated, and privately educated leaders were also more prominent in the under 45s (at 72%) than the over 55s (at 57%). This suggests that the people in Britain’s top jobs, including in investment banking, are five times more likely to have attended a private school. This is directly relevant to the Private Equity industry since investment banking constitutes its primary and traditional candidate pool.

The Elitist Britain report, published by the Sutton Trust in 2019, confirmed that the most common pathway into the elite is attending an independent school, followed by Oxford or Cambridge. The elite refers to a small group of powerful people who dominate power structures and hold a disproportionate amount of wealth, privilege and political power. Oxbridge students are identified as forming a strong ‘pipeline’ into the highest status jobs. The paper namely reports that 65% of Senior Judges had attended an independent fee-paying school, and 71% had attended Oxbridge.

This trend is also reflected within the Venture Capital industry, as evidenced by the Diversity in UK Venture Capital 2019 report. The report found that one in five venture capitalists studied at Oxford, Cambridge, Harvard or Stanford. We can only assume that these findings similarly apply to the private equity industry. As mentioned above, these universities are often out of reach for students who come from lower socio-economic backgrounds and arguably for reasons independent from their ability or potential.

Global research suggests that elitism within UK society is not an isolated phenomenon. In France, critics argue that the French educational system is built to filter and select the best, consequently reproducing social classes and failing to reduce social inequalities and social determination. According to a study by the OECD, in France, 73% of children whose parents have a higher education degree go on to obtain a higher education degree, against 17% of children whose parents have not completed a higher education. Moreover, the French higher education landscape is segregated. On the one hand, the fee-paying ‘Grandes Ecoles’ form the elites of the French nation. These are only open to ‘general track’ high school students and effectively condition access to the top jobs. It is worth noting that in French high schools, the selective general track called ‘filière générale’ is only open to high performing pupils. On the other hand, the free University system forms everyone else, namely civil servants. Just like in the UK, admission into top French academic institutions is competitive and tailored for the select few who end up at the top of the general track in high school. More often than not, these high achieving students are supported by informed and educated parents.

A similar elitist system is observed in Germany. Germany is a federal country divided into 16 "Bundesländer". Each "Bundesland" has its own educational policy, although there are common features among all the Bundesländer. The traditional system involves optional “Kindergarten” (nursery school or day-care) education being provided for all children between one and six years old, after which school attendance is compulsory. Children enter primary school for the first time at the age of 6, in a "Grundschule". Four years later, depending on their school results, the best ones go to a "Gymnasium" where they stay for eight years and take the Abitur (or German Baccalaureate). Pupils with intermediate results go to a "Realschule", which lasts 6 years with another diploma and finally, pupils who are at the bottom, in terms of academic performance, go to a "Hauptschule" which lasts 5 years with yet another diploma. This elitist system has evolved in some Bundesländer, thanks to the G8 and G9 federal reforms in place between 2005-2018 and a later reform in 2019. It is worth noting that the Gesamtschule is a non-selective state school which combines the Hauptschule, Realschule and Gymnasium. Remarkably, German private schools are often owned by the Church and are usually reasonably priced. Finally, all public higher education institutions are free for undergraduate students in Germany, even the highest ranked universities in the country. Yet, the German educational system cherry-picks the best pupils extremely early (at 10-11 years old), and that selection to attend a Gymnasium will strongly influence a child’s professional outcome.

Back to the UK, in addition to educational barriers, we need to consider other obstacles faced by underprivileged populations. According to lawyer and former Social Mobility Commissioner & Co Chair Sandra Wallace, these hurdles are more subtle and are often the result of unconscious bias. She mentioned a few examples in the Social Mobility Commission’s Employer Toolkit published in 2022.

“It’s when you hold yourself back from applying for a role because you make assumptions about the ‘type’ of people that fit in at the organisation. It’s when you feel out of place because you have never been abroad for holidays. Or it’s when you don’t think you can ask for training or progression opportunities. When I was starting on my legal journey, I was told that I wouldn’t become a lawyer because I didn’t go to the right university, and I didn’t get the highest grades. Overcoming these barriers has not been easy.”

Sandra Wallace went on to achieve a successful career at Magic Circle firm DLA Piper. She is now a Managing Director at the firm.

In addition to the barriers to accessing top jobs faced by professionals who have attended state schools, the different rates of access to the Private Equity and Venture Capital sectors can also be explained because people from more privileged backgrounds are advantaged at different stages of the recruitment and selection process, while those from non-privileged backgrounds are more likely to experience challenges, which may add up to a cumulative disadvantage overall. These challenges start with the recruitment process and originate in the relationship between leading employers and elite universities.

It is worth noting that despite the status quo, employees from lower socio-economic backgrounds perform at least as well as their more advantaged colleagues and often outperform them. In professional service firms, for example, trainees from lower socio-economic backgrounds are more likely to achieve the highest performance. In seven leading law firms, employees educated at state schools were found to be 75% more likely to feature in the top decile of performers than those educated at independent schools.

Positive action is needed to identify and hire talents from lower socio-economic backgrounds. Socially disadvantaged students of both genders and all ethnicities who have managed to attain remarkable academic results should not be systematically disregarded based on the school they attended.

As a result, data on the socio-economic background of employees should be collected and monitored by employers in the same way as gender or ethnicity.